Indonesia Defence & Security Report

Providing expert analysis, independent forecasts and competitive intelligence on the defence & security industry.

Report includes: BMI Industry View, Industry SWOT Analysis, Industry Forecasts, BMI's Security Risk Reward Index, Company Profiles and Global, Regional and Country Industry Overviews.

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Indonesia Defence & Security Report
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BMI View: Indonesia's domestic defence sector is large but needs the current modernization and reorganization efforts underway to realize its potential. The defence industry is largely state-owned, stifling innovation and preventing independent expansion. Current President Jokowi is not likely to prioritize the defence industry as much as previous President Yudhoyono, but as the government is already taking steps to improve procurement procedures and boost local industry by modernizing and re-structuring, the industry is nevertheless likely to slowly improve over the next few years. Efforts are especially being made in the Navy and Air force, and with foreign partnerships coming into place, the industry will likely have a boost regardless of the realization of the ambitious budget increase to 1.5% of GDP before 2020.

The economy is still under pressure, with a slower growth than President Jokowi had been expecting at 7%. The currency is still weak, and will hinder Indonesia's ability to procure foreign weaponry. Defence spending at 0.8% of GDP is still far below the target of 1.5% in addition to a weakened rupiah driving up the cost of imports. The domestic defence industry is still too immature to fulfil its demand, but the reorganization and the increasing transparency of the Department of Defence's processes will encourage both private sector interest and foreign investors to invest in Indonesia's local defence industries.

Domestically, Indonesia has some security concerns likely to spur spending over the next few years. The continued threat of terrorist activities and insurgencies mean Indonesia will have to continue its efforts of increasing the defence budget, as well as for funding in counter-terrorism. Concerns pertaining to growing Islamic militancy with the emergence of Islamic State (IS) will likely increase, making Indonesia reliant on foreign partnerships and with a need to develop the appropriate technology to counter the threats.

However, with increased pressure, Indonesia will prioritize addressing the defence forces readiness to deal with immediate and medium-term challenges, such as protecting the nation's borders, dealing with major disaster relief operations and being prepared for any escalation of conflict in the China Sea. For the mentioned threats, the Navy and Air force are likely to be upgraded and prioritized for investment more urgently than the Army.

Jakarta will also likely focus more on building up its local defence industry by procuring equipment from Indonesian companies wherever possible. In anticipation of this, two of Indonesia's state-run defence firms have already announced major recruitment drives and will continue to do so. In order to develop the domestic industry, however, Indonesia will still be reliant on international partnerships, leaving open opportunities for foreign players.

An upcoming long-range joint production program with China and closer military ties with Russia, Turkey and South Korea will lead to opportunities for increased transfers of technology. Advanced equipment for research and development is still sorely needed and must be imported, again with opportunities for foreign players. Japan has emerged as a potential partner in the future.

Concerns about Indonesia's human rights records, budget constraints, and domestic insecurity relating to terrorist activities and insurgencies could reduce foreign direct investment and deter some countries from partnering with Jakarta. Nevertheless, domestically developed platforms, such as the C-295 transport aircraft and naval frigates are becoming increasingly effective thanks to collaboration with developed producers, and the modernization and reorganization of the armed forces will continue to boost demand and provide supply opportunities for local defence industries.

Key BMI Forecasts

  • Defence expenditure to reach USD8.2bn in 2015.

  • Imports to exceed USD300mn in 2015.

  • Defence trade deficit to deepen, reaching almost USD390mn by 2019, with little export growth expected.

Recent Developments:

  • President Jokowis has said that if the economy grows by 7% the budget of Indonesia's military (TNI) will more than double to 210 trillion rupiah (USD16bn) in 2016.

  • The deadly crash of an Indonesian air force transport plane in 2015 has highlighted the country's ageing military equipment and provided new momentum for a 'fundamental overhaul' of management and procurement of defence equipment.

  • Modernisation and diversification of the navy and air force continue to progress, although Jokowi's election raises much doubt about the long-term direction of this programme.

BMI Industry View
Indonesia Defence & Security SWOT
Operational Risk
Industry Forecast
Defence Expenditure
Table: Defence Expenditure (Indonesia 2012-2019)
Defence Trade
Table: Defence Trade Balance (USDmn) (Indonesia 2012-2019)
Table: Defence Exports (USDmn) (Indonesia 2012-2019)
Table: Defence Imports (USDmn) (Indonesia 2012-2019)
Armed Forces
Table: Armed Forces Personnel (Indonesia 2005-2012)
Macroeconomic Forecasts
Indonesia - Economic Growth Unlikely To Rebound Significantly
Industry Risk Reward Indices
Indonesia Security Risk Index
Market Overview
Indonesia Defence Market Overview
Domestic Defence Sector
Table: Key Players In Indonesia's Defence Sector
Domestic Market
Table: Defence Trade Agreements
Indonesia Security Overview
Domestic Threats
Regional Threats
International Threats
Weapons of Mass Destruction
Company Profile
PT Dirgantara Indonesia (IAe)
PT Pindad
PT Penataran Angkatan Laut (PAL)
Regional Overview
South East Asia Security Overview
Challenges And Threats To Stability And Security
Global Industry Overview
Political Risk Analysis
Sector-Specific Methodology
Table: Defence Risk Reward Index Indicators
Table: Weighting of Defence Risk Reward Index

The Indonesia Defence & Security Report features BMI Research's independent forecasts for national and international security, the defence industry, military expenditure, employment in arms production, and arms imports and exports, as well as examining industry trends and prospects, national and multinational arms producers and the regulatory environment.

BMI's Indonesia Defence & Security Report provides professionals, consultancies, government departments, regulatory bodies and researchers with independent forecasts and regional competitive intelligence on the Indonesian defence and security industry.

Key Benefits

  • Benchmark BMI's independent defence and security industry forecasts on Indonesia to test other views - a key input for successful budgetary and strategic business planning in the Indonesian defence and security market.
  • Target business opportunities and risks in the Asia defence and security sector through reviews of latest industry trends, regulatory changes and major deals, projects and investments in Asia.
  • Assess the activities, strategy and market position of your competitors, partners and clients via our Company Profiles (inc. KPIs and latest activity).


Global and Regional Political Outlooks

A strategic overview of the world’s major political risks, identifying countries facing leadership successions and nations at risk of upheaval, inter-state conflict, or separatism and insurgencies, plus a summary of the world’s ‘wild card’ low-probability high-impact risks.

SWOT Analysis

Snapshot evaluation of the major issues affecting the defence and security sectors, economy and politics, with issues subdivided into strengths, weaknesses, opportunities and threats.

BMI Industry Forecast Scenario

Historic data series and forecasts to end-2019 for key industry indicators supported by explicit assumptions, plus analysis of key downside risks to the main forecast.

  • Defence Expenditure: Defence expenditure (local currency and USDbn); defence expenditure (% of total budget); defence expenditure per capita (USD); defence budget (local currency and USDbn).
  • Armed Forces (to 2012): Manpower available for military service, manpower fit for militaryservice, army personnel, navy personnel,air force personnel, total armed forces, (‘000) (% population).
  • Arms Trade: Arms and ammunition exports and imports (USDmn); bombs, grenades and missiles exports and imports (USDmn); revolver and pistol exports and imports (USDmn); weapons excluding guns and swords exports and imports (USDmn).

Political Risk Assessment

Drawing on BMI’s heritage of more than 25 years of Country Risk analysis, this comprehensively evaluates the key risks to domestic politics and foreign relations, focusing on issues most likely to affect either domestic security or the defence sector.

Security Risk Analysis

BMI’s proprietary Security Risk Indices provide investors with a reliable and country-comparable guide to conflict, terrorism and criminal risk, backed up by our analyst’s latest assessment of each component. Furthermore, drawing on our Country Risk expertise, we assess the state’s vulnerability to a serious, or prolonged, terrorist campaign.

Armed Forces Spending/ Expenditure

The reports contain a detailed breakdown of areas of expenditure by the armed forces, these include spending on international deployments, WMDs and missile defence systems as well as individual breakdowns of the cost-per-soldier.

Competitive Landscape

The domestic security overview lists the various potential internal security threats facing a country, ranging from internal security issues such as terrorism, cyber terrorism, crime and drugs, to external security issues including general defence procedures and potential threats from specific countries. The reports also provide a regional overview which details specific issues and flashpoints affecting the Americas, along with potential risks in the coming year.

Company Profiles*

Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.


The Defence & Security Market reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.

*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.