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Stable, positive outlook for Indonesian security

Stable, positive outlook for Indonesian security
Indonesia's economy came out of the gate strong in 2017. Aided by a more supportive global environment and improved domestic fundamentals, the country's real GDP growth is projected to increase from 5.2 percent this year to 5.3 percent in 2018, according to the World Bank's June 2017 Indonesia Economic Quarterly. The World Bank noted the country's strong fiscal performance in the first half of this year is also accompanied by improved revenue collection in relation to last year, and better quality of expenditure. Furthermore, more realistic revenue targets in the 2017 budget reduced the need for substantial budget cuts like the ones undertaken in 2016, furthered the World Bank.

Now, on the heels of Standard and Poor's (S&P) credit rating upgrade to investment grade in May, investor confidence and interest in the country will continue to strengthen. According to S&P, the upgrade “reflected its assessment of reduced risks to the country's fiscal position.” S&P was the last of the Big Three credit ratings agencies to award investment grade to Indonesia — Fitch did so in 2011 and Moody's in 2012. In fact, Moody's upgraded its rating to positive from stable in May. The upgrade by S&P will provide wider access to investors including, hopefully, more foreign direct investment.

Stable economic growth and a good investment outlook has rolled over into Indonesia's security market. The general consensus among the companies interviewed is that the Indonesian security market is growing. With a number of large infrastructure projects underway along with increased security awareness, security manufacturers, distributors and systems integrators alike are seeing a rising demand for security products.

Continued increase in security demand


Unfortunately, Indonesia is no stranger to terrorist attacks, with the capital of Jakarta being a constant target. Most recently suicide bombers targeted a Jakarta bus terminal in May, killing three police officers. These attacks have resulted in an increased community awareness of the importance of security, which is helping to drive security growth in Indonesia.

“The growth for the security market is very fast. The government and private sector have put security systems as their priority since there were a few radical bombs or demonstrations all around Indonesia,” said Edo Pribadi, MD of Epri Total Integrasi, a local systems integrator. “Over the past decade, the physical security market in Indonesia has been very good. This situation has attracted many new security players or new brands to come to Indonesia, from hardware to software specialist, total solution and the IT players are also joining the security industry,” said King Hamidjaja, Country Sales GM at Robert Bosch.

Denny Tansil, Country Sales Leader for Indonesia at Honeywell Security and Fire, explained: “Specifically, there is high demand due to increased public and private sector investments into infrastructure development.Despite the negative impact of the oil and gas as a subset of the economy. Honeywell has increased its investments with more employees in Jakarta, Surabaya and other cities … Indonesia remains an attractive investment destination for other multinationals in various sectors, which is driving economic growth and urbanizing more areas of the country.”

Infrastructure projects drive growth


President Joko Widodo has made infrastructure projects a top priority of his administration, which has already rolled out many initiatives intended to increase infrastructure spending to 2019, according to a report by PwC. “The success of the first year of the infrastructure program suggests that overall infrastructure spend will continue to be above the historical average of 5.7 percent of GDP.” However, even with increased spending on infrastructure, the World Bank estimates Indonesia will have to spend US$500 billion in the next five years to fill its infrastructure gap — double the current amount being spent.

Despite this, there are currently a number of large infrastructure projects ongoing in Indonesia, providing the security market with ample opportunities.Projects such as airports, the Sea Toll Road program, and public infrastructure transport such as highways, the light rapid transport (LRT) and mass rapid transport (MRT), are all largely contributing to increased security growth.

“Our new president Joko Widodo is focusing more on developing infrastructure and intercity transportation, even sea tolls, and this is creating the need for video surveillance on infrastructure,” said Johan Haryanto, MD of Hotware Indonesia, a local distributor. Hamidjaja pointed out, “The Indonesian government has in recent years putting in place a robust institutional framework to support its infrastructure like toll road, airport, seaport, etc.”

Doris Hiwakari, Sales Manager in Indonesia for the EcoBuilding Division at Pelco by Schneider Electric, also indicated infrastructure projects as a key growth factor. “The construction of expressways across provinces and construction for airport buildings increase the need for security.” However, Hiwakari explained that the goal is for intelligent security, a system that can analyze traffic, conduct forensic analysis, etc., and not just the installation of video surveillance.

Tourism drives security in hospitality


Tourism is a major source of revenue for Indonesia. In 2016, international tourist arrivals reached 12 million, an increase of 20 percent from 2015 according to the Ministry of Tourism. This year the country hopes to hit 15 million, a growth rate of 25 percent. With the number of tourists in Indonesia rapidly on the rise, security in the hospitality sector is becoming increasingly important.

A report by HVS on Indonesia's hotel industry stated, “the effect of Indonesia's growing economy on its tourism industry has been profound. Rising disposable income levels have given rise to a healthy demand for domestic travel. The marked increase in visitation from countries in the ASEAN, together with the expanding air transport network in the region have been strong catalysts for the growth of tourism in Indonesia.”

“People are traveling more, thanks to many low-cost carriers that enable many people to know each other and made the hotel industry grow, which is good for the security industry,” Hamidjaja said.

“This situation is not restricted to Jakarta but for markets in the other provinces such as Surabaya, Ujung Pandang and Medan, they have seen the similar flatter rates of growth. Many local chain hotels such as Parador, Tauzia, Topotels, Archipelago, Dafam, Santika, Jayakarta, Singgasana, to list a few, are all showing potential and a big pipeline for hotel expansion. In this situation, for sure they will need products from security and safety systems such as video surveillance, public address, fire alarm, etc.,” Hamidjaja said.

Urbanization creating opportunities


Indonesia is currently undergoing a historic transformation from a rural to an urban economy, according to a World Bank report titled Indonesia's Urban Story. “The country's cities are growing faster than in other Asian countries at a rate of 4.1 percent per year. By 2025 — in less than 10 years — Indonesia can expect to have 68 percent of its population living in cities.”

As a result, many see a growing opportunity in Indonesia's residential sector, as consumer awareness for security grows and migration to urban areas continues to increase.

“Apartment, residential and mixed-use (apartment mixed with hotel and commercial) buildings are driving security growth in Indonesia,” Haryanto said. “I think it's because of new family growth in Indonesia and migration from smaller cities to bigger cities, so the demand of cheap apartments and residential is growing.”

Pribadi also believes there is increased opportunity in this sector. “The private sector is also starting to build mega-residential projects, like the 40-tower apartment complex in east Jakarta and 32 towers for the apartment complex in Bekasi City (next to Jakarta). These projects will need to improve their security system to sell their apartments.”

Pribadi added, “The president said that he wants to build 1,000 towers of residential apartments for the people. So, I think the growth of the security market in Indonesia will still be fast in the future, and there are always opportunities to work with the government or with the private sectors.”

Government pushing security


The Indonesian government is doing several things to bolster security in the country on top of pushing infrastructure projects. This includes various legislative regulations, some of which require public building facilities and roads to be monitored by video surveillance.

“Since the last few years, the government regulations have helped the security market, from import regulations to the standard regulations that force any infrastructure project to install video surveillance as a standard. Jakarta's government regulation No. 238 year of 2015, for example, forces all buildings in Jakarta to have video surveillance as their standard security system,” explained Pribadi.

Additionally, the government has announced many economic policy packages (“deregulation packages”) focusing on the deregulation of investment and tax incentives, according to Hamidjaja. “The government hopes these deregulation packages will improve Indonesia's competitiveness and help to attract investment by cutting bureaucracy and providing greater legal and business certainty. Strong investment and public infrastructure drive become accommodative monetary policy and will also help to bolster investor and end-user confidence and this situation also become the factors that driving market for security in Indonesia,” he said.

New opportunities for future growth


While security players in Indonesia are optimistic about the future of their security market, they have noted that future growth will not be without challenges.

“The future of security in Indonesia is very challenging. Competition is also increasing with the presence of brands that offer very competitive, low prices,” Hiwakari said.

Cybersecurity will also require more attention in the future, as Indonesia is highly susceptible to cyberthreats. A recent report by Microsoft Asia placed Indonesia fourth on a list of APAC countries most at risk to malware threats, only behind Mongolia, Vietnam and Pakistan.

For now, though, with the current administration aiming high to propel Indonesia's economy and improve infrastructure, it seems there should be plenty of opportunities for the security industry in the coming year.


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