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Indonesia’s tourism industry is beginning to show signs of fulfilling its immense potential, with recent figures released by the Ministry of Tourism and Creative Economy demonstrating a 10.1% rise in the number of visitors between January and March of 2014 relative to the same period last year. This in keeping with the country’s goal of exceeding the 9.4% market growth rate achieved between 2012 and 2013 in an effort to close the gap to regional neighbours such as Singapore and Thailand.
Among the most daunting impediments to sustaining double digit growth in tourism are inadequacies in infrastructure; being the world’s largest archipelago has made the country challenging to access for the broadest segment of the tourism market. With that said, the country’s unique geography also presents real opportunities to tap into lucrative maritime tourism thereby offering a distinctive tourism brand while overcoming many of the logistical challenges associated with visiting Indonesia.
Moreover, recent revisions to the Negative Investment List (DNI) mean that now is as opportune a time as ever to enter the market. Though not yet confirmed in early releases of the presidential decree affirming an amended DNI first tabled in late 2013 (See Changes to the Negative Investment List Tabled; Approval Expected Shortly), it is expected that maximum foreign ownership in ecotourism ventures will increase from 49% to 70%. In a move to further attract international involvement, the Ministry of Tourism and Creative Economy intimated on 28th April 2014 that it would allow a 100% foreign stake in tourism ventures, with the caveat that the foreign entity would need to have in place a joint venture with a local company as a prerequisite for approval.
Given the context of an easing of restrictions on foreign involvement in the industry, international investors are encouraged to tap into the aforementioned maritime tourism market as a niche subsector with considerable scope to boom in the immediate future. With over 54,000 km of coastline, Indonesia is positioned as a member of the Coral Triangle Initiative (CTI) – an area encompassing parts of six nations that lays claim to over 75% of the world’s total biodiversity in coral. This wealth of natural resources presents opportunities to companies able to offer maritime tourism packages that include internationally certified courses in diving and other water sports as well as ensure the highest safety standards.
Support from the government for those establishing businesses in maritime tourism is forthcoming, through its backing of initiatives such as Sail Indonesia: an annual rally that takes hundreds of yachts from around the world to different parts of Indonesia as a means of boosting the area’s tourism and better marketing Indonesia’s many sights hidden off the beaten path. Past years have seen this trip visit Morotai and Komodo, and in June 2014 Sail Indonesia will head to West Papua from its starting point in Darwin, Australia; in keeping with the current trend towards promoting the potential of Indonesia’s eastern islands as leading tourist destinations (See Unleashing the Potential of Indonesia’s Eastern Islands in 2014).
Further encouraging the development of the maritime tourism industry in presently untapped parts of the archipelago are events such as the Bali & Beyond Travel Fair; to be hosted on June 10th with the goal of luring visitors to less explored destinations in addition to the usual travel spots. This type of promotional activity is indicative of Indonesia’s commitment to enacting policies proposed in its Economic Masterplan (MP3EI), which entails establishing Bali as the centre of tourism activity connected to the islands of East Nusa Tenggara and the rest of eastern Indonesia, and should lead to new PPP projects to create new passenger and cruise ship terminals (See Indonesia Infrastructure: Tremendous PPP Opportunities).
Greater government attention to developing maritime tourism with a focus on the potential of the eastern islands bodes well for the future of companies looking to set up in locations less saturated with competition and not as subject to inflated property prices. Specific areas of Indonesia to consider as high potential markets for maritime tourism include the Banda Islands off the coast of Maluku, which offer close access to prime diving spots but currently has only one licensed dive operator. As getting to the Banda Islands remains the biggest disincentive to visiting, companies able to incorporate this destination as part of a travel-inclusive tour of the eastern islands stand to fill a gap in the market and carve out a foothold in an area presently lacking the presence of a major tourism service provider.
The bevy of islands that stand to become hotspots for coastal tourism and centres for water sports as well as the region’s rising consumer purchasing power now has Indonesia positioned as a burgeoning market for cruises. Senior Vice President of Star Cruises, Mr Michael Goh in an interview with Travel Biz Monitor, in fact identified Indonesia as among the top emerging markets for its fleet. Issues remain, however, in regards to the lack of deep water ports earmarked for tourism that are able to accommodate large cruise ship liners. Projects to address this shortcoming are underway but for the most part are several years away from completion, including the Benoa port on the southern tip of Bali that currently serves as a destination port for passenger drop-off and re-embarkation but is to undergo development so as to become a hub port. Pending approval from the provincial and city administration, this would enable cruise operators to establish bases in Bali in reaching out to the rest of Indonesia as of 2017, when operations of its more comprehensive facilities are expected to commence.
It is important that cruise operators also pay close attention to the quality of engineering taking place in new projects. Indonesia has in the past constructed new cruise port facilities only for it to be quickly damaged by extreme weather and poorly matched to the size of incoming ships. The Tanah Ampo Cruise Port for instance, has seen international cruises refusing to disembark its passengers at its terminals as a result of damaged gangway connections between pontoons and the main pier; and despite only being completed in 2011 is now scheduled for additional construction to lengthen its wharf to accommodate larger cruise ships. Future infrastructural developments should thus be scrutinized to ensure that they make available the necessary facilities and auxiliary services to support major cruise liners. That said, PPP tenders to carry out this kind of expansion in and of themselves present opportunities to companies with expertise in developing international standard cruise ship terminals.
While waiting for progress in the construction of ports ready to act as hubs for large cruise vessels, foreign investors can in the mean time look into offering more private and personalized travel services on smaller vessels such as traditional hand-built yachts popularized by the local community and already used to great effect for tourism purposes. Foreign investors in particular can look to expand upon this more culturally immersive travel experience by adapting traditional boats to luxury standards tailored to those looking for five star amenities. Steppes Travel, a UK based specialist in exotic tourism, and their marketing of a small four-suite ship that sails around remote islands in eastern Indonesia is a framework for success in this type of endeavour that can be emulated.
The room for foreign involvement in Indonesia’s tourism industry is not by any means limited to taking upon the role of maritime tourism service provider. The opening up of businesses that provide port facilities, which now allows for 95% foreign ownership of ports developed via PPP, presents an opening for companies looking to take advantage of increasing waterway traffic not only between Indonesian islands but also from other countries in the ASEAN. Rising inter-ASEAN connectivity has already encouraged local ferry companies to launch routes between Indonesia and its neighbouring countries and a further widening of this passenger ferry network should be anticipated as regional tourists not bound for cities already well-served by commercial airlines look to access Indonesia via sea transport.
Ecotourism is another field of substantial potential, and as demonstrated by the country’s initial forays to develop this niche industry in Pangandaran, West Java, will bring about demand for expertise in manufacturing and implementing new technology in renewable energy as well as an in-depth understanding of techniques in sustainable agricultural practices.
Now within a more welcoming and conducive regulatory environment, foreign investors have the chance to be a part of Indonesia’s branding as a maritime tourism destination. This comes at a time when seasoned international travellers are seeking new experiences and neighbouring markets of China and India are set to become the largest sources of tourists globally. With an even greater scope for opportunities attributed to ongoing ASEAN connectivity programs, there is an immediate need to be met by experienced players to accelerate Indonesia's development as a premium tourism destination as the government steps up its efforts to go beyond reliance on the country's natural beauty and cultural diversity which has thus far failed to pull in the tourism numbers that it rightfully should.
Global Business Guide Indonesia - 12th May 2014
Contribution to GDP: 9.6% (2016)
Number Employed in the Sector: 12.16 million (2015)
Monthly Average of Foreign Tourists: 940,361 (Jan-Oct 2016)
Domestic Tourism: 270 million trips (estimated, 2016)
Competitiveness Score: 37/140 (WEF, 2016)
Regional Rank: 4/15 in Asia-Pacific, 4/9 in Southeast Asia (WEF, 2016)
Most Popular Locations: Bali, Jakarta, Yogjakarta, Bandung, Batam, Medan.
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