Manufacturing in Indonesia: Industry Overview 2025

Indonesia’s manufacturing sector is the largest in Southeast Asia by output and a cornerstone of the country’s economic structure, contributing approximately 19 to 21 percent of gross domestic product (GDP). It plays a crucial role in job creation, exports, and industrialisation, and has been central to the government’s ambitions to transition the economy from resource dependence to value-added production.

The country’s manufacturing base is broad and diverse, with significant activity in food and beverages, automotive, textiles, electronics, petrochemicals, and basic metals. Indonesia is also a major global producer of key commodities such as palm oil and nickel, which feed directly into downstream processing industries. With a population of over 275 million and a growing middle class, Indonesia’s large domestic market adds a powerful internal demand component to its manufacturing engine.

Jakarta, West Java, East Java, and Banten serve as the industrial heartlands, hosting major manufacturing clusters, ports, and logistics infrastructure. Industrial estates such as Cikarang, Karawang, and Batam have been instrumental in attracting foreign investors and creating integrated supply chains.

Indonesia’s manufacturing strategy is guided by the Making Indonesia 4.0 roadmap — an ambitious industrial transformation plan that prioritises five industries: food and beverages, automotive, electronics, chemicals, and textiles. More recently, downstream processing of natural resources, especially nickel and copper for electric vehicle (EV) batteries, has become a central pillar of the national industrial strategy.

In 2023, the manufacturing sector grew by approximately 4.6 percent, supported by strong domestic consumption, infrastructure investment, and rising global demand for energy transition-related materials.

See also: How to Start a Business in Indonesia

Key sub-sectors and outputs

Indonesia’s manufacturing sector is diverse and resource-rich, combining traditional labour-intensive industries with modern, capital-intensive production. It has a growing footprint in high-value downstream processing and continues to expand into strategic industrial clusters supported by government policy and foreign investment.

Food and beverage processing

This is the largest sub-sector by output and employment, contributing over 30 percent of total manufacturing GDP. Indonesia’s large population, rising incomes, and shifting consumption patterns have fuelled strong domestic demand. Major products include packaged foods, cooking oils, processed poultry, instant noodles, snacks, and beverages. Companies like Indofood, Mayora, and GarudaFood dominate the market. Export potential is strong for halal-certified goods, tropical fruit products, and palm oil derivatives, especially within ASEAN and the Middle East.

Basic metals and downstream mineral processing

Indonesia has rapidly scaled up mineral refining and metal production, driven by a strategic push to develop value-added industries using its rich reserves of nickel, copper, bauxite, and tin. Following the 2020 ban on raw nickel ore exports, the country has become a global leader in nickel processing — a critical input for stainless steel and electric vehicle (EV) batteries. Chinese firms, in joint ventures with Indonesian conglomerates, have invested heavily in smelters and industrial parks in Sulawesi and North Maluku. These investments form part of the broader ambition to become a global hub for the EV battery supply chain.

Automotive

Indonesia is Southeast Asia’s largest automotive market and a key manufacturing base for Japanese automakers. Toyota, Daihatsu, Mitsubishi, Honda, and Suzuki operate assembly plants in West Java and East Java, producing vehicles for both domestic sales and export. The country exported over 470,000 completely built-up (CBU) vehicles in 2023, mainly to Southeast Asia, Africa, and the Middle East. There is increasing policy support for electric vehicles (EVs), including tax holidays and incentives for battery and vehicle assembly.

Textiles and garments

The textile industry remains a major employer, with production centres in West Java, Central Java, and Bali. While it faces stiff competition from Vietnam and Bangladesh, Indonesia retains strong capabilities in upstream activities such as yarn, weaving, dyeing, and synthetic fibres. The industry is focusing on sustainable production, functional textiles, and fashion exports. Challenges include high energy costs and ageing machinery, but government incentives are being rolled out to support modernisation and environmental compliance.

See also: Where are Nikes Made in Indonesia?

Petrochemicals and chemicals

Indonesia has a sizeable chemicals sector, which includes fertilisers, industrial gases, plastics, resins, and rubber-based products. The sector is closely tied to resource extraction and construction demand. State-owned firms like Pupuk Indonesia and Chandra Asri are key players. Expansion of petrochemical capacity is ongoing, particularly in East Kalimantan and Cilegon. The government is also encouraging the development of biodegradable and green chemicals as part of its sustainability agenda.

Electronics and electrical equipment

Although smaller than Vietnam’s, Indonesia’s electronics sector is expanding steadily. It includes consumer electronics assembly, electrical appliances, cable manufacturing, and component production. Batam is a key hub for electronics exports, supported by its proximity to Singapore and duty-free status. The government is prioritising this sector under Making Indonesia 4.0, particularly in semiconductors, embedded systems, and digital devices.

Construction materials and cement

Indonesia has a large construction materials sector, driven by infrastructure spending and urbanisation. Cement, steel, glass, ceramics, and prefabricated components are produced for both domestic use and export to nearby markets. Cement production capacity alone exceeds 110 million tonnes annually. However, overcapacity and price competition have squeezed margins, leading to consolidation and cost efficiency drives.

FDI and export performance

Manufacturing is a cornerstone of Indonesia’s foreign direct investment (FDI) landscape. Over the past decade, the sector has consistently ranked among the top destinations for FDI, reflecting strong global investor interest in both Indonesia’s domestic market and its potential as a regional production base. In 2023, manufacturing accounted for more than US$20 billion in realised FDI — around one-third of total foreign investment into the country.

Leading source countries include Singapore, China, Japan, South Korea, and the United States. Chinese investment, in particular, has surged in recent years, largely driven by the downstream processing of nickel and other strategic minerals. Singapore’s role reflects its position as a regional intermediary, while Japan and South Korea have long-standing investments in automotive, electronics, and machinery.

Indonesia’s FDI policy has become increasingly liberalised, especially since the 2020 Omnibus Law on Job Creation, which simplified licensing, opened more sectors to foreign ownership, and streamlined investment processes via the Online Single Submission (OSS) system. Special Economic Zones (SEZs) and Industrial Estates offer tax holidays, customs exemptions, and infrastructure support tailored for manufacturing investors. Key zones include Batam, Morowali (nickel and EVs), Java Integrated Industrial Port Estate (JIIPE), and Kendal Industrial Park.

In terms of exports, manufactured goods now make up over 70 percent of Indonesia’s non-oil and gas exports, highlighting a significant shift from its traditional reliance on raw commodities. Total exports reached US$260 billion in 2023, with manufacturing accounting for around US$190 billion. Major export items include:

• Electronics and electrical machinery (US$15.5 billion)
• Automobiles and auto parts (US$10.2 billion)
• Textiles and garments (US$9.8 billion)
• Chemical products (US$9.2 billion)
• Iron, steel, and base metals (US$38+ billion), much of it processed nickel and stainless steel
• Palm oil-based products (US$28 billion), straddling the line between agro-industrial and manufacturing exports

Indonesia is also expanding its trade relationships through ASEAN, RCEP, and bilateral FTAs, including with Australia, Japan, and Korea. While utilisation of these agreements has historically been uneven due to compliance complexity and SME limitations, government support programs are now helping firms take fuller advantage of tariff preferences.

Critically, Indonesia’s resource-backed industrialisation strategy — especially in EV-related supply chains — is reshaping its FDI profile. The country is now one of the top global investment destinations for battery materials processing, with multi-billion dollar projects under way involving Tesla’s supply chain partners, LG Energy Solution, and CATL. These developments have catalysed broader industrial investments in logistics, machinery, chemicals, and engineering services.

However, some challenges persist. These include bureaucratic inertia in local governments, land acquisition delays, and overlapping sectoral regulations. Foreign investors continue to highlight the importance of long-term policy consistency, clarity on environmental standards, and alignment between national and provincial authorities.

Labour and cost environment

Indonesia’s labour market is one of its greatest strengths as a manufacturing destination. With a population exceeding 275 million and a median age of around 30, the country offers a vast and relatively young workforce. The manufacturing sector employs more than 18 million people, representing nearly 14 percent of the total workforce.

Labour cost competitiveness is a major factor in Indonesia’s appeal to foreign manufacturers. Minimum wages are set at the provincial or regency level, resulting in variations across the country. In 2024, the monthly minimum wage in Jakarta stands at around IDR 5 million (approximately US$320), while in provinces such as Central Java or West Nusa Tenggara, rates can be as low as US$180–220, making them attractive for labour-intensive industries like garments, footwear, and furniture. These figures place Indonesia on par with the Philippines and slightly above Vietnam in some industrial regions.

While wages are rising gradually, productivity has also improved, particularly in export-oriented clusters and special economic zones. Indonesia offers a large pool of semi-skilled and low-skilled workers, as well as growing numbers of vocational graduates in technical trades. However, the availability of highly specialised technicians and engineers remains limited outside urban centres, prompting some firms to invest in in-house training or partnerships with polytechnic institutions.

The technical and vocational education system has been a policy focus, with the government expanding programs through the Ministry of Industry’s Industrial Human Resources Development Agency (BPSDMI) and launching “link-and-match” schemes between industry and vocational schools. Private-sector initiatives, such as apprenticeship programs in automotive, electronics, and heavy industry, have also helped close skills gaps.

Social security contributions and non-wage costs in Indonesia are moderate by regional standards. Employers contribute to several national schemes, including:

• BPJS Kesehatan (healthcare)
• BPJS Ketenagakerjaan (employment and pension benefits)
• Jamsostek (occupational safety and health insurance)

Combined, these represent roughly 11 to 13 percent of payroll, depending on the company’s risk profile and salary structure. While generally affordable, the administrative burden of compliance can be higher for smaller firms or those operating in multiple jurisdictions.

Labour laws in Indonesia are governed by the 2003 Manpower Law, as amended by the Omnibus Law in 2020. These reforms introduced greater flexibility in hiring, eased restrictions on outsourcing and fixed-term contracts, and simplified severance payment structures. While this was welcomed by employers, it also sparked opposition from trade unions and civil society groups. Overall, the reforms are designed to make Indonesia’s labour market more investor-friendly, particularly in manufacturing.

Industrial relations are stable in most manufacturing zones, especially in Java and Batam, where large multinationals operate. Labour unrest tends to be localised and often related to wage disputes or outsourcing arrangements. The government’s tripartite dialogue mechanisms, involving employers, unions, and government representatives, have been moderately successful in preventing large-scale disruptions.

Indonesia’s labour environment thus combines cost competitiveness, policy reforms, and demographic strength, but still requires ongoing investment in skills development, industrial training, and regional talent mobility. For investors in sectors like EV batteries, electronics, and heavy machinery, workforce quality and technical specialisation are critical areas for long-term planning.

Incentives and government policy

Indonesia has steadily refined its investment policy framework to make the country more attractive to foreign manufacturers. Over the past five years, major legislative reforms — most notably the Omnibus Law on Job Creation (Law No. 11/2020) — have sought to reduce red tape, improve legal certainty, and open more sectors to foreign participation. These reforms underpin the government’s broader industrialisation strategy and align with the Making Indonesia 4.0 roadmap.

Investment incentives for manufacturing are structured around two main regimes:

1. General tax incentives under the national tax code
2. Special incentives for businesses operating in Priority Sectors, Special Economic Zones (SEZs), or Industrial Estates

Key fiscal incentives available to manufacturing investors include:

• Tax holidays of 5 to 20 years for pioneer industries or strategic sectors (e.g. petrochemicals, EVs, metals processing) depending on the size of investment
• Tax allowances in the form of extra deductions for capital expenditure and labour training costs
• Import duty exemptions on machinery, raw materials, and intermediate goods for a set period
• VAT deferment or exemption on imports used in production
• Super deductions of up to 300 percent for R&D expenditure, and up to 200 percent for vocational training programs

In Special Economic Zones (SEZs) and designated Industrial Estates, manufacturers also benefit from:

• Exemption from or reduction of corporate income tax for 10 to 25 years
• Simplified licensing via the Online Single Submission (OSS) system
• Priority customs clearance and logistics handling
• Exemption from local taxes and retributions in some zones
• Land provision support through the Land Bank or local partnerships

As of 2024, there are over 19 operational SEZs across Indonesia, many focused on specific manufacturing verticals — such as Morowali (nickel and stainless steel), Batang (automotive and electronics), and Galang Batang (bauxite and aluminium). These zones are part of a deliberate strategy to create industrial clusters with shared infrastructure, utilities, and workforce training programs.

The government also maintains a Positive Investment List, revised in 2021, which identifies sectors open to 100 percent foreign ownership and eligible for incentives. Most manufacturing activities — including electronics, machinery, food processing, and EV battery production — are now fully open, though certain sensitive sectors like defence, alcohol production, and tobacco remain restricted.

Indonesia’s Making Indonesia 4.0 strategy provides an additional policy layer that prioritises manufacturing in five core industries: food and beverages, automotive, textiles and garments, electronics, and chemicals. More recently, strategic emphasis has shifted toward:

• Downstream mineral processing, especially nickel, bauxite, and copper
• Electric vehicle ecosystems, including battery manufacturing, components, and vehicle assembly
• Green manufacturing, such as biodegradable plastics, solar panel components, and energy-efficient appliances
• Digital industrialisation, including smart factories, robotics, and AI-driven production systems

To support this agenda, various ministries — including the Ministry of Industry, Ministry of Investment (BKPM), and Ministry of Finance — collaborate to identify bottlenecks and design sector-specific incentives.

Nonetheless, implementation remains uneven. While the OSS system has improved transparency and efficiency at the national level, coordination with local governments continues to be a challenge. Zoning issues, environmental permitting, and infrastructure delivery are often handled at the provincial or municipal level, where capacity and alignment with central policy vary.

To address this, the government has launched Investment Acceleration Task Forces and appointed Special Envoys to help key foreign investors navigate regulatory hurdles and project timelines. A focus on “aftercare services” — supporting existing investors through expansions or reinvestment — has also emerged as a national priority.

Challenges and bottlenecks

While Indonesia offers strong fundamentals for manufacturing investment — including scale, resources, and reform momentum — the sector continues to face structural and operational challenges that can affect cost competitiveness, investor confidence, and long-term industrial upgrading.

1. Infrastructure disparities and logistics costs
   Despite major improvements, Indonesia’s infrastructure remains uneven, especially outside Java and key industrial zones. Port congestion, limited cold chain capacity, and weak intermodal transport networks contribute to high logistics costs — often 23 to 25 percent of GDP, significantly higher than in Vietnam or the Philippines. Inland connectivity between production sites and export gateways is still developing in Kalimantan, Sulawesi, and parts of Sumatra, limiting the attractiveness of new industrial areas outside Java.
2. Energy pricing and reliability
   Industrial electricity prices in Indonesia average around US$0.09–0.11 per kilowatt-hour, which is competitive by regional standards. However, variability across regions and unreliable supply — particularly outside Java and Batam — can raise operating risks. Energy-intensive industries in Kalimantan and Sulawesi may face limitations in grid capacity, forcing reliance on captive power or diesel generation. While there’s an ongoing push to expand renewables, uncertainty over green energy availability and regulation still affects site selection for energy-dependent manufacturing.
3. Regulatory complexity and decentralisation
   While the Omnibus Law and OSS system have simplified national-level procedures, Indonesia’s decentralised governance means that local governments play a large role in business approvals, land use, tax administration, and labour inspections. This often leads to inconsistent interpretation of national rules, delays in licensing, and unexpected local fees. Land acquisition for factories or industrial estates remains a critical hurdle, with overlapping claims, slow permitting, and limited dispute resolution mechanisms.
4. Skilled labour shortages and training gaps
   Indonesia’s large workforce is an asset, but shortages in mid-level technical skills — especially in robotics, machine maintenance, quality control, and industrial design — limit productivity in high-value manufacturing. Outside urban centres, vocational education institutions are often poorly equipped, and collaboration between industry and training providers remains underdeveloped. This affects not only foreign multinationals but also domestic firms seeking to climb the value chain.
5. Shallow supply chains and import dependence
   Indonesia is actively pursuing industrial deepening, particularly through downstream resource processing. However, many manufacturing segments still rely heavily on imported machinery, intermediate inputs, and specialised components. For example, in electronics, local supply chains remain thin beyond low-value assembly. Import clearance processes, though improved, can still be time-consuming, especially for controlled goods like chemicals or electronics.
6. Environmental and social compliance risks
   As global buyers tighten environmental, social, and governance (ESG) standards, Indonesian manufacturers are under growing pressure to improve compliance, especially in textiles, palm-based manufacturing, and minerals processing. Environmental permitting is seen as complex and variable, while transparency and monitoring mechanisms differ by region. Larger firms are better positioned to adapt, but small and medium manufacturers may struggle with the cost and complexity of ESG compliance.
7. Policy inconsistency and legal uncertainty
   Although recent reforms aim to improve investor protection, sudden regulatory shifts and weak legal enforcement still pose risks. For example, export bans on key minerals such as coal and nickel — often implemented with little warning — can disrupt planning and raise concerns about predictability. While these measures are usually intended to support local processing or balance domestic supply, they may affect investor confidence in sectors where long payback periods are the norm.
8. Competition from neighbours
   Indonesia’s vast market and resource endowments make it attractive, but it faces stiff competition from Vietnam in electronics and textiles, and from the Philippines in semiconductors and aerospace components. Vietnam’s edge in logistics efficiency, trade openness, and industrial park governance continues to draw greenfield FDI, while Indonesia still needs to deliver consistent implementation of its policies to match investor expectations.

Comparison with Vietnam and the Philippines

Indonesia, Vietnam, and the Philippines represent three distinct but increasingly complementary manufacturing destinations within Southeast Asia. Each country offers unique strengths and faces distinct limitations, shaping their role in regional and global value chains. For foreign investors, understanding these dynamics is key to building a diversified, risk-balanced production footprint.

Labour and wage competitiveness

Vietnam continues to offer the lowest manufacturing wages among the three, particularly in northern provinces such as Bac Giang and Nghe An, where monthly wages can be under US$200. Indonesia remains competitive in lower-cost provinces like Central Java, with wages ranging from US$180–250, while Metro Jakarta is higher, at around US$320. The Philippines falls in the US$250–300 range in Metro Manila. Indonesia benefits from a large, young, and semi-skilled workforce, but Vietnam leads in vocational readiness for export manufacturing. The Philippines offers a stronger English-speaking talent pool and higher productivity in services-oriented manufacturing, like electronics.

Industrial infrastructure and logistics

Vietnam leads in port efficiency and integrated industrial zones, especially around Hai Phong and Ho Chi Minh City. Indonesia offers vast industrial estates in Java and Sumatra, but suffers from higher logistics costs due to geographic fragmentation and inter-island transport gaps. The Philippines is improving its infrastructure base under the “Build Better More” program, but still trails both Indonesia and Vietnam in logistics performance and inland connectivity.

Supply chain development and depth

Vietnam has built strong backward linkages in electronics, garments, and machinery, supported by deep integration into South Korean, Japanese, and Chinese supply chains. Indonesia is advancing fast in resource-based supply chains, particularly nickel and EV batteries, but is still import-dependent for many intermediate goods. The Philippines remains export-driven in semiconductors and electronics assembly, but has relatively shallow domestic linkages and a limited supplier ecosystem.

Export orientation and trade openness

Vietnam is by far the most export-oriented, with US$370+ billion in goods exports in 2023. Indonesia exported US$260+ billion, of which about US$190 billion came from manufactured goods. The Philippines’ total exports were approximately US$54 billion, heavily concentrated in electronics. Vietnam’s extensive use of free trade agreements (FTAs), including with the EU, UK, and CPTPP, enhances its trade appeal. Indonesia is part of RCEP and maintains bilateral FTAs with Japan, Australia, and Korea, but utilisation remains moderate.

Policy and regulatory environment

Indonesia has made significant progress through the Omnibus Law and OSS system, offering predictable incentives and broad foreign ownership. Vietnam is known for consistent industrial policy and quick licensing within economic zones, although bureaucracy still exists. The Philippines offers strong investor protections, rule of law, and fiscal transparency but struggles with regulatory overlap and local implementation inconsistencies.

Incentives and sectoral focus

Indonesia leads in fiscal incentives for downstream processing, EVs, and resource-intensive manufacturing. Vietnam focuses on high-tech manufacturing and export-driven sectors like electronics and garments, while the Philippines offers long-duration incentives through the CREATE Act and supports industries like aerospace, semiconductors, and food processing. All three have competitive SEZ regimes, but Vietnam’s industrial parks are often cited for best-in-class governance.

Energy and sustainability

Indonesia and Vietnam both face challenges in decarbonising their manufacturing sectors. Indonesia has higher fossil-fuel dependence but is expanding geothermal and solar capacity. Vietnam has made rapid gains in renewables but faces grid constraints. The Philippines offers high electricity costs but a more liberalised energy market and growing green energy opportunities.

Risks and resilience

Vietnam is viewed as the most stable in terms of policy continuity, Indonesia offers macroeconomic resilience and demographic scale, and the Philippines provides robust services-led growth but faces greater exposure to natural disasters and governance fragmentation.

Comparison with Vietnam and the Philippines

Category	Indonesia	Vietnam	Philippines
Monthly wages (US$)	180–320	180–250	250–300
Top strengths	Scale, minerals, domestic market	Logistics, electronics, FTAs	Electronics, English-speaking workforce
Export performance (2023)	US$260+ billion	US$370+ billion	US$54 billion
Supply chain depth	Strong in metals and EVs	Strong in electronics and garments	Limited; high import dependence
Incentives	SEZs, super deductions, tax holidays	Corporate tax breaks, FDI zones	CREATE Act: long-term fiscal incentives
Policy reforms	Omnibus Law, OSS system	Stable FDI regime	Regulatory reforms ongoing
Logistics and infrastructure	Mixed; best in Java	Highly integrated in key regions	Improving but lagging
Key risks	Regulatory shifts, local bureaucracy	Bureaucracy, energy supply risks	Natural disasters, policy fragmentation

See also: Manufacturing in Vietnam | Manufacturing in the Philippines

Future outlook and investment opportunities

Indonesia’s manufacturing sector is poised for significant transformation and expansion over the coming decade. As the country repositions itself from a resource-exporting economy to an industrialised manufacturing base, it is building out new value chains, attracting global investment, and upgrading domestic capabilities. For foreign investors, Indonesia offers both scale and strategic relevance in the evolving Asia-Pacific manufacturing landscape.

The most dynamic opportunities lie in downstream mineral processing, particularly linked to electric vehicle (EV) battery ecosystems. Indonesia holds over 20 percent of the world’s nickel reserves and has established itself as the global leader in nickel-based stainless steel and precursor materials. The government’s push to ban raw ore exports and mandate domestic refining has catalysed billions in FDI — notably from Chinese, South Korean, and European firms. EV battery and component production, supported by tax holidays and integrated SEZs, will continue to anchor high-value investment.

In automotive manufacturing, Indonesia is targeting 2 million vehicle exports by 2030, with a growing share expected to be electric. Japanese automakers are expanding capacity, while new entrants — including Chinese EV brands — are establishing local production lines. As the domestic market matures and regional demand for affordable vehicles grows, Indonesia could evolve into a regional automotive export hub.

Food and beverage processing will remain a reliable growth area, driven by rising incomes, urbanisation, and a massive domestic market. Opportunities exist in value-added processing, halal-certified products, and plant-based alternatives. Government support for agricultural downstreaming, cold chain logistics, and export certification is opening new doors for mid-sized manufacturers and joint ventures.

The chemicals and petrochemicals industry is set for major expansion, particularly in West Java and East Kalimantan. Integrated industrial estates with dedicated port and utility infrastructure are attracting anchor tenants, including refineries, polymer producers, and agrochemical firms. Foreign investors can find opportunities not only in bulk chemicals but also in specialty products, packaging materials, and green alternatives.

Digital manufacturing and Industry 4.0 are being promoted through incentives for smart factories, automation, and digital supply chains. While adoption is still uneven, the government’s “Making Indonesia 4.0” roadmap is actively supporting pilot programs, particularly in textiles, food, and automotive parts. Firms investing in advanced technologies and workforce upskilling will be well-positioned to capture market share as domestic competitiveness improves.

Indonesia is also emerging as a “China-plus-one” alternative, particularly for mid-tier manufacturers seeking lower costs, regional diversification, and access to a large consumer base. While Vietnam remains dominant in electronics, Indonesia’s broader market size and resource depth provide strong fundamentals for medium- to long-term investment.

However, realising these opportunities will depend on continued progress in:

• Deepening industrial supply chains and reducing import dependence
• Improving regional infrastructure and logistics networks
• Enhancing skills development and vocational education
• Maintaining regulatory clarity and policy consistency, especially in export regulations
• Scaling up clean energy investment to meet sustainability and ESG targets

Indonesia’s attractiveness lies in its combination of market size, policy ambition, and resource depth. For investors willing to navigate a complex but improving business environment, the country offers one of the most promising manufacturing opportunities in Southeast Asia.

Summary

Indonesia’s manufacturing sector is the largest in Southeast Asia by output and a key pillar of the national economy, contributing around 20 percent of GDP and employing over 18 million people. Anchored by strong domestic demand, abundant natural resources, and a growing middle class, the sector spans traditional industries like food and textiles and increasingly high-value areas such as automotive, electronics, petrochemicals, and mineral processing.

The government’s industrial policy — centred on the Making Indonesia 4.0 roadmap and the Omnibus Law — aims to transform the sector through improved infrastructure, labour reforms, investment incentives, and digitalisation. Special Economic Zones (SEZs) offer streamlined procedures and generous tax incentives, especially for strategic industries like electric vehicle (EV) batteries, chemicals, and electronics.

Manufactured goods now account for over 70 percent of Indonesia’s exports, led by processed nickel, palm oil products, and automotive parts. Foreign direct investment in manufacturing exceeded US$20 billion in 2023, supported by a surge in downstream processing and EV-related projects. However, challenges remain, including logistics inefficiencies, local regulatory variation, skills shortages, and policy unpredictability.

Compared to Vietnam and the Philippines, Indonesia offers a larger domestic market and strong resource-linked industrial growth, but trails in export intensity, supply chain depth, and ease of logistics. The outlook is positive for investors aligned with Indonesia’s evolving industrial strategy, particularly in EVs, food processing, green materials, and smart manufacturing.