Province

North Sumatra

Overview Economy

North Sumatra, a large salad bowl of people

North Sumatra, whose capital is Medan, ranks as the fourth most populous province in Indonesia, following West Java, East Java, and Central Java, with up to 15.1 million residents as of 2022. Rather than being a melting pot, the province is best described as a large bowl of salad, comprised of diverse ethnicities, cultures, and religions.

Ethnically diverse, North Sumatra is home to several indigenous groups. The Malay people reside along the east coast, while the Batak people inhabit the west coast and the central highlands region around Lake Toba. The Batak people are further categorized into six groups based on region, culture, and location: Pakpak, Angkola, and Mandailing on the west coast, and Toba, Simalungun, and Karo in the central highlands. Additionally, North Sumatra is home to the Nias people, who are natives of the Indian Ocean Island of Nias and its surrounding islets.

Residents of Chinese and South Asian descent together constitute a small but significant minority in North Sumatra, along with descendants of historical migrants from Java and migrants from other surrounding regions. These regions include the Minangkabau people of West Sumatra, the Palembang people of South Sumatra, and the Acehnese.

Furthermore, North Sumatra is home to a predominantly Muslim population, constituting over 60 percent of residents, followed by Christians (Protestant and Catholic) and Buddhists. Despite this great diversity, the province maintains generally harmonious inter-ethnic and inter-religious relations. However, at the same time, primordialism plays a role in both society and political life.

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North Sumatra’s economy, leading sectors

North Sumatra is one of the leading economies on the island of Sumatra, experiencing positive economic growth in recent years. For instance, in 2022, the province's economy expanded by 4.73 percent, a significant increase from 2.61 percent in 2021 and a notable recovery from -1.07 percent in 2020.

Several sectors are driving North Sumatra's economic growth: agriculture, trade, and construction.

As one of the country’s plantation centers, North Sumatra relies on key commodities such as palm oil, rubber, coffee, cocoa, and tobacco in its agriculture sector. Palm oil plantations owned by the people of North Sumatra are primarily concentrated in Asahan regency, accounting for over 15 percent of all palm oil plantations in the region, while coffee (robusta and arabica) is produced in the regencies of North Tapanuli, Simalungun, and Dairi.

Trade is also a key sector in North Sumatra’s economy, with the province exporting agricultural products like coffee, tea, and spices, as well as industrial products, specifically animal and vegetable fats and oils. As of 2022, the leading export commodity is vegetable fats and oils, reaching a significant export value of US$4.71 billion. Typically, these commodity exports from the province find their way to the Asian region, particularly China, as well as the United States. In terms of imports, North Sumatra's imports are predominantly raw/auxiliary materials, followed by capital goods and consumer goods.

Furthermore, North Sumatra's economy has increasingly relied on the non-trade sector, dominated by services, notably construction. North Sumatra’s Regional Gross Domestic Product (GRDP) in the construction sector has risen from Rp 64 trillion (US$4 billion) in 2018 to an estimated Rp 70 trillion (US$ 4.4 billion) in 2022. Moreover, the construction sector has become a major contributor to North Sumatra's employment industry.

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Latest News

November 8, 2024

Acting North Sumatra Governor Agus Fatoni and the Indonesian Palm Oil Association (GAPKI) North Sumatra held a meeting to discuss various crucial issues in the palm oil industry at the North Sumatra Governor's official residence in Medan City, North Sumatra on Nov. 5, 2024. The discussion included the Palm Oil Rejuvenation (PSR) program, oil palm revenue sharing funds (DBH), as well as labor, production, and efforts to maintain the security of palm oil plantation investments in North Sumatra.

"Oil palm has a very large role and impact North Sumatra, from its productivity to its workforce. Oil palm is an important factor that can accelerate progress, independence, and local community welfare," Fatoni claimed.

He highlighted the need for synergy between the government and business actors to overcome challenges such as replanting of oil palm plantations, looting, and legal issues related to land uncertainty. The PSR program, which aims to raise productivity and quality of plantations through assistance to farmers for replanting oil palms, is in focus for those matters.

Fatoni also emphasized the importance of an integrated approach in the management of oil palm DBH and Corporate Social Responsibility (CSR) programs by palm oil companies.

"We need to ensure that CSR contributions from companies truly have a direct impact on the local community, such as in the form of building houses of worship or educational scholarships," he noted.

GAPKI North Sumatra Chair Timbas Prasad Ginting stated that land legality issues and bureaucratic obstacles are still the main challenges in accelerating PSR. The program, which initially provided a grant of Rp25 million per hectare (ha) for replanting smallholder oil palm plantations, received high enthusiasm from farmers.

"However, legal and regulatory obstacles need to be overcome immediately through harmonization of regulations between the government and industry," he explained.

There are around 490,000 ha of smallholder oil palm plantation land out of 1.4 million ha of total oil palm plantation land in North Sumatra based on North Sumatra Province Plantation and Livestock Office (Disbunak) data. However, only 25,581 ha have received PSR assistance from 2017 to 2023. For 2024, the North Sumatra Disbunak targeted 9,500 ha of oil palm plantation lands replanted, but just 3,000 ha of that target has been reached as of November 2024.

In the meeting, Fatoni and stakeholders from various agencies, including North Sumatra Disbunak Head M. Zakir Syarif Daulay, North Sumatra Environment and Forestry Office Head Yuliani Siregar, supported the importance of cross-sector collaboration. Such collaborations are expected to encourage the palm oil industry's continuity in North Sumatra while still paying attention to environmental sustainability.

"Oil palm [industry's] continuity is not only about productivity, but it also concerns environmental preservation, support for the surrounding community, and investment security. For those reasons, strong synergy is needed between the government and business actors in maintaining the industry's sustainability," Fatoni concluded.

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