Future of the Indonesia Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2022

Table of Contents

1. Introduction 8

1.1. What is this Report About? 8

1.2. Definitions 8

1.3. Summary Methodology 10

1.4. About Strategic Defense Intelligence 11

2. Executive Summary 12

3. Market Attractiveness and Emerging Opportunities 14

3.1. Current Market Scenario 15

3.1.1. Primary threat perception 15

3.1.2. Military Doctrine & Strategy 16

3.1.3. Military Fleet Size 18

3.1.4. Procurement Programs 24

3.1.5. Ongoing procurement programs 24

3.1.6. Future procurement programs 26

3.1.7. Social, Political and Economic Environment & Support for Defense Projects 27

3.1.8. Political & Strategic Alliances 28

3.2. Defense Market Size Historical and Forecast 29

3.2.1. Indonesian defense budget is expected to reach US$17.2 billion by 2022, at a CAGR of

14.38% 29

3.2.2. Defense expenditure is driven by the modernization of the armed forces, indigenization, territorial disputes, and natural disasters 31

3.2.3. Defense budget as a percentage of GDP expected to increase over the forecast period 34

3.3. Analysis of Defense Budget Allocation 36

3.3.1. Capital expenditure share in defense budget is expected to increase to an average of

42.4% over the forecast period 36

3.3.2. Capital expenditure to increase over the forecast period 38

3.3.3. Per capita defense expenditure expected to increase during the forecast period 40

3.4. Homeland Security Market Size and Forecast 41

3.4.1. Homeland security expenditure is expected to grow at a CAGR of

10.46% during the forecast period 41

3.4.2. Border Security and Terrorism to drive the homeland security market over the forecast period 43

3.4.3. Indonesia considered as ‘high risk’ category of terrorist attack 44

3.4.4. Indonesia faces high level of threat from foreign terrorist organizations 45

3.4.5. Indonesia has a terrorism index score of “4.4” 47

3.5. Benchmarking with Key Global Markets 48

3.5.1. Indonesia’s defense budget expected to register rapid growth over the forecast period 48

3.5.2. Indonesian defense expenditure is relatively small compared to other Asian countries 50

3.5.3. The Indonesian defense budget as a percentage of GDP is expected to increase during 2018-2022 51

3.6. Market Opportunities: Key Trends and Growth Stimulators 52

3.6.1. Military-IT Networking 52

3.6.2. Multi-Role Aircraft 53

3.6.3. Submarine 54

4. Defense Procurement Market Dynamics 55

4.1. Import Market Dynamics 56

4.1.1. Defense imports expected to increase during forecast period 56

4.1.2. Indonesia plans to diversify arms imports 57

4.1.3. Aircraft and ships constitute the majority of Indonesian defense imports 58

4.2. Export Market Dynamics 59

4.2.1. Indonesia does not possess significant defense export capability 59

5. Industry Dynamics 60

5.1. Five Forces Analysis 60

5.1.1. Bargaining power of supplier: Low 61

5.1.2. Bargaining power of Buyer: Medium 61

5.1.3. Barrier to entry: Medium 61

5.1.4. Intensity of rivalry: Low 61

5.1.5. Threat of Substitution: High 61

6. Market Entry Strategy 62

6.1. Market Regulation 62

6.1.1. Defense investment policy conducive to both domestic and foreign investment 62

6.1.2. New procurement policy to support small and medium enterprises 63

6.1.3. Indonesia to launch formal offset policy 63

6.2. Market Entry Route 64

6.2.1. Budget Process 64

6.2.2. Procurement Policy & Process 66

6.2.3. Foreign defense suppliers enter the Indonesian defense market primarily through joint ventures 67

6.2.4. Strategic partnership and military collaborations an easier way to access the Indonesian defense market 67

6.3. Key Challenges 68

6.3.1. Small defense budget deters investment 68

6.3.2. Lack of defense infrastructure 68

6.3.3. Corruption impedes the growth of the Indonesian defense industry 68

7. Competitive Landscape and Strategic Insights 69

7.1. Competitive landscape Overview 69

7.2. Key Public Sector Companies 72

7.2.1. PT Dirgantara Indonesia: overview 72

7.2.2. PT Dirgantara Indonesia: Major Products and Services 72

7.2.3. PT Dirgantara Indonesia: recent announcements and strategic initiatives 72

7.2.4. PT Dirgantara Indonesia: alliances 73

7.2.5. PT Dirgantara Indonesia: recent contract wins 74

7.2.6. PAL Indonesia: overview 76

7.2.7. PAL Indonesia: Major Products 76

7.2.8. PAL Indonesia: recent announcements and strategic initiatives 76

7.2.9. PAL Indonesia: Alliances 77

7.2.10. PAL Indonesia: Recent Contract Wins 77

7.2.11. PT Pindad: overview 78

7.2.12. PT Pindad: Major Products 78

7.2.13. PT Pindad: recent announcements and strategic initiatives 79

7.2.14. PT Pindad: alliances 80

7.2.15. PT Pindad: Recent Contract Wins 80

7.2.16. Dok & Perkapalan: overview 81

7.2.17. Dok & Perkapalan: Major Products 81

7.2.18. Dok & Perkapalan: recent announcements and strategic initiatives 81

7.2.19. Dok & Perkapalan: alliances 82

7.2.20. Dok & Perkapalan: Recent Contract Wins 82

7.3. Key Private Sector Companies 83

7.3.1. PT Dahana: overview 83

7.3.2. PT Dahana: products 83

7.3.3. PT Dahana: recent announcements and strategic initiatives 83

7.3.4. PT Dahana: alliances 84

7.3.5. PT Dahana: recent contract wins 84

7.3.6. PT Multiintegra: overview 85

7.3.7. PT Multiintegra: products 85

7.3.8. PT Multiintegra: recent announcements and strategic initiatives 87

7.3.9. PT Multiintegra: recent contract wins 87

7.3.10. Radar and Communications Systems: overview 88

7.3.11. Radar and Communications Systems: products 88

7.3.12. Radar and Communications Systems: recent announcements and strategic initiatives. 88

7.3.13. Radar and Communications Systems: alliances 89

7.3.14. PT SOG Indonesia: overview 90

7.3.15. PT SOG Indonesia: products and services 90

7.3.16. PT SOG Indonesia: recent announcements and strategic initiatives 90

7.3.17. PT SOG Indonesia: alliances 91

8. Business Environment and Country Risk 92

8.1. Economic Performance 92

8.1.1. GDP Per Capita 92

8.1.2. GDP, Current Prices 93

8.1.3. Exports of goods and services, current prices 94

8.1.4. Imports of goods and services, current prices 95

8.1.5. Gross National disposable income (USD Bn) 96

8.1.6. Local Currency Unit per US Dollar 97

8.1.7. Market Capitalization of Listed Companies 98

8.1.8. Market Capitalization of Listed Companies (% of GDP) 99

8.1.9. Government Cash Surplus/Deficit as % of GDP 100

8.1.10. Goods exports as % of GDP 101

8.1.11. Goods imports as % of GDP 102

8.1.12. Service Imports as % of GDP 103

8.1.13. Service Exports as % of GDP 104

8.1.14. Foreign Direct Investment (US$ Billion) 105

8.1.15. Net foreign direct investment as % of GDP 106

8.1.16. Mining, Manufacturing, Utilities Output (LCU Bn) 107

9. Appendix 108

9.1. About SDI 108

9.2. Disclaimer 108

List of Tables

Table 1: Indonesian Army Strength 18

Table 2: Indonesian Navy Strength 20

Table 3: Indonesian Marine Crops. Strength 22

Table 4: Indonesian Air Force Strength 22

Table 5: Indonesian Ongoing Procurement Programs 24

Table 6: Indonesian Future Procurement Programs 26

Table 7: Indonesia – Defense Expenditure (IDR Trillion and US$ Billion), 2013-2022 29

Table 8: Indonesia – GDP Growth vs Defense Expenditure According to Percentage of GDP Growth, 2013-2022 34

Table 9: Indonesian Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 36

Table 10: Indonesian – Defense Capital Expenditure (IDR Trillion and US$ Billion), 2013-2022 38

Table 11: Indonesian Per Capita Defense Expenditure (US$), 2013-2022 40

Table 12: Indonesia – Homeland Security Expenditure (IDR Trillion and US$ Billion), 2013-2022 41

Table 13: Terrorism Index, 2017 45

Table 14: Benchmarking with Key Markets – 2013-2017 vs 2018-2022 48

Table 15: Offset Regulations in Indonesia 62

Table 16: Indonesian Budget Formation Timetable: 64

Table 17: Competitive Landscape of the Indonesian Defense Industry 69

Table 18: PT Dirgantara Indonesia-Major Products & Services 72

Table 19: PT Dirgantara Indonesia – Alliances 73

Table 20: PT Dirgantara Indonesia – recent contract wins 74

Table 21: PAL Indonesia – Major Products 76

Table 22: PAL Indonesia – Alliances 77

Table 23: PAL Indonesia – recent contract wins 77

Table 24: PT Pindad – Major Products 78

Table 25: PT Pindad – Alliances 80

Table 26: PT Pindad – recent contract wins 80

Table 27: Dok & Perkapalan-Major Products 81

Table 28: Dok & Perkapalan-Alliances 82

Table 29: Dok & Perkapalan- recent contract wins 82

Table 30: PT Dahana – Major Products 83

Table 31: PT Dahana – Alliances 84

Table 32: PT Dahana- recent contract wins 84

Table 33: PT Multiintegra- Major Products 85

Table 34: PT Multiintegra – Recent Contract Wins 87

Table 35: Radar and Communications Systems – Major Products 88

Table 36: Radar and Communications Systems- Alliances 89

Table 37: PT SOG Indonesia – Major Products & Services 90

Table 38: PT SOG Indonesia – Alliances 91

List of Figures

Figure 1: Indonesian Defense Expenditure (IDR Trillion), 2013-2022 30

Figure 2: Indonesian Defense Expenditure (US$ Billion), 2013-2022 30

Figure 3: Indonesian GDP Growth vs. Defense Expenditure as Percentage of GDP, 2013-2022 35

Figure 4:Indonesian Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 37

Figure 5: Indonesia – Defense Capital Expenditure (IDR Trillion), 2013-2022 39

Figure 6: Indonesia – Defense Capital Expenditure (US$ Billion), 2013-2022 39

Figure 7: Indonesian Per Capita Defense Expenditure (US$), 2013-2022 40

Figure 8: Indonesian Homeland Security Budget (IDR Trillion), 2013-2022 42

Figure 9: Indonesian Homeland Security Budget (US$ billion), 2013-2022 42

Figure 10: Terrorism Heat Map, 2017 44

Figure 11: Terrorism Index, 2017 47

Figure 12: Benchmarking with Key Markets – 2013-2017 vs. 2018-2022 49

Figure 13: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2017 and 2022 50

Figure 14: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2017 51

Figure 15: Military-IT Networking Market Size (US$ Million), 2017-2027 52

Figure 16: Multi-role Aircraft Defense Market Size (US$ Million), 2017-2027 53

Figure 17: Submarine Market Size (US$ Million), 2017-2027 54

Figure 18: Indonesian Defense imports TIV value (US$ Million), 2012-2016 56

Figure 19: Indonesian Defense Imports by Region (%), 2012-2016 57

Figure 20: Indonesian Defense Imports by Category (%), 2012-2016 (TIV values) 58

Figure 21: Industry Dynamics – Porter’s Five Forces Analysis 60

Figure 22: Indonesian GDP Per Capita, 2015-2025 92

Figure 23: Indonesian GDP, Current Prices (In US$ Billions), 2015-2025 93

Figure 24: Indonesian Exports of goods and services, current prices (LCU Trillion), 2005-2014 94

Figure 25: Indonesian Imports of goods and services, current prices (LCU Trillion), 2005-2014 95

Figure 26: Indonesian Gross National Disposable Income (US$ Billion), 2005-2012 96

Figure 27: Local Currency Unit per US$ – Exchange Rate, 2015-2024 97

Figure 28: Indonesian Market Capitalization of Listed Companies (US$ Billion), 2005-2012 98

Figure 29: Indonesian Market Capitalization of Listed Companies (% of GDP), 2005-2012 99

Figure 30: Indonesian Government Cash Surplus/Deficit as % of GDP, 2005-2009 100

Figure 31: Indonesia’s Goods Exports as % of GDP, 2005-2014 101

Figure 32: Indonesia’s Goods Imports as % of GDP, 2005-2014 102

Figure 33: Indonesia’s Service Imports as % of GDP, 2005-2014 103

Figure 34: Indonesia’s Service Exports as % of GDP, 2005-2014 104

Figure 35: Indonesian Foreign Direct Investment (US$ Billion), 2005-2014 105

Figure 36: Indonesian Net foreign direct investment as % of GDP, 2005-2014 106

Figure 37: Indonesian Mining, Manufacturing, Utilities Output (LCU Bn), 2005-2014 107