Indonesia: Realising potential

Rising visitor numbers are supporting the growth of Indonesia’s tourism industry, and the country is now looking to tap into growing markets and develop new destinations. While tourism is an important foreign currency earner and a moderate contributor to overall GDP, it is still small compared to regional leaders Thailand and Malaysia. Its growth outlook, however, is excellent, and efforts to improve infrastructure and develop promotion and connectivity could pay further dividends.

According to Mari Elka Pangestu, the minister for tourism and creative economy, Indonesia expects to attract 9.5m foreign tourist arrivals in 2014. Government efforts to attract more visitors from Russia and emerging markets in Asia are also forecast to pay dividends.

Pangestu also noted that Indonesia aimed to diversify its tourism sector by bringing in more tourists from fast-growing countries less affected by the current global economic situation, including China, India and Russia. The country also hopes to increase the number of visitors from Japan, a developed economy and a major outbound tourism market that Indonesia could yet tap more effectively.

To an extent, Indonesia is building on its past success. Arrivals increased 9.3% from 7m in 2010 to 7.65m in 2011, slightly above forecast. In Bali, the country has one of the world’s most iconic tourist destinations, and there is already a strong base of business tourism, as Indonesia’s buoyant economic growth has made it a magnet for international investment.

However, as industry leaders acknowledge, the industry is still operating well below its considerable potential. On March 30, Asnawi Bahar, the chairman of the Association of the Indonesia Tour and Travel Agencies (Asita), was quoted as saying the sector was “sleeping”. While arrivals to Indonesia have been growing at an impressive rate, they remain well below those of nearby Malaysia, which saw 24m visitors in 2011, and Thailand, which saw 23m.

Indeed, tourism and travel is expected to directly contribute 3% to Indonesia’s GDP in 2012, below the global average of 5.2%. This ranks Indonesia 98th in the world in terms of the relative size of its tourism industry, according to the World Tourism & Travel Council (WTTC), a global association of industry leaders.

In Thailand, the proportion is 7.1% and in Malaysia, 6.7%. While travel and tourism’s “overall impact”, including direct, indirect and “induced” impact on other sectors, accounts for 8.8% of GDP, this is still lower than the global average of 14% and the 16.3% and 14.8% seen in Thailand and Malaysia, respectively.

There are several factors that may be holding the sector back. One of the most significant is infrastructure. Even some fairly well-known attractions are difficult to get to, partly due to geography but also due to patchy connectivity and poor roads. A shortage of top-quality hotel rooms outside the major tourism centres may also put off the sort of well-heeled tourists that Indonesia seeks to attract.

Human resources are also an issue; finding well-trained and multilingual staff is a challenge for tour operators, hotels and other businesses. With other internationally oriented industries, such as mining and financial services, also growing strongly, competition for talent is stiff.

However, greater competitiveness in the tourism industry could help it grow over the longer term. Foreign investment in the sector is already increasing competition, bringing in much-needed capital and expertise and helping to drive up standards. Encouraging investment in less-developed parts of the country with tourism potential could be beneficial in broadening the sector’s geographical impact. A more supportive environment for local entrepreneurs in the sector would also increase competition and stimulate development.

Increasing international airline connectivity, particularly to countries such as India and Russia, is a central plank of the tourism strategy. In March, Pangestu announced that her ministry was seeking agreements with international airlines to increase connectivity and promote tourism. She was speaking after the government signed an agreement with Singapore Airlines for joint promotional efforts abroad, including using the carrier’s marketing staff in key foreign markets.

That Indonesia is starting to realise its tourism potential is clear from the WTTC’s bullish forecasts for growth over the next decade. The organisation expects the sector to expand by 7.6% this year, despite the sluggish international outlook, and to average 6.9% annually in 2012. The industry’s overall contribution to GDP is expected to rise by 6% in 2012, and also to average 6.9% growth over the next 10 years. This kind of growth could put Indonesia on par with other countries in the region.