Indonesia is the largest economy in Southeast Asia, and has had remarkable economic growth since the financial crisis in 1997-1998. It has a population of more than 277.79 million people (Worldometer, 2021). The country’s GDP is $1.058 trillion while its GDP per capita is $3869.588 (World Bank, 2020).
According to the Worldbank, Indonesia, being the world’s fourth most populous nation and a member of the G-20, is the world’s 10th largest economy in terms of purchasing power parity. Indonesia has also managed to tremendously reduce poverty by more than half since 1999, to just under 10 percent in 2020.
However, the COVID-19 pandemic has created unprecedented challenges for Indonesia’s development goals and heavily affected its economy, transforming Indonesia from upper-middle income to lower-middle income status as of July 2021. Indonesia’s poverty rate also went through a rise from the record-low of 9.2 percent in September 2019 to 10.4 percent as of March 2021. Nevertheless, Indonesia managed to successfully reduce its stunting rate from 37 percent in 2013 to under 28 percent in 2019 even though Indonesia still has many other obstacles in the development of a powerful human capital.
According to the Asian Development Outlook 2020, Indonesia’s economy weakened in 2020 by 2.1% after growing an average 5.0% over the previous 5 years. Private consumption reduced by 2.7% and fixed investment reduced by 4.9%. Government spending grew by 1.9% in 2020 with reallocations to fiscal stimulus programs. Net external demand contributed 1.1 percentage point to GDP growth as imports contracted by 14.7% more than exports (by 7.7%). Services fell by 1.4% in 2020 after growing by 6.4% in 2019. Inflation averaged 2.0% in 2020. Poverty incidence increased to 10.2%; the unemployment rate was the highest in 9 years at 7.1% in August 2020. The fiscal deficit grew to 6.1% of GDP in 2020 compared with 2.2% in 2019. With accommodative fiscal and monetary policies, a recovery in domestic demand, and an improved external environment, GDP is forecast to grow by 4.5% in 2021 and 5.0% in 2022.
Indonesia, being a tropical country, will likely be impacted by climate change, specifically in water availability, health and nutrition, disaster risk management, and urban development. Indonesia?represents the?third largest tropical rainforest in the world (94.1 million hectares), and is home to the world’s largest tropical peatlands (14.9 million hectares) and mangrove forests (3.31 million hectares). These natural resources store vast amounts of carbon that mitigate climate change impacts, crucial to sustain the livelihood of Indonesians and support the country’s long term.
Indonesia is the largest palm oil producer and exporter in the world, managing to export $15.3B in palm oil in 2019, with its main destinations being China ($2.66B), India ($2.34B), Pakistan ($1.23B), Bangladesh ($705M), and Malaysia ($644M). According to The Observatory of Economic Complexity, China ($560M), Saudi Arabia ($250M), and Malaysia ($113M) were reported to be the fastest growing export markets for palm oil between 2018 and 2019.
In 2019, palm oil was recorded to be the 2nd most exported product in Indonesia. Although due to the pandemic, the CPO price in Indonesia weakened during March 2020 until May 2020, reaching one of its lowest points in 5 years at $527/ton. Nevertheless, with strong efforts the CPO price managed to rise again starting in May 2020 and reaching its peak in May 2021 at $1234/ton. The CPO price from May 2021 to June 2021 is seen to go through a momentary decline as it is steadily rising again.
As the largest palm oil producing country in the world, Indonesia has a total of 14.6 million hectares of oil palm cultivated land, with most of it being in the provinces of Riau and West Kalimantan at 2.86 and 2.11 million hectares respectively. The area of land used for oil palm is seen to have a major increase, especially throughout 2009 until 2019. Many areas in Indonesia are prone to floods, hence effectively contributing to the growth and development of oil palm trees and indirectly helping the economy of local communities. In 2019, around 62% of palm oil plantations in Indonesia were found to be large private plantations, 34% were core estate and smallholder plantations, and 4% were large national plantations.
Indonesia’s palm oil production in 2020 amounted to 48.3 million metric tons, whereas the global production volume at that time amounted to 75.45 million metric tons, making Indonesia the contributor of half of the world’s palm oil supply. It is seen that the production volume of palm oil in Indonesia has continuously increased almost exponentially from 1961 until 2018, and steadfastly providing half of the global palm oil supply.
Biodiesel consumption in Indonesia has continuously risen since 2017. It is speculated that due to the extensive subsidization of producers of palm oil-based biodiesel blends by the government since 2015 in order to maintain costs competitively, it has resulted in an exponential usage rate on biodiesel. The government's biofuels initiative seeks to eventually replace traditional diesel with B100, a biofuel blend made entirely of palm oil.
Indonesia, being the largest palm oil exporter in the world, is at the same time the 103rd largest importer of palm oil in the world, managing to import $15.9M in palm oil in 2019. In the same year, palm oil was the 691st most imported product in Indonesia, where its origin countries were mainly Malaysia ($13.3M), Papua New Guinea ($2.16M), Singapore ($392k), United States ($37.2k), and China ($23.8k). Malaysia ($12.3M), Papua New Guinea ($2.16M), and Germany ($17.7k) were reported to be the fastest growing import markets in palm oil for Indonesia between 2018 and 2019.
In 2018, the average tariff for Indonesia in Palm Oil was 2.36%, where the countries with the highest import tariffs for palm oil were Angola (Most Favoured Nation duty rate treatment, 2.5%), Burundi (Most Favoured Nation duty rate treatment, 2.5%), Benin (Most Favoured Nation duty rate treatement, 2.5%), Burkina Faso (Most Favoured Nation duty rate treatement, 2.5%), and Botswana (Most Favoured Nation duty rate treatement, 2.5%).