The Indonesian fisheries sector grew rapidly throughout 2015 under the steam of the Jokowi government’s renewed focus on Indonesia’s competitive advantages within maritime related sectors. Under the new Minister of Maritime Affairs and Fisheries (MAF) Ms Susi Pudjiastuti, Indonesia’s fishing industry grew 8.37% year-on-year (yoy) in the third quarter of 2015, far above the country's overall economic growth of 4.73%. Capture fishery production until the third quarter of 2015 also increased by 5.05% compared to the same period in the previous year. The same holds true for aquaculture production which also increased by 3.9%. Another noteworthy breakthrough in 2015 was improved law enforcement against illegal fishing. No fewer than 117 illegal foreign fishing vessels were sunk by the Ministry of MAF throughout 2015. Minister Susi also prohibited 1,132 ex-foreign vessels from operating in Indonesia; this policy has resulted in a surge of fish stocks and catch from Indonesian waters and marks a new paradigm in Indonesia’s approach to its fisheries sector.
The Indonesian government continues to improve its policies in order to enhance the living standards of fishermen and boost investment in the fishery sector. These policies include the opening of six sub-sectors in the fish processing industry to foreign investment, the provision of fishing equipment, storage and processing facilities such as modern ships and cold storage, and facilitating access to financing.
Ms Susi Pudjiastuti has begun a new wave of interest and growth in Indonesia’s fisheries sector. The Ministry has made important strides in boosting Indonesia's fishery sector, both in the upstream and downstream industry. This is evident from the increase in the capture fishery production to 4.72 million tonnes until the third quarter of 2015, up 5.05% compared to the same period in the previous year. The same holds true for aquaculture production which increased to 10.07 million tonnes, or up 3.98% over the same period in the previous year.
Overall, according to data from the Central Statistics Agency (BPS), the fisheries sector in Indonesia has grown 8.37% yoy in the third quarter of 2015, far higher than the country's economic growth of 4.73% yoy in the same quarter. Until the end of 2015, domestic capture fishery production reached 6.2 million tonnes, while that of aquaculture reached 17.6 million tonnes. Although both areas actually missed their set targets, Indonesia is still the world's second largest capture fishery producer after China, and the fourth largest aquaculture producer in the world.
Indonesia’s fish exports also suffered a decline in 2015. According to data from the Ministry of MAF, the value of total fish exports in 2015 was only $4 billion USD, which is a considerable gap versus the target of $5.8 billion USD. In addition to the slowing global business climate, the decline was also due in part to the ban of 1,132 ex-foreign ships from operating in Indonesian seas.
The Ministry of MAF issued a moratorium on ex-foreign vessels in November 2014 which were banned from fishing in Indonesian waters with those violating the policy facing the threat of having their ships sunk; often in rather public ways. As a result of this policy, many ex-foreign ships fled the country which resulted in a decline in exports to countries whose fishing boats engaged in illegal fishing including China, the Philippines, and Thailand. Based on data from the Ministry of MAF, fish exports to China and Thailand in 2015 decreased by 17% and 41.72%, respectively. In 2015, the United States was still the largest importer of Indonesian fishery products. The country accounted for 41% of total Indonesian fishery exports, followed by Japan (16%), Europe (12%) and the ASEAN countries (11%).
The Indonesian government has set a target to increase capture fishery production by 2.4% to 6.45 million tonnes in 2016 and aquaculture production growth by 8.72% to 19.5 million tonnes. These targets seem achievable given Indonesia’s vast areas suitable for aquaculture which are still largely unused. Currently there are 11.8 million hectares used for aquaculture in the sea, 2.3 million hectares of aquaculture area in brackish water, and 2.5 million hectares used for freshwater aquaculture.
In addition, Indonesia is also expected to see fish production growth in 2016 along with the expiration of the moratorium on the issuance of fishing permits for ex-foreign fishing vessels in October 2015. Warmer weather due to El Nino is also expected to help the growth of fish population in Indonesian waters. Indonesia’s capture fishery exports are dominated by tuna and skipjack. While aquaculture exports are dominated by tilapia, milkfish, shrimp, and catfish.
In 2016, exports of shrimp and other fishery products are expected to rise due to the implementation of the ASEAN Economic Community (AEC). Furthermore, the US cancelled import duties for 34 fishery products from Indonesia in mid-2015 under the generalised system of preference. At the same time, the US also banned the entry of fishery products resulted from forced labour in Southeast Asia which hit fish exports from competing countries such as Thailand and the Philippines.
As a maritime country with two-thirds of its territory consisting of sea; Indonesia's fishery sector has been sorely neglected in the past. The marine and fishery sector’s contribution to gross domestic product of Indonesia is still small, only 3.57% in 2014 with growth of only 0.6% over the previous three years. This dire state is beginning to improve under the Widodo administration. In 2016, the government allocated 13.8 trillion IDR in the 2016 State Budget (APBN) for the Ministry of MAF, up 31.4% from the budget allocation in 2015.
Minister Susi Pudjiastuti has issued a number of policies in support of fishermen and the sustainability of the fisheries sector in Indonesia since her induction as the minister. One of her controversial yet widely applauded policies is the eradication of illegal fishing by sinking illegal foreign vessels. This policy has managed to increase the national fish supply by 240%, which in turn increases the catch of local fishermen. The demand for fish from Indonesia among global export markets has also risen, in line with the drop in fish production in neighbouring countries.
In 2016, the government has prepared a number of policies to help support the Indonesian fishery industry. One such policy, among others, is the construction of new ports in fish production centres so that fishermen can directly export their catch without having to transport them first to large ports in Medan, Jakarta, Surabaya or Bali. The Indonesian government also plans to provide 3,200 modern fishing vessels and sow 1 million fish seeds. In the downstream sector, the government has plans to build 354 ice machines, 61 cold storage areas, two units of freighters and one processing vessel.
Although the Indonesian government has taken various steps to enhance the local fishery sector, a number of problems remain. One of the major weaknesses of Indonesia’s fishery sector is that 95% of the 2.2 million people engaged in the sector are traditional fishermen. These fishermen lack the resources and capital to explore the huge potential of Indonesian aquatic resources. The majority of fishermen still use small boats and traditional equipment, which prevents them from going in to deep waters which results in lower catch volumes. They also have minimum access to finance as banks are generally reluctant to extend credit to the fishery sector, especially smallhold players, due to the high level of bad debts, which reached 11.76%.
Bank lending to the marine and fisheries sector in Indonesia in 2015 reached only 67.33 trillion IDR, or 1.85% of total bank lending of around 3,000 trillion IDR. The same is true in the multifinance industry where funding for the fisheries sector totalled only 1.7 trillion IDR, or 0.7% of the industry’s total loans.
Moreover, banks are more interested to disburse loan to the fish processing industry rather than the capture fishery or aquaculture industry. This is understandable given that the economic value of the fish processing industry reached 115 trillion IDR, far greater than the capture fishery and aquaculture sectors of 70 trillion IDR and 75 trillion IDR, respectively. Other constraints faced by the Indonesian fishing industry are the lack of infrastructure, technology and equipment such as ports, container ships and cold chain systems such as a cool boxes, ice factories and cold storage. As a result, fishermen do not have the bargaining power when it comes to choosing a market their catch which resulted in lower incomes.
A further challenge is the government’s policy allowing the import of fish from abroad. Stakeholders in the fishery sector consider the Trade Minister Regulation No. 87/2015 which was revised by Trade Minister Regulation No. 94/2015 concerning the ease of imports of fishery products has harmed the domestic fish processing industry for allowing import of processed fishery products that can be produced domestically.
Lastly, other major obstacles that hinder the growth of the fisheries sector is the low level of fish consumption in Indonesia, which until 2011 was ranked 5th in the ASEAN at 32.25 kg/capita/year. This is in contrast with national fish production which ranked number one in the ASEAN. In addition, the Indonesian palate tends to favour fresh and dried fish. As a result, it is difficult for fishermen to add value to their catch or the fish processing industry that produces fish meatballs and nuggets to thrive. This trend however is likely to change as the ranks of middle class continue to grow and the preference grows for frozen breaded fish and seafood from modern retail markets that offers greater convenience.
Foreign and domestic investment opportunities in Indonesia's fishery sector are for the taking. According to the Processing and Marketing Association of Indonesian Fishery Products (AP5I), the total investment needed by the capture fishery sector for the 2015-2019 period reached 127 trillion IDR. Meanwhile, the total investment needed by the aquaculture industry during the same period reached 320.73 trillion IDR. In 2016, investment required by the capture fishery and aquaculture sectors is expected to reach 23 trillion IDR and 29.97 trillion IDR, respectively.
Various opportunities for investment exist within capture fishery, aquaculture, fish processing, cold chain systems, and warehousing (See Indonesia’s New Negative Investment List; A Big Bang?). However, not all business sectors in the fishery industry are open to foreign investors. In the future, the government plans to prohibit foreign investment in the capture fishery sector. Foreign investors are only allowed to invest in the fish processing industry, with a maximum of 40% ownership in the western region and 60% ownership in the eastern region of Indonesia. Within fish processing, specific areas for investors to focus on are frozen fish, minced fish and surimi, canned fish, preserved shrimp and other frozen aquatic biota.
The Indonesian government has set up four supporting policies to boost investment in the fisheries sector, especially in the special economic zones. First, income tax incentives (PPH) in the form of a reduction in applicable tax by 5% per year for six years, a reduction in value added tax (VAT) in the form of free VAT on taxable goods, customs facilities in the form of duty-free entry for the imports of goods and capital, and a reduction of red tape through the streamlining of processes by BKPM.
Global Business Guide Indonesia - 2016
Contribution to GDP: 13.88% (Q3 2015 for Agriculture including Fisheries & Livestock) Exports: $3.1 billion USD (2014 for Fisheries)
Main Products: Shrimp, Tuna, Grouper Fish, Snapper Fish, Mackerel, Squid, Octopus, Cuttlefish, Crab, Seaweed, Sea Cucumber, Lobster.
Main Imports: Live Cattle, Frozen Beef and Veal, Cow Milk.
Relevant Law: Indonesia is aiming for self-sufficiency in both beef and poultry with restrictions placed on imports of both products. However, the country is still heavily reliant on imports of live cattle and beef. The Animal Husbandry and Animal Health Law of 2014 widens the scope of countries from which Indonesia can source animal products.