Southeast Asia has long been at the forefront of impact investing. And many startups and investors in Indonesia are adopting an environmental, social, and governance approach. There are many factors fostering this shift, with the main driver coming from a sudden decrease in tourism, one of the islands’ top revenue sources. We’re witnessing a rapidly growing digital ecosystem that is aligning the value of sustainability with long-term investor interests.
There has never been a better time for impact investment in Indonesia than now. According to conservative estimates, Indonesia offers an estimated USD 23 billion in impact investment opportunities over the next 5 years. With the underlying fundamentals of Indonesia staged for growth, there are various reasons to consider investing in the archipelago country.
Poised for Growth
According to McKinsey & Co, Indonesia is on track to become the world’s 7th largest economy in 2030. This consulting firm also projects an 11% growth per year for consumer spending on financial services and savings as 90 million Indonesians join the middle classes by 2030. Since 1980, Indonesia has demonstrated the most consistent (stable) growth of any economy. Today, it is the 4th most populous country and the 16th largest economy in the world.
Size of the Market
Indonesia’s impact investing market has been on the rise, especially after 2013. The Global Impact Investing Network (GIIN) refers to Indonesia’s impact investing market as “the largest and most mature in Southeast Asia” both by “capital deployed and several deals”.
Over the next five years, experts predict Indonesia will create around USD 23 billion in investment opportunities to offer impact investors. Multiple sectors will be targeted by both investors and government-sponsored programs with finance, education, food and beverages, tourism and agriculture and fisheries being the industries with the most potential.
Multiple Sectors of Interest
When looking at the most lucrative niches for investment, McKinsey highlights several B2B sectors as well as sectors that contribute to social and environmental impact, like energy, sanitation, reforestation, water, recycling and waste processing. The estimated sales of all sectors combined by 2030 are close to USD 1.4 trillion. To arrive at the investment forecast per sector experts have looked for estimates in expert reports.
Even by conservative estimate of 5% of any sector’s sales being reinvested, the data is very promising. This is conservative since each sector is likely to grow sales by 5% or more each year.
When it comes to energy consumption, Indonesia is one of the world’s fastest growing countries. At the same time, only 11% of the energy supply is from renewable sources presently. By 2030 IRENA anticipates that renewables will represent 28% of power generation, which will open the door for many new developments and power plant construction projects. Indonesia is the country with the largest potential of geothermal energy resources as hydropower is expected to then generate 2% and other renewables like solar and wind, together generating 1% in 2030.
A Digital Hub
Digital transformation is remaking the business landscape worldwide. But some countries are catching up faster than others. Southeast Asia has been a champion in the adoption of blockchain–a revolutionary technology that has wide applications. From government databases to financial transactions, supply chain management, product tracing, logistics, sustainable development, retail and ecommerce – decentralization and full traceability are two of the main components of blockchain networks. Along with its vast computational power, blockchain is closely tied to the cryptocurrency market – a market that recently passed $2 trillion in valuation.
Regulations in Indonesia are favourable for fostering a digital economy, which will create a more open market. Both local and foreign players are investing in Indonesian tech companies. These investments will accelerate the growth of the digital economy and ecosystem. But since the digital industry is still very young, the opportunities are endless.
At BIC, we believe Indonesia is perfectly positioned to leapfrog its development. The Club actively supports entrepreneurs who are working on sustainable business solutions across various sectors.
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Invest in the future. Invest in Indonesia.