Indonesia's Growing Electronics Industry: Challenges and Opportunities

Brief:

The Indonesian government prioritizes electronics manufacturing in its industrial sector. Q3 2022 saw impressive growth, particularly in metal goods and electronics. However, Indonesia imported $25.5 billion worth of electronics in 2022, with 53% being components due to challenges like limited domestic suppliers, inadequate infrastructure, and a less-skilled workforce. Despite obstacles, the electronics industry's GDP is expected to grow by 6.71% in 2022, driven by high demand. The consumer electronics segment, with a market of 64 million households, is the most developed, showing a 39.4% YoY revenue increase in 2020 and projected growth of 12.2% from 2020 to 2025, reaching $9.988 billion.

• The Indonesian government has made electronic devices one of the six manufacturing priorities in the rapidly growing industrial sector. Since 2018, the government has identified electronics as one of the main industrial sectors to be developed.

• Several industrial sectors recorded brilliant growth performance in Q3 2022, with the metal goods, computer, electronic goods, optical and electrical equipment industries accounting for 12.56% growth. However, Indonesia still imported a lot of electronic products in 2022 which had reach US$ 25.5 billion.

• As much as 53% or US$ 13 billion of the total imports are in the form of components for the electronics and telematics industry. Indonesia still imports a number of these electronic commodities due to a number of crucial issues.

• First, the lack of domestic component suppliers, some of Indonesia’s electronic production for the domestic market, and integration of Small Medium Enterprises (SMEs) for the global market is still minimal. As many as 80 out of 510 SMEs are engaged in the electrical equipment manufacturing sector.

• Second, the infrastructure is inadequate. The majority of manufacturing operations in Indonesia are concentrated only in Java and Batam.

• Third, human resources are less skilled. Only 1.4% have completed tertiary education, Indonesia is still dominated by an unskilled population. In 2018, 11.4% of vocational high school (SMK) graduates were unemployed, and 5.2% of university graduates were unemployed.

• Business opportunities through the growth of the electronics industry

• At present, the electronics industry’s gross domestic product (GDP) will grow 6.71% in 2022. This increase is due to high demand.

• Indonesia’s consumer electronics segment is the most developed, this is due to the large household market of 64 million people.

• In 2020, revenue in the electronic industry was around US$ 5,553 million, an increase of 39.4% year over year. In this segment, it is expected that there will be an increase of 12.2% from 2020 to 2025 with transaction value reaching US$ 9,988 million.