Indonesia’s chemical industry is one of the more prioritized industries in the development of the country’s manufacturing sector. This is because the chemical industry plays a significant role in supplying the country’s other manufacturing sectors such as the plastic and textile industries. Within Indonesia’s Making Indonesia 4.0 roadmap, the chemical industry is also among the industries that are being pushed towards implementing industry 4.0 practices.

Comprising mainly of two sub-industries, namely the basic oleochemical and biodiesel industry as well as the upstream petrochemical industry, Indonesia’s chemical has seen steady growth in economic contribution, up to Rp 339.18 trillion (roughly US$22.28 billion) as of the end of 2021 from Rp 180.04 trillion as of 2014, according to Statista. As of November 2022, exports of processed chemical reached US$20.01 billion according to data from the Indonesian Ministry of Industry (Kemenperin), while imports reached US$27.85 billion. Processed chemical goods has consistently been Indonesia’s top import category year after year, though the gap between the exports and imports from the chemical industry has also been narrowing as the country becomes more and more industrialized. 


According to the Ministry of Industry, the upstream chemical industry has a relatively small material supply contribution to the building component industry, but is a stable supplier of components to the foodstuff industry. Its highest contribution in terms of component supply is to the pharmaceutical industry. Overall, the chemical industry has a utility rate of between 60 and 70 percent. 


Having said that, fully developing Indonesia’s chemical industry poses a significant challenge for the country as it is capital intensive, technology intensive, and energy intensive. The country simply has yet to fully develop the necessary infrastructure to add more value into its chemical sector, which results in the sector’s relatively low tier placement in the global supply chain. Furthermore, the resulting import-dependent situation translates to expensive production costs across the board.  


Nevertheless, owing to the country’s vast domestic market of over 275 million people – a growing number of whom are entering the upper-middle income class demographic – the demand for chemical goods should remain significant as the country’s economy continues to expand. As quoted from the Indonesian Industrial Confidence Index (IKI) issued by Kemenperin, the chemical sub-sector contributed the most among the 11 manufacturing sub-sectors that contributed positively to the sector’s share of the country’s GDP in the third quarter of 2022 – as much as 7.2% out of the 74.9% in total share. This resulted in a score of 50.90 in the country's manufacturing index as of December 2022, up from 50.89 in the previous month. A score of above 50 indicates an expansion in manufacturing activity. 



Source: Statista 


As of the end of 2021, the contribution of the chemical, pharmaceutical and botanical or traditional medicine products in Indonesia amounted to Rp 339.18 trillion or just over US$22 billion.

Source: Own calculations based on UN Comtrade Data, HS Code 28-38 


Goods and raw materials from Indonesia’s chemical industry are among the country’s top traded commodities, with imports of chemical goods and raw materials ranking consistently on top of the other manufacturing categories. On the other hand, Indonesia wants to continually narrow the gap between exports and imports by boosting the capacity of the domestic chemical industry.

Source: Indonesian Ministry of Industry





As previously mentioned, the chemical industry is capital intensive, technology intensive and energy intensive. Furthermore, due to its strategic nature, it is sensitive to both global and domestic factors. For example, a shift in the exchange rate or the price of oil could easily tip the balance sheet of any company operating in this sector. Domestically, due to the weak supply chain flow between the upstream and downstream industries, a shift in policy for infrastructure development could potentially affect logistic prices, further driving up the operational costs for chemical companies.  


Indonesia is aware that it needs to draw more investment into the sector. Thus, the Indonesian government has moved to provide several fiscal incentives such as tax allowance and tax holidays for investors of Indonesia’s chemical industry. For example, Minister of Finance Regulation No. 159/PMK.010/2015 stipulates that chemical companies are eligible for 100% income tax deduction for the next 5 to 10 years and a further 50% income tax deduction for the next two years.  


Even so, as reported by a number of consultancy firms, these incentives haven’t been widely exploited. As reported by the Institute for Development of Economic and Finance – an Indonesian-based Think Tank – out of the three major basic chemical projects with a foreign investment of $65.7 million and a local investment of 500 million rupiah in 2017, not a single one received the tax holiday. 


Another recent challenge is the European Union’s import ban of goods linked to deforestation ratified on December 6, 2022, which could affect fertilizer products from Indonesia. Companies importing fertilizers into EU must purchase carbon emission certificates and further prove that its production process meet EU’s Carbon Border Adjustment Mechanism (CBAM) sustainability requirement. As Indonesia mainly employ coal-fired powered plant to produce energy for its industries, many companies will find it difficult to comply with EU’s rule. On the other hand, Indonesia could focus on other large developing markets such as India, China and Pakistan to offload its products while also developing its sustainability infrastructure in order to meet EU’s standards. 





The Indonesian economy grew by 5.31% in 2022, signaling a return to the pre-pandemic economic growth for the country. Having successfully attracted billions of US dollars in investments in various fields – in no small part due to the country’s success in chairing the recent G20 summit in Bali – it may be concluded that Indonesia remains on track in leveraging its chemical sector and have it play a bigger role in the global supply chain. 


According to AlliedMarketResearch – the market research branch of the India-based consultancy firm Allied Research LLP – the Indonesian chemical market size would reach $35.1 billion by 2030 from $17.6 billion in 2020 – a compound annual growth rate (CAGR) of 7.2% – with the energy segment projected to manifest the highest CAGR of 8.6% during the forecast period. The country's adamant push towards developing an integrated electric vehicle ecosystem supports this projection, what with an already running nickel mining and smelting operation in Sulawesi as well as various investment commitments, such as the $2.6 billion deal with German-based chemical company BASF and French-based mining company Eramet, in the pipeline. 


Overall, despite the challenges it faces domestically and globally, Indonesia’s chemical sector continues to be an important and prospective sector that is supported by a growing a middle-class and a wealth of natural resources.