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

October 8, 2025

Investments to North Sumatra Province was revealed to have reached Rp 28.41 trillion in the first half (H1) of 2025, or about 60 percent of the province's annual investment target for this year, during the North Sumatra Economic and Investment Synergy (SEMESTA) press conference by the North Sumatra Communication and Informatics Office at the North Sumatra Governor's Office in Medan City, North Sumatra on Sep. 29, 2025.

"Foreign investments reached [nearly] Rp 11.98 trillion while domestic investments reached Rp 16.43 trillion, with the largest contribution coming from the transportation, warehousing, and telecommunications sector at Rp 7.76 trillion," informed North Sumatra Investment and One-Stop Integrated Services Office (DPMPTSP) Head Chandra Dalimunthe.

Other sectors contributing to overall investment in North Sumatra for H1 2025 include the pharmaceutical and chemical manufacturing sector with Rp 5.74 trillion, the food manufacturing sector (Rp 2.96 trillion), the electricity, gas, and water sector with Rp 2.68 trillion, as well as the trade and repair sector with Rp 1.56 trillion.

Chandra detailed the major investment realization locations in North Sumatra encompass Simalungun Regency with Rp 11.98 trillion, Medan City with Rp 6.07 trillion, Deli Serdang Regency with Rp 3.21 trillion, South Tapanuli Regency with Rp 2.31 trillion, and Batubara Regency with Rp 534.42 billion.

The North Sumatra Provincial Government's strategy to encourage investment to the province includes providing investment facilities and incentives through North Sumatra Regional Regulation No. 3/2023 and North Sumatra Gubernatorial Regulation No. 3/2025. These include various discounts or relief on taxes that fall under the provincial government's purview, including on the motor vehicle tax, heavy equipment tax, and surface water tax.

The North Sumatra DPMPTSP government is optimistic that the investment target of Rp 53.67 trillion in 2025 could be achieved through excellent service of the province's Online Single Submission Risk Based Approach (OSS-RBA) and Siap Layani applications.

"We are simplifying licensing through the OSS[-RBA] online application and Siap Layani, an independent application owned by the North Sumatra Provincial Government. The OSS[-RBA] target is 1,997 permits issued, while Siap Layani is targeting 391 [for this year]," added Chandra.

He also explained that the North Sumatra DPMPTSP is working to increase investment in the downstream industry side of the palm oil sector.

"We are working to improve this sector through derived products such as cooking oil, soap, and biodiesel," Chandra concluded.

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