How Russian Exporters Can Access The Indonesian Consumer Market

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With Russian exporters and manufacturers now looking to access and develop markets in Asia, we can take a look at the potential for the Indonesian market.

Indonesia is currently negotiating a Free Trade Agreement with the Eurasian Economic Union, with then Russian Prime Minister Dmitry Medvedev confirming this at the 14th East Asia summit in November 2019. An Indonesia-EAEU FTA could well be signed off later this year or early 2023, meaning Russian businesses need to start market research activities into the opportunities in this market now. It is worth noting that the country has a liberal Muslim population, and Islamic Halal and other sensibilities apply in the country although the tourist island of Bali is Hindu.

Indonesia however is a good choice for a developing trade partner for Russia, it has a large and increasingly prosperous consumer base of 260 million, spending US$0.6 trillion in 2018, about 40% of the total ASEAN spend. Consumer confidence is also high. 2022 reports by the World Bank point to a booming, if disparate domestic economy with a GDP growth rate expected at 5.1%. Indonesia is the world’s fourth most populous nation and 10th largest economy in terms of purchasing power parity.

Indonesia has also been a port of call for Russian auto manufacturer Kamaz, who established a manufacturing plant in the country in 2018 and also set up a number of service centres. There are additional benefits for Russian businesses establishing manufacturing facilities in the country, Indonesia is a member of the ASEAN bloc, which also includes Brunei, Cambodia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand & Vietnam. These countries enjoy free trade between each other, meaning subject to rules of origin regulations, production in one country can be exported, duty free, to the other.  ASEAN also has Free Trade Agreements with China and India. This means, given the right circumstances, a Russian-owned manufacturing entity could export, duty free to these additional markets.

Significant efforts are been put in by both Indonesia and Russia to develop bilateral trade, with Jakarta emphasized 3 important matters to strengthen cooperation between the two countries. These are building a more action-oriented strategic partnership, strengthening economic diplomacy, and refocusing the cooperation priorities in the new normal era. The two have set a bilateral trade volume target of US$5 billion, to be reached by 2024. Both have also agreed to resolve trade barriers issues that also involved the stakeholders of the two countries.

Current Russian trade trends with Indonesia are also on an upwards path. January 2022 saw bilateral trade reach US$415 million, would if continued would mean an annual trade turnover of US$4.98 billion and an attainment of the bilateral trade goal two years ahead of schedule.

Russia currently sells a variety of products, ranging from oil and gas to fertilizers and automotive parts to Indonesia, in addition to semi-finished iron, coal briquettes, and potassic fertilizers. There is also a growing Russian expatriate population in Indonesia, most notably in Bali, although there is plenty of room for growth in this sector.

The entry level for investors into Indonesia is relatively high, with required capital at 25% of the total planned investment. We have outlined corporate establishment in Indonesia in this article here. However it is also possible to sell to Indonesian consumers via ecommerce platforms.

Indonesia has a large population with significant middle class populations spread out across the country. The largest Indonesian consumer markets with populations in excess of 1 million are in Jakarta, Surabaya, Bekasi, Bandang, Medan, Depok, Tangerang, Palembang, Semarang, Makassar, Batam, Bandar Lampung, and Bogor.

It is worth noting that Russia also has a Double Tax Treaty with Indonesia, which if used correctly can reduce profits taxes for Russian entities based in Indonesia. Professional advise should be sought.

Market analysis, research and entry assistance into Indonesia can be obtained from our Jakarta and Batam offices where our firm has been assisting foreign investors and exporters for many years. Please contact indonesia@dezshira.com

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About Us

Russia Briefing is written by Dezan Shira & Associates and is aimed at assisting Russian businesses and exporters develop markets throughout Asia. With 28 regional operations, and 30 years of experience, we can assist Russian businesses into Indonesia, ASEAN, India, and China. Please visit us at www.dezshira.com

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