Tourism Industry Indonesia

It is important that the tourism industry of Indonesia enhances its contribution towards the country's gross domestic product (GDP) because it will trigger more foreign exchange earnings (as each foreign visitor spends between USD $1,100 and USD $1,200 per visit on average) while also providing employment opportunities to the Indonesian people (based on the latest data from Statistics Indonesia, the country's unemployment rate stood at 5.81 percent in February 2015). It is estimated that nearly nine percent of Indonesia's total national workforce is employed in the tourism sector.

Currently, Indonesia's tourism sector accounts for approximately four percent of the total economy. By 2019, the Indonesian government wants to have doubled this figure to 8 percent of GDP, an ambitious target (possibly overly ambitious) which implies that within the next four years, the number of visitors needs to double to about 20 million. In order to achieve this target, the government will focus on improving Indonesia’s infrastructure (including ICT infrastructure), accessibility, health & hygiene as well as enhancing online promotional (marketing) campaigns abroad. The government also revised its visa-free access policy in 2015 (for further elaboration, see below) to attract more foreign tourists.

Below we present foreign visitor arrivals into Indonesia in recent years. Please note that Indonesia's Statistics Agency (BPS) adjusted the definition of foreign visitor arrival per January 2016. This explains the sharp increase in foreign visitor arrivals between 2016 and 2015.

Foreign Tourist Arrivals in Indonesia, 2013-2016:

Month	Tourist Arrivals         2013	Tourist Arrivals         2014	Tourist Arrivals         2015	Tourist Arrivals         2016
January	614,328	753,079	723,039	814,303
February	678,415	702,666	786,653	888,309
March	725,316	765,607	789,596	915,019
April	646,117	726,332	749,882	901,095
May	700,708	752,363	793,499	915,206
June	789,594	851,475	815,148	857,651
July	717,784	777,210	814,233	1,032,741
August	771,009	826,821	850,542	1,031,986
September	770,878	791,296	869,179	1,006,653
October	719,900	808,767	825,818	1,040,651
November	807,422	764,461	777,976
December	766,966	915,334	913,828
Total	8,802,129	9,435,411	9,729,350

Foreign Tourist Arrivals in Indonesia, 2007-2015:

	2007	2008	2009	2010	2011	2012	2013	2014	2015
Foreign Tourists (in millions)	5.51	6.23	6.32	7.00	7.65	8.04	8.80	9.44	9.73

^{Source: Statistics Indonesia (BPS)}

The table above shows that the number of foreign tourist arrivals in Indonesia has grown steadily between 2007 and 2015. This solid performance is supported by a reduction in terrorist incidents in Indonesia. Although small, there exists a radical Muslim community that not only believes Islam should be the sole guidance in life (and society) but is also willing to use extreme measures (violence) to reform and uproot established conditions. A series of terrorist attacks aimed at westerners (the 2002/2005 bombings in Bali and the 2009 Ritz-Carlton/Marriott bombings in Jakarta) managed to stagnate foreign tourist arrivals as a large group of westerners ignored Indonesia as a holiday destination in the months following such a violent incident (within a year tourist numbers recover). The 2009 Ritz-Carlton/Marriott bombings explain why growth of tourist arrivals in 2009 was limited (see table above). After 2009 there have not been any terrorist attacks aimed at westerners. This success is due to efforts of the country's special counter-terrorism squad (Densus 88), which is funded by the American government and is trained by the CIA, FBI and US Secret Service. After 2009, when radical groups started to operate in smaller networks (which are more difficult to trace) attacks have been aimed at symbols of the Indonesian state (such as policemen), not on symbols of the western world. This is probably a reaction to the many arrests made by Densus 88 in recent years.

What is Blocking Development of Indonesia's Tourism Industry?

In the World Economic Forum's Travel & Tourism Competitiveness Report, which "measures the set of factors and policies that enable the sustainable development of the Travel & Tourism sector, which in turn, contributes to the development and competitiveness of a country,” Indonesia jumped from rank 70th in 2013 to 50th in 2015, an impressive improvement. This jump was caused by Indonesia's rapidly growing number of foreign visitor arrivals, national prioritization of the tourism industry and investment in infrastructure (for example the mobile phone network now covers most areas of the country, while air transport infrastructure has been expanded). The report states that the competitive advantages of Indonesia are price competitiveness, rich natural resources (biodiversity), and the presence of several heritage sites.

However, the report also stated that Indonesia is not placing enough emphasis on environmental sustainability (resulting in deforestation and endangered species, while only a minimal fraction of the used water is treated). The report also mentions safety and security concerns, specifically the business cost of terrorism. Another concern is that Indonesia lags behind Singapore (11th), Malaysia (25th) and Thailand (35th) in the ranking of the 2015 Travel & Tourism Competitiveness Report.

The lack of adequate infrastructure in Indonesia is a persistent problem, not only because its raises logistics costs steeply thus making the investment climate less attractive but also because it limits the smoothness of traveling for tourists. Infrastructure on Bali is great and acceptable in Jakarta (except for the grave traffic congestion) but outside Bali and Jakarta most of the country's infrastructure is inadequate, particularly in the eastern part of Indonesia where there is a shortage of airports, ports, roads and hotels. The lack of inter and intra island connectivity means that a number of Indonesian regions that contain huge tourist potential cannot be reached easily.

Besides infrastructure, education also forms an obstacle. Although on the island of Bali as well as in the luxury hotels of Jakarta most native people working in the tourism sector are pretty fluent in English (and sometimes even other non-Indonesian languages), in the more remote areas of Indonesia natives have difficulty to communicate with tourists. Therefore, a focus on the study of English would help to overcome this situation. This language barrier has been reason for a portion of Singaporeans to choose Malaysia as their holiday destination instead of Indonesia. Most foreign visitors that enter Indonesia come from Singapore, followed by Malaysia and Australia.

Points of Entry

Most foreigners enter Indonesia at Ngurah Rai International Airport on Bali, the island that is the most popular holiday destination for foreign tourists in Indonesia. This island is home to most of Indonesia's Hindu minority and offers tourists all sorts of Balinese Hinduism-related arts and culture as well as a lively nightlife and beautiful countryside.

The second main point of entry is Soekarno-Hatta International Airport, located just outside of the capital city of Jakarta. Many tourists start their holiday by staying a couple of days in Jakarta before traveling to other parts of Indonesia. Jakarta is also the economic center of Indonesia and although it is not allowed by law there are many foreigners that use a tourist visa (valid for 30 days) to participate in business meetings or events in Jakarta.

The third-most used port of entry in Indonesia is Batam, the largest city in the Riau Islands Province of Indonesia, across the Strait of Singapore. Batam has rapidly developed into an industrial boom-town and transport hub. The city is part of a free trade zone in the Indonesia-Malaysia-Singapore Triangle. Since 2006, Batam (together with Bintan and Karimun) form part of a Special Economic Zone with Singapore, implying that trade tariffs and value-added taxes for goods shipped between Batam and Singapore are eliminated.

Main Points of Entry Foreign Visitor Arrivals in Indonesia:

Location	2013	2014	2015
Ngurah Rai Airport (Bali)	3,241,889	3,731,735	3,923,970
Soekarno-Hatta Airport (Jakarta)	2,240,502	2,246,437	2,304,275
Batam	1,336,340	1,454,110	1,545,818

^{Source: Statistics Indonesia (BPS)}

New Visa Policy Indonesia

In 2015 the Indonesian government granted an additional 45 countries visa-free access to Indonesia (Presidential Regulation no.69/2015 on Exemptions of Visit Visa) in an attempt to boost the tourism industry. Previously, citizens of these countries had to obtain a visit visa before entering Indonesia. In March 2016 the amount of countries for which residents are allowed to enter Indonesia without a visa was raised again through Presidential Regulation no.21/2016 on Exemptions of Visit Visa, meaning there are now a total of 169 countries that not need a visa to enter and stay in Indonesia (for a maximum period of 30 days). Meanwhile, the government also introduced a new regulation on yacht and cruise ships. This new regulation lifts cabotage rights for international cruises and yachts, meaning that international cruise liners can now lift and disembark passengers in 5 Indonesian seaports: Tanjung Priok (Jakarta), Tanjung Perak (Surabaya), Belawan (Medan), Soekarno-Hatta (Makassar) and Benoa (Bali). Previously, only Indonesian-flagged ships were allowed by law to lift and disembark passengers in Indonesian waters.

These policy changes were made in order to attract more foreign visitors. Although granting more tourists visa-free access to Indonesia implies that the country misses out on an estimated USD $11.3 million per year (as currently USD $35 is charged for a ‘visa on arrival’), it is expected to attract an additional 450,000 foreign tourists per year. Considering that each foreign tourist spends an average of between USD $1,100 and USD $1,200 during his/her holiday in Indonesia, the country will thus gain around USD $500 million in additional foreign exchange revenue each year (a domestic tourist spends an average of IDR 711,000 per trip).

Countries Exempted from Obligation to Obtain Visit Visa Prior to Entering Indonesia
1. Albania	31. Chad	61. Haiti
2. Algeria	32. Chili	62. Honduras
3. Andorra	33. China	63. Hong Kong (SAR)
4. Angola	34. Commonwealth of Dominica	64. Hungary
5. Antigua and Barbadu	35. Comoros	65. Iceland
6. Argentina	36. Costa Rica	66. India
7. Armenia	37. Croatia	67. Ireland
8. Australia	38. Cuba	68. Italy
9. Austria	39. Cyprus	69. Ivory Coast
10. Azerbaijan	40. Czech Republic	70. Jamaica
11. Bahamas	41. Denmark	71. Japan
12. Bahrain	42. Dominican Republic	72. Jordan
13. Bangladesh	43. Ecuador	73. Kazakhstan
14. Barbados	44. Egypt	74. Kenya
15. Belarus	45. Ecuador	75. Kiribati
16. Belgium	46. England	76. Kuwait
17. Belize	47. El Salvador	77. Kyrgyzstan
18. Benin	48. Estonia	78. Latvia
19. Bhutan	49. Fiji	79. Laos
20. Bolivia	50. Finland	80. Lebanon
21. Bosnia Herzegovina	51. France	81. Lesotho
22. Botswana	52. Gabon	82. Liechtenstein
23. Brazil	53. Georgia	83. Luxembourg
24. Brunei Darussalam	54. Gambia	84. Macao (SAR)
25. Bulgaria	55. Germany	85. Macedonia
26. Burkina Faso	56. Ghana	86. Madagascar
27. Burundi	57. Greece	87. Malawi
28. Cambodia	58. Grenada	88. Malaysia
29. Canada	59. Guatemala	89. Maldives
30. Cape Verde	60. Guyana	90. Mali

 

91. Malta	117. Portugal	143. Sweden
92. Marshall Islands	118. Puerto Rico	144. Switzerland
93. Mauritius	119. Qatar	145. Taiwan
94. Mauritania	120. Romania	146. Tajikistan
95. Mexico	121. Russia	147. Tanzania
96. Moldavia	122. Rwanda	148. Thailand
97. Mongolia	123. Saint Kitts and Nevis	149. The Netherlands
98. Monaco	124. Saint Lucia	150. Timor Leste
99. Morocco	125. Saint Vincent and the Grenadines	151. Togo
100. Mozambique	126. Samoa	152. Tonga
101. Myanmar	127. San Marino	153. Trinidad and Tobago
102. Namibia	128. Sao Tome and Principe	154. Tunisia
103. Nauru	129. Saudi Arabia	155. Turkey
104. Nepal	130. Senegal	156. Turkmenistan
105. New Zealand	131. Serbia	157. Tuvalu
106. Nicaragua	132. Seychelles	158. Uganda
107. Norway	133. Singapore	159. Ukraine
108. Oman	134. Slovakia	160. United Arab Emirates
109. Palau	135. Slovenia	161. United States of America
110. Palestine	136. Solomon Islands	162. Uruguay
111. Paraguay	137. South Africa	163. Uzbekistan
112. Panama	138. South Korea	164. Vanuatu
113. Papua New Guinea	139. Spain	165. Vatican
114. Peru	140. Sri Lanka	166. Venezuela
115. Philippines	141. Suriname	167. Vietnam
116. Poland	142. Swaziland	168. Zambia
		169. Zimbabwe

Through its Ministry of Tourism and Creative Economy, Indonesia promotes itself as a tourist destination in foreign countries with its "Wonderful Indonesia" campaign. It is important for the government to invest in such promotional campaigns to spread a positive image of Indonesia as most western countries mostly receive negative headline stories from Indonesia (for example radical Islam, natural disasters such as a tsunami or massive volcanic eruptions), causing an undue negative image of the country.

It is also important for authorities to build a magnetic brand for the country as a whole. While the island of Bali already has a strong brand that is widely known across the globe, Indonesia as a whole hasn't.

Opportunities in the Tourism Industry of Indonesia

With increasing numbers of foreign visitor arrivals (both tourists and foreign businessmen) in combination with +5 percent GDP growth and investment growth, there is growing demand for hotels, condominium hotels (which combine features of apartments and hotels), as well as conferences and exhibition venues. If the government target of welcoming 20 million foreign visitors by 2020 is indeed achieved then there is plenty of need for investment in the country's hospitality industry. Moreover, the ASEAN Economic Community (AEC), which will see its birth at the end of 2015, implies intensifying trade relations in the ASEAN region (resulting in more demand for hotel accommodations etc).

However, Bali and Jakarta have already seen a large influx of investment in recent years (especially in the upper end of the market) leading to excessive supply. Investors who want to establish hotels in these regions (as well as existing hotels) need to come up with original and creative new concepts to become market leaders.

Overview Indonesia's Tourism Sector:

	2016	2017	2018	2019
Contribution to GDP (%)	11	13	14	15
Foreign Exchange Earnings (in IDR trillion)	172.8	182.0	223.0	275.0
Employment (in million)	11.7	12.4	12.7	13.0
Competitiveness Index (WEF)	n.a.	40	n.a.	30
Foreign Visitor Arrivals (in million)	12	15	17	20
Domestic Tourists (in million)	260	265	270	275

Updated on 16 December 2016