Justyna Elliott, Senior Business Development Executive at the British Plastics Federation, reports on the increasing opportunities for the plastics industry in Indonesia – and how UK firms can look to benefit.
With a population of nearly 250 million, Indonesia is the fourth most populous country globally with a large proportion of the affluent middle class. According to the Boston Consulting Group (BCG) forecast published in the Plastics and Rubber Asia magazine, by 2020 Indonesia’s middle class will double from the current 74 million to 141 million. By then, slightly more than half of the population will be categorised as affluent.
With the Indonesia’s GDP recorded in 2013 at 5.6 percent growth, this fast developing market offers huge potentials to the plastics industry. Currently, according to World Bank report based on 2011 data, the Indonesian economy was the world's 10th largest by nominal GDP (PPP based) with the industry sector as the largest share at 46.4 percent of GDP (2012), followed by services (38.6 percent) and agriculture (14.4 percent). According to a report by McKinsey Global Institute, the country is predicted to become the world's seventth largest economy by 2030, with around 90 million consumers fueling the country's economy, ranking it amongst the top world economies.
The local Government has initiated a scheme where 70 percent of plastics products must be produced domestically, as quoted by the Plastics and Rubber Asia, which opens huge possibilities for skills development, machinery and materials exporters.
Plastics industry in Indonesia
Plastic consumption in Indonesia, according to the Indonesian Olefin, Aromatic and Plastic Association (INAplas), is still relatively low on a per-capita basis at just over 17 (kg) per year, compared to around 35 kg in Malaysia 40 kg in Thailand and Singapore and around 100 kg in Western Europe. This highlights the scope for future growth, as personal income continues to rise in Indonesia's consumption-led economy.
The domestic industry supply contributes to 3.6 million tonnes of plastics a year towards the total demand of 4.3 million tonnes, with the rest of the material imported. Besides the food and beverage industry, which accounts for the bulk of plastic use in Indonesia, agriculture and the construction sector as well as the automotive and electronics industries are the main buyers of plastics.
Local plastic makers rely on imports due to raw material shortages in Indonesia. Currently over 40% of the petrochemicals used in the plastics industry comes from abroad.
Most of the nation’s plastics imports, comprising principally propylene and polyethylene, come from neighboring countries, including Singapore, Malaysia and Thailand, as well as from Europe, the US and the Middle East.
With a high demand for raw materials, local companies are getting more interested in recycling process and use of recycled material in their production.
The increasing use of recycled materials is one way to address the local plastic industry's dependence on imports while at the same time tackling the pressing issue of municipal waste. Recycling is still in its early stages in Indonesia due to a lack of supporting infrastructure of waste collection, etc and it is handled mostly by small businesses on a fairly small scale.
Indonesia's plastic packaging industry grew by 8% to around 55 trillion RP ($5.3 billion USD at the time) in 2013, according to the Indonesian Packaging Federation (FPI).
The shift from traditional markets to modern supermarkets and convenience stores creates a lot of demand for packaging of fast-moving consumer goods (FMCG), particularly food and beverages. Almost 70% of the total plastics use was accounted for by the food and beverage packaging sectors.
According to the Indonesian Packaging Association, more than half the demand is made up of plastic flexible/rigid packaging, driven by increased packaging requirements from the domestic food, beverage and pharmaceutical industries.
Both the Indonesian car and motorcycle market is dominated by foreign brands, particularly Japanese such as Toyota and Honda. Motorcycles are the dominant mode of transport for Indonesians due to their ready availability through credit schemes that require low down payments as well as being cheap to run and a faster method of wading through Jakarta’s gridlocked traffic.
Exporting to Indonesia
Import tariffs on basic petrochemical products for the plastics industry, while intended to protect local raw material producers jeopardize Indonesia's odds of becoming a regional hub for the industry. Duties vary between 0% and 20% depending on origin and the nature of the product. Local industry representatives are especially concerned about plastic imports from Thailand and have appealed to the government to improve upstream incentives and remove all import duties on petrochemical feedstock.
Both the upstream and downstream plastics industry will be hard-pressed to defend their home turf against foreign competition, but curtailing imports of petrochemical feedstock or plastics is becoming hard to justify amid tightening economic integration within the ASEAN region and between ASEAN and other countries. A protectionist stance would also burden the local food and beverage industry, which itself faces tough competition from imports. The only realistic option is to boost the competitiveness along the entire hydrocarbons-to-packaging production chain. This will require local firms to upgrade their equipment and enhance their production methods, which in turn creates investment opportunities and an appealing market for foreign machinery manufacturers.
Booming demand for consumer products and plastic packaging, an anticipated easing of feedstock import restrictions and the need to modernise equipment make a compelling case for investment in Indonesia's plastics and plastic packaging industry. The restructuring needed to make the local industry competitive on a global scale will require significant investment and innovation.
The recycling business offers particularly alluring opportunities for experienced foreign companies to put to use their knowhow and technology. The country’s competitive advantages in manufacturing, such as affordable industrial land and a large and competitively-compensated workforce create attractive opportunities for the packaging industry.
Plastics and Rubber Indonesia 2015
The last edition of the country’s trade fair, Plastics and Rubber (P&R) Indonesia, which was held alongside Plaspak Indonesia, DrinkTech Indonesia and Mould & Die Indonesia, took place in November 2014 in Jakarta. The show covered over 21,600 sqm floor space and attracted over 650 exhibitors from 30 countries. Amongst those there were six international group pavilions from China, Germany, Italy, Korea, Singapore and Taiwan.
The next edition of Plastics and Rubber Indonesia will take place in Jakarta between 18th and 21st November 2015 and UK exhibitors can apply for a grant of £2,500 towards their stand cost, meaning a 9sqm stand cost would be covered by the grant. Also, being part of a Pavilion means the British companies will have a better presence at the exhibition. For more information on the UK Pavilion at Plastics and Rubber Indonesia please visit www.bpfevents.co.uk
The full report will be published in the July/August edition of British Plastics and Rubber