Big Plans for Tourism Expansion in Indonesia

19 October 2016 Jarryd de Haan, Research Analyst, Indian Ocean Research Programme

Background

Tourism to Indonesia has more than doubled over the past decade, with almost ten million international tourists visiting the country last year. The past year has also seen a major boost in tourism from Australia, perhaps partly due to the decision to waive visa entry fees in March 2016. A total of 105,754 Australian tourists travelled to Indonesia in August 2016, 49 per cent more than August 2015. The Indonesian Government is aiming to double the number of international tourists visiting the country by 2019. As Tourism Minister Arief Yahya notes, the tourism sector has been acknowledged by the Indonesian Government as a central part of the country’s economic growth strategy, which aims to increase the sector’s contribution to GDP to eight per cent by 2019. Consequently, the budget for tourism and promotional programmes has skyrocketed from 300 billion rupiah ($30 million) in 2014 to 2.6 trillion rupiah ($263 million) in this year’s budget.

Comment

While Indonesia’s tourism industry is growing, it remains confined to a few popular destinations. According to statistics from BPS-Statistics Indonesia, in 2014, 78 per cent of tourists stayed in hotels in Bali, Jakarta and the Riau Islands, which together make up just 0.9% of Indonesia’s total land mass. To expand tourism outside of these areas, the Widodo Government has pledged to develop ten new tourist destinations across the country. To help achieve that, $1.1 billion has been invested in tourism within the first six months of this year. Contrary to the government’s plan, however, the majority of that investment went to Bali and Jakarta.

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The primary challenge in expanding the tourism industry is attracting investment in areas other than Bali and Jakarta. For investors to develop some of the more remote islands of Indonesia, the government needs have put the infrastructure in place to support the tourism industry. So far, the Indonesian Government has assigned thirty priority infrastructure projects for the period 2016-19, which will require investments of around $500 billion. To accommodate that, the government has put an increased focus on infrastructure in its state budget, allocating $34 billion towards infrastructure in the 2017 draft budget, an increase of 17 per cent over the 2016 budget. Even with the extra funding, however, the government can only meet thirty per cent of the funding required for the thirty projects. Developing the infrastructure to attract and support investment in prospective tourist destinations, therefore, can only be achieved through additional investment. With signs that foreign investment in Indonesia is slowing, as well as the lack of government tourism funding for areas other than Bali and Jakarta, it seems unlikely at this point that the Widodo Administration will achieve the plan for developing ten new tourist destinations by 2019.

Looking at the longer term, security concerns from terrorism in the region could pose challenges to Indonesia’s tourism industry. Following the 2002 Bali bombing, tourism numbers plummeted by 57 per cent, leaving around 2.7 million tourism workers unemployed. Although the effects were short-lived, the bombings still had a significant impact on the industry. While the occurrence of terrorist attacks targeting Westerners in Indonesia remains low, the growing number of tourists choosing to visit such popular hotspots as Jakarta and Bali could make those areas an ideal target for terrorist groups. This is especially a concern given the general increase in extremist groups in South-East Asia and which, according to Singaporean Defence Minister Dr Ng Eng Hen, are more organised, more networked and have clearer aims under the influence of the so-called Islamic State, which was behind the January 2016 attack in Jakarta. While that incident did not have any significant impact on tourism in Indonesia, more frequent attacks could. At the same time, though, it could serve as an incentive to draw more visitors to new destinations across the archipelago.

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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