Sector

Industry

Indonesia's industrial sector encompasses diverse subsectors that play a significant role in the country’s gross domestic product (GDP). Notably, manufacturing contributed 16.30 percent of Indonesia’s total GDP in the second quarter of 2023, with key activities including the manufacturing of textiles, automotive, electronics, and food processing. During the same period, other subsectors also experienced growth, led by the metal, computer, electronic devices, optical, and electronic appliances industry, which grew by 17.32 percent. This was followed by growth in the basic metal industry by 11.49 percent, the transportation industry by 9.66 percent, the food and beverage (F&B) industry by 4.62 percent, and the paper and recording media industry by 4.50 percent.

View more

Industry

Indonesia's industrial sector encompasses diverse subsectors that play a significant role in the country’s gross domestic product (GDP). Notably, manufacturing contributed 16.30 percent of Indonesia’s total GDP in the second quarter of 2023, with key activities including the manufacturing of textiles, automotive, electronics, and food processing. During the same period, other subsectors also experienced growth, led by the metal, computer, electronic devices, optical, and electronic appliances industry, which grew by 17.32 percent. This was followed by growth in the basic metal industry by 11.49 percent, the transportation industry by 9.66 percent, the food and beverage (F&B) industry by 4.62 percent, and the paper and recording media industry by 4.50 percent.

Notably, the F&B industry stands out as the only non-mineral industry to have made the largest contribution to the national GDP at 38.61 percent in the first quarter of 2023, having generated US$1.1 billion from 2,226 projects through foreign direct investment (FDI) and Rp 26.72 trillion from 5,416 projects through domestic investment sources.

Indonesia’s massive industrial development has enabled the industrial sector to provide extensive employment opportunities, with over 19 million people employed in the sector, making it the largest workforce in Indonesia as of 2019. By 2024, the government aims to further increase employment in the sector to more than 20 million people.

Among all the subsectors, the non-oil and gas manufacturing industry has emerged as one of the most important in terms of employment, providing work opportunities for approximately 14.13 percent of the Indonesian labor force in 2022. Companies within this subsector are mostly concentrated on the island of Java. Additionally, the Riau Islands are known to have the highest average net wage for manufacturing workers in the country, with around Rp 5.55 million per month as of February 2023.

Furthermore, Indonesia's industrial sector presents promising opportunities for growth and development across various fronts, including Industry 4.0 transformation, adoption of sustainable practices, regional integration with Southeast Asia and Pacific actors, downstream manufacturing, and empowerment of small and medium enterprises (SMEs). Particularly concerning Industry 4.0 transformation, the government administers the integration of advanced technologies into the production process to improve efficiency and product quality. Additionally, efforts are underway to reduce production costs by placing cement, refined petroleum, automotive, and F&B at the forefront of entering Industry 4.0.

Moreover, the incoming administration has promised to bolster the downstream agenda, especially in the mining sector, with plans for 20 new smelters set to become operational between 2024 and 2025. The shift towards downstream mining products, such as bauxite, copper, and tin has the potential to increase their value, with added values reaching up to three to 180 times along the value chain.

Latest News

April 28, 2026

Indonesia is facing mounting scrutiny over a United States proposal to introduce a notification-based overflight arrangement. As policymakers weigh strategic cooperation against legal consistency and long-standing non-alignment, the decision may ultimately redefine Indonesia’s position within an increasingly contested Indo-Pacific security landscape.

The Defense Ministry has confirmed the existence of a draft letter of intent (LoI) proposed by the US Department of Defense dated Feb. 26, titled “Operationalizing U.S. Overflight.” This non-binding document outlines a blanket overflight scheme, proposing that both countries transition from a case-by-case approval system toward a notification-based mechanism. Such a shift would significantly reduce procedural barriers to US military mobility.

This development has drawn widespread attention since Defense Minister Sjafrie Sjamsoeddin and US Secretary of Defense Pete Hegseth announced the Major Defense Cooperation Partnership (MDCP) at the Pentagon on April 13. The agreement rests on three pillars: military organization and capacity building, professional military education and training, and operational cooperation.

Consequently, media and public scrutiny have continued to intensify. The issue is particularly sensitive as it coincides with the implementation of a new legal regime, Law No. 21/2025 on National Airspace Management (UU PRUN), which came into force in December 2025. The law explicitly affirms that Indonesia’s airspace falls under the country’s full and exclusive sovereignty.

This overlap between a strengthened legal assertion of sovereignty and a proposal to ease foreign military access creates a structural policy tension that may test the consistency of Indonesia’s regulatory framework. A number of analysts have warned that granting blanket overflight clearance to the US risks undermining Indonesia’s legal sovereignty, contradicting the UU PRUN and weakening national control. Such a policy could erode Indonesia’s geopolitical neutrality and expose the country to broader strategic risks. As such, they argue, the proposal should either be rejected or, at minimum, strictly limited with robust regulatory safeguards. Beyond legal contradictions, the proposal raises concerns about a gradual shift in Indonesia’s long-standing “free and active” foreign policy toward implicit strategic alignment.

Domestically, competing views have emerged among stakeholders. House of Representatives Commission I has emphasized that any decision to grant comprehensive overflight access must undergo a parliamentary ratification process. Meanwhile, the Foreign Ministry has urged the Defense Ministry to adopt policies that do not carry adverse implications for regional stability. These differing positions highlight an institutional divide between defense-driven pragmatism and diplomatic risk sensitivity, potentially complicating policy coherence.

The Foreign Ministry further warned that opening Indonesian airspace to Washington could expose Jakarta to potential retaliation in the event of a broader conflict involving the US and Israel against Iran, citing recent Iranian attacks on Middle Eastern countries hosting US military assets. The ministry also cautioned that the plan could heighten tensions in the South China Sea and risk drawing Indonesia more directly into major power rivalry in those contested waters.

At the regional level, ASEAN countries are closely monitoring developments. China, however, has responded more explicitly. On April 17, Chinese Foreign Ministry spokesperson Guo Jiakun stated that, in line with the ASEAN Charter and the Treaty of Amity and Cooperation (TAC), member states must uphold collective responsibility for regional peace, security, and prosperity.

He further urged members to refrain from actions—including the use of their territory—that could threaten the sovereignty or territorial integrity of other ASEAN members. China’s response signals potential diplomatic pressure and frames the issue as a test of ASEAN norms and Indonesia’s commitment to regional neutrality.

Indonesia is geographically surrounded by US military installations in Australia, the Philippines, Guam, Papua New Guinea, and Singapore. In the Philippines, President Ferdinand Marcos Jr. expanded the number of bases accessible to the US to nine in 2023, including locations facing Taiwan and the South China Sea.

The upcoming Balikatan joint military exercises, scheduled from April 20 to May 8, will be the largest to date, involving participants such as New Zealand, Canada, Japan, France, and Australia. Expanding US access to Indonesian airspace would further consolidate Washington’s forward military presence in the Indo-Pacific, potentially recalibrating regional deterrence dynamics.

China, meanwhile, has also expanded its military footprint in Southeast Asia. Beijing operates military bases on artificial islands in the South China Sea, equipped with airstrips, ports, air defense systems, and long-range missile capabilities. It also maintains a military presence in Cambodia.

The overflight proposal reflects a strategic trade-off between operational cooperation and sovereign control, increasingly shaped by President Prabowo Subianto’s tilt toward closer engagement with the US and Western security frameworks. While this approach may enhance defense interoperability, it risks creating legal inconsistencies and gradual strategic entanglement, potentially diluting Indonesia’s long-standing non-aligned posture.

The key policy challenge is to ensure that deeper alignment does not outpace regulatory safeguards and diplomatic balance, thereby preserving Indonesia’s strategic autonomy.

Read more
Load more