Future of the Indonesian Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2023

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 GlobalData 12

2. Executive Summary 13

3. Market Attractiveness and Emerging Opportunities 15

3.1. Current Market Scenario 16

3.1.1. Primary threat perception 16

3.1.2. Military Doctrine & Strategy 17

3.1.3. Military Fleet Size 19

3.1.4. Procurement Programs 26

3.1.5. Top Procurement Programs by Value (US$ Million) 2018-2023 28

3.1.6. Social, Political and Economic Environment & Support for Defense Projects 29

3.1.7. Political & Strategic Alliances 30

3.2. Defense Market Size Historical and Forecast 31

3.2.1. Indonesian defense budget is expected to reach US$11.1 billion by 2023, at a CAGR of

6.52% 31

3.2.2. Defense expenditure is driven by the modernization of the armed forces, indigenization, territorial disputes, and natural disasters 33

3.2.3. Defense budget as a percentage of GDP expected to increase over the forecast period 36

3.3. Analysis of Defense Budget Allocation 38

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

34.5% over the forecast period 38

3.3.2. Capital expenditure to increase over the forecast period 40

3.3.3. Per capita defense expenditure expected to increase during the forecast period 42

3.4. Homeland Security Market Size and Forecast 43

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

8.28% during the forecast period 43

3.4.2. Border Security and Terrorism will drive the homeland security market over the forecast period 45

3.4.3. Indonesia is considered as ‘highly affected’ by terrorism 46

3.4.4. Indonesia faces high level of threat from foreign terrorist organizations 47

3.4.5. Indonesia has a terrorism index score of

4.6 49

3.5. Benchmarking with Key Global Markets 50

3.5.1. Indonesia’s defense budget expected to register rapid growth over the forecast period 50

3.5.2. Indonesian defense expenditure is relatively small compared to other Asian countries 52

3.5.3. The Indonesian defense budget as a percentage of GDP is expected to slightly decrease during 2019-2023 53

3.6. Market Opportunities: Key Trends and Growth Stimulators 54

3.6.1. Top Defense Sectors by Value (US$ Million)-Projection over 2018-2023 54

3.6.2. Military Infrastructure and Logistics 55

3.6.3. C4SIR-Land Based 56

3.6.4. Maritime and Border Security – Maritime surveillance and detection 57

4. Defense Procurement Market Dynamics 58

4.1. Import Market Dynamics 59

4.1.1. Defense imports expected to increase during forecast period 59

4.1.2. Indonesia plans to diversify arms imports 60

4.1.3. Aircraft and ships constitute the majority of Indonesian defense imports 61

4.2. Export Market Dynamics 62

4.2.1. Indonesia does not possess significant defense export capability 62

5. Industry Dynamics 63

5.1. Five Forces Analysis 63

5.1.1. Bargaining power of supplier: Low 64

5.1.2. Bargaining power of Buyer: Medium 64

5.1.3. Barrier to entry: Medium 64

5.1.4. Intensity of rivalry: Low 64

5.1.5. Threat of Substitution: High 64

6. Market Entry Strategy 65

6.1. Market Regulation 65

6.1.1. Defense investment policy conducive to both domestic and foreign investment 65

6.1.2. New procurement policy to support small and medium enterprises 66

6.1.3. Indonesia to launch formal offset policy 66

6.2. Market Entry Route 67

6.2.1. Budget Process 67

6.2.2. Procurement Policy & Process 68

6.2.3. Foreign defense suppliers enter the Indonesian defense market primarily through joint ventures 68

6.2.4. Strategic partnerships and military collaborations an easier way to access the Indonesian defense market 69

6.3. Key Challenges 70

6.3.1. US Sanctions affecting the market 70

6.3.2. Limited budget for capex deters investment 70

6.3.3. Lack of defense infrastructure 70

6.3.4. Corruption impedes the growth of the Indonesian defense industry 70

7. Competitive Landscape and Strategic Insights 71

7.1. Competitive landscape Overview 71

7.2. Key Public Sector Companies 74

7.2.1. PT Dirgantara Indonesia: overview 74

7.2.2. PT Dirgantara Indonesia: Major Products and Services 74

7.2.3. PT Dirgantara Indonesia: recent announcements and strategic initiatives 74

7.2.4. PT Dirgantara Indonesia: alliances 76

7.2.5. PT Dirgantara Indonesia: recent contract wins 77

7.2.6. PAL Indonesia: overview 79

7.2.7. PAL Indonesia: Major Products 79

7.2.8. PAL Indonesia: recent announcements and strategic initiatives 79

7.2.9. PAL Indonesia: Alliances 80

7.2.10. PAL Indonesia: Recent Contract Wins 80

7.2.11. PT Pindad: overview 81

7.2.12. PT Pindad: Major Products 81

7.2.13. PT Pindad: recent announcements and strategic initiatives 82

7.2.14. PT Pindad: alliances 83

7.2.15. PT Pindad: Recent Contract Wins 83

7.2.16. Dok & Perkapalan: overview 84

7.2.17. Dok & Perkapalan: Major Products 84

7.2.18. Dok & Perkapalan: recent announcements and strategic initiatives 84

7.2.19. Dok & Perkapalan: alliances 85

7.2.20. Dok & Perkapalan: Recent Contract Wins 85

7.3. Key Private Sector Companies 86

7.3.1. PT Dahana: overview 86

7.3.2. PT Dahana: products 86

7.3.3. PT Dahana: recent announcements and strategic initiatives 86

7.3.4. PT Dahana: alliances 87

7.3.5. PT Dahana: recent contract wins 87

7.3.6. PT Multiintegra: overview 88

7.3.7. PT Multiintegra: products 88

7.3.8. PT Multiintegra: recent announcements and strategic initiatives 89

7.3.9. PT Multiintegra: recent contract wins 89

7.3.10. Radar and Communications Systems: overview 90

7.3.11. Radar and Communications Systems: products 90

7.3.12. Radar and Communications Systems: recent announcements and strategic initiatives. 90

7.3.13. Radar and Communications Systems: alliances 91

7.3.14. PT SOG Indonesia: overview 92

7.3.15. PT SOG Indonesia: products and services 92

7.3.16. PT SOG Indonesia: recent announcements and strategic initiatives 92

7.3.17. PT SOG Indonesia: alliances 93

8. Business Environment and Country Risk 94

8.1. Economic Performance 94

8.1.1. GDP Per Capita 94

8.1.2. GDP, Current Prices 95

8.1.3. Exports of goods and services, current prices 96

8.1.4. Imports of goods and services, current prices 97

8.1.5. Gross National disposable income (US$ Bn) 98

8.1.6. Local Currency Unit per US Dollar 99

8.1.7. Market Capitalization of Listed Companies 100

8.1.8. Market Capitalization of Listed Companies (% of GDP) 101

8.1.9. Government Cash Surplus/Deficit as % of GDP 102

8.1.10. Goods exports as % of GDP 103

8.1.11. Goods imports as % of GDP 104

8.1.12. Service Imports as % of GDP 105

8.1.13. Service Exports as % of GDP 106

8.1.14. Foreign Direct Investment (US$ Billion) 107

8.1.15. Net foreign direct investment as % of GDP 108

8.1.16. Mining, Manufacturing, Utilities Output (LCU Tn) 109

9. Appendix 110

9.1. About GlobalData 110

9.2. Disclaimer 110

List of Tables

Table 1: Indonesian Army Strength 19

Table 2: Indonesian Navy Strength 22

Table 3: Indonesian Marine Crops. Strength 24

Table 4: Indonesian Air Force Strength 24

Table 5: Indonesian Ongoing Procurement Programs 26

Table 6: Indonesian Future Procurement Programs 27

Table 7: Indonesia- Top Defense Procurement Programs by Value (US$ Million), 2018-2023 28

Table 8: Indonesia – Defense Expenditure (IDR Trillion and US$ Billion), 2014-2023 31

Table 9: Indonesia – GDP Growth v/s Defense Expenditure As a Percentage of GDP, 2014-2023 36

Table 10: Indonesian Defense Budget Split Between Capital and Revenue Expenditure (%), 2014-2023 38

Table 11: Indonesian – Defense Capital Expenditure (IDR Trillion and US$ Billion), 2014-2023 40

Table 12: Indonesian Per Capita Defense Expenditure (US$), 2014-2023 42

Table 13: Indonesia – Homeland Security Expenditure (IDR Trillion and US$ Billion), 2014-2023 43

Table 14: Terrorism Index, 2018 47

Table 15: Benchmarking with Key Markets – 2014-2018 vs 2019-2023 50

Table 16: Top Indonesian Defense Sectors by Value (US$ Million), 2018-2023 54

Table 17: Offset Regulations in Indonesia 65

Table 18: Indonesian Budget Formation Timetable: 67

Table 19: Top Defense Suppliers in Indonesian Defense Industry – By Value (US$ Million) 2018-2023 71

Table 20: Competitive Landscape of the Indonesian Defense Industry 72

Table 21: PT Dirgantara Indonesia-Major Products & Services 74

Table 22: PT Dirgantara Indonesia – Alliances 76

Table 23: PT Dirgantara Indonesia – recent contract wins 77

Table 24: PAL Indonesia – Major Products 79

Table 25: PAL Indonesia – Alliances 80

Table 26: PAL Indonesia – recent contract wins 80

Table 27: PT Pindad – Major Products 81

Table 28: PT Pindad – Alliances 83

Table 29: PT Pindad – recent contract wins 83

Table 30: Dok & Perkapalan-Major Products 84

Table 31: Dok & Perkapalan-Alliances 85

Table 32: Dok & Perkapalan- recent contract wins 85

Table 33: PT Dahana – Major Products 86

Table 34: PT Dahana – Alliances 87

Table 35: PT Dahana- recent contract wins 87

Table 36: PT Multiintegra- Major Products 88

Table 37: PT Multiintegra – Recent Contract Wins 89

Table 38: Radar and Communications Systems – Major Products 90

Table 39: Radar and Communications Systems- Alliances 91

Table 40: PT SOG Indonesia – Major Products & Services 92

Table 41: PT SOG Indonesia – Alliances 93

List of Figures

Figure 1: Indonesian Defense Expenditure (IDR Trillion), 2014-2023 32

Figure 2: Indonesian Defense Expenditure (US$ Billion), 2014-2023 32

Figure 3: Indonesian GDP Growth vs. Defense Expenditure as Percentage of GDP, 2014-2023 37

Figure 4:Indonesian Defense Budget Split Between Capital and Revenue Expenditure (%), 2014-2023 39

Figure 5: Indonesia – Defense Capital Expenditure (IDR Trillion), 2014-2023 41

Figure 6: Indonesia – Defense Capital Expenditure (US$ Billion), 2014-2023 41

Figure 7: Indonesian Per Capita Defense Expenditure (US$), 2014-2023 42

Figure 8: Indonesian Homeland Security Budget (IDR Trillion), 2014-2023 44

Figure 9: Indonesian Homeland Security Budget (US$ billion), 2014-2023 44

Figure 10: Terrorism Heat Map, 2018 46

Figure 11: Terrorism Index, 2018 49

Figure 12: Benchmarking with Key Markets – 2014-2018 vs. 2019-2023 51

Figure 13: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2018 and 2023 52

Figure 14: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2018 53

Figure 15: Military Infrastructure and Logistics – Infrastructure Construction Market (US$ Million), 2018-2023 55

Figure 16: C4ISR-Land Based Security Market Size (US$ Million), 2018-2023 56

Figure 17: Maritime surveillance and detection Market Size (US$ Million), 2018-2023 57

Figure 18: Top Indonesia Defense Procurements in Terms of Supplier Relationships 58

Figure 19: Indonesian Defense imports TIV value (US$ Million), 2013-2017 59

Figure 20: Indonesian Defense Imports by Region (%), 2013-2017 60

Figure 21: Indonesian Defense Imports by Category (%), 2013-2017 (TIV values) 61

Figure 22: Industry Dynamics – Porter’s Five Forces Analysis 63

Figure 23: Indonesian GDP Per Capita, 2015-2025 94

Figure 24: Indonesian GDP, Current Prices (In US$ Billions), 2015-2025 95

Figure 25: Indonesian Exports of goods and services, current prices (LCU Trillion), 2005-2014 96

Figure 26: Indonesian Imports of goods and services, current prices (LCU Trillion), 2005-2014 97

Figure 27: Indonesian Gross National Disposable Income (US$ Billion), 2005-2012 98

Figure 28: Local Currency Unit per US$ – Exchange Rate, 2015-2024 99

Figure 29: Indonesian Market Capitalization of Listed Companies (US$ Billion), 2005-2012 100

Figure 30: Indonesian Market Capitalization of Listed Companies (% of GDP), 2005-2012 101

Figure 31: Indonesian Government Cash Surplus/Deficit as % of GDP, 2005-2009 102

Figure 32: Indonesia’s Goods Exports as % of GDP, 2005-2014 103

Figure 33: Indonesia’s Goods Imports as % of GDP, 2005-2014 104

Figure 34: Indonesia’s Service Imports as % of GDP, 2005-2014 105

Figure 35: Indonesia’s Service Exports as % of GDP, 2005-2014 106

Figure 36: Indonesian Foreign Direct Investment (US$ Billion), 2005-2014 107

Figure 37: Indonesian Net foreign direct investment as % of GDP, 2005-2014 108

Figure 38: Indonesian Mining, Manufacturing, Utilities Output (LCU Tn), 2005-2014 109