Tourism Industry Indonesia

Although Indonesia harbors great attractions for tourists - beautiful countryside, interesting
cultures & historical remnants, beaches, nightlife (Jakarta and Bali), and much more - the
country fails to attract a large number of foreign tourists. Yes, Indonesia may achieve its target
of welcoming 10 million foreign visitors in 2015, but this figure is considerably lower than the
number of tourists that visit neighboring peers Singapore (15 million) or Malaysia (27 million).
Indonesia is not less beautiful nor less interesting than its neighbors. So, what has been blocking
more rapid development of Indonesia's tourism sector

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:

Tourist Arrivals Tourist Arrivals Tourist Arrivals Tourist Arrivals

Month
2013 2014 2015 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
5.51 6.23 6.32 7.00 7.65 8.04 8.80 9.44 9.73
(in millions)

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

172.8 182.0 223.0 275.0
(in IDR trillion)

Employment
11.7 12.4 12.7 13.0
(in million)

Competitiveness Index
n.a. 40 n.a. 30
(WEF)

Foreign Visitor Arrivals

12 15 17 20
(in million)

Domestic Tourists
260 265 270 275
(in million)

Updated on 16 December 2016

Share
60