Market Trends of Indonesia Defense Industry
Ammunition Segment Expected to Show Highest Growth
Indonesia's rising geopolitical tensions and increased defense budgets have fueled market demand. In 2023, Indonesia's defense spending reached USD 9.48 billion. The current administration faces challenges in meeting its minimum essential force (MEF) target. This delay primarily stems from budget constraints and political uncertainties. In June 2022, Indonesia revised its MEF target to 70% for the 2019-2024 phase. Driven by its military ambitions and regional security concerns, Indonesia bolstered its defense spending. The nation's military comprises approximately 404,500 personnel across its Army, Navy, and Air Force, all equipped with various firearms. This heightened demand is evident in recent procurement activities. For instance, in July 2023, the Indonesian police secured 1,857 riot guns worth USD 3.3 million.
Indonesia is poised to prioritize local firms for its modernization needs, aiming to lessen its reliance on foreign suppliers. The nation also plans to emphasize technology transfers and offsets to bolster its domestic defense industry. A notable move in this direction was seen in August 2023 when Indonesia sought assistance from Saudi Arabia to enhance its defense sector. During the discussions, state-owned arms manufacturers like Pinbad showcased their capabilities, signaling a push toward self-sufficiency in defense production. Thus, growing investment in enhancing defense capabilities and rising procurement of advanced ammunition are driving the growth of the segment.
Air-based Vehicles to Dominate the Market During the Forecast Period
Indonesia's presidential office has outlined an ambitious military modernization plan, earmarking a substantial USD 125 billion investment through the mid-2040s. This plan underscores Indonesia's ongoing reliance on foreign loans. Specifically, the proposal allocates USD 79 billion for defense equipment, another USD 32.5 billion for sustainment over 25 years, and the remaining USD 13.4 billion to service interest on foreign loans.
Documents from the Ministry of Finance indicate that in 2022, approximately 32% of the defense budget was earmarked for modernization projects, covering procurement and sustainment. Notably, the country is bolstering its fixed-wing aircraft fleet. In January 2024, Indonesia saw the final installment of 18 Rafale aircraft come into effect. This followed the earlier deliveries of 6 and 18 Rafale aircraft in September 2022 and August 2023, respectively, culminating in fulfilling the 42-aircraft order placed by Indonesia in February 2022. In February 2024, Indonesia ordered three more CN235-220 transport aircraft from the state-owned aerospace company PT Dirgantara Indonesia (PTDI) for USD 85 million. The CN-235, designed to be lighter and more compact than the widely acclaimed C-130 Hercules, is a complementary asset, especially when using a larger transport platform like the C-130 would be inefficient. These procurement endeavors are poised to necessitate a larger share of the defense budget, potentially posing a challenge for the incumbent government.
