Indonesia’s tobacco industry remains a significant economic contributor and one of the most attractive markets for businesses. Despite global declines in tobacco consumption, Indonesia continues to show an upward trend, presenting both opportunities and challenges for foreign investors.
Also read: Major Industries in Indonesia (Based on Contribution to GDP)
Indonesia Tobacco Industry Outlook
Indonesia is the 11th largest tobacco market worldwide by revenue, with a revenue growth rate of 3.65% annually. The sector contributed approximately 148 trillion IDR to the country’s GDP from manufacturing alone in 2023. Notably, cigarette consumption accounts for the largest segment of this market, generating around USD 34.61 billion in revenue.
Indonesia’s unique preference for kretek—a locally made clove-infused cigarette—distinguishes its tobacco market from other countries. Machine-made kretek accounts for about 75% of the market share. Smoking prevalence remains high at 38% in 2023 and is projected to rise to 38.6% by 2029.
Tobacco Business Opportunities in Indonesia
Despite its size, the tobacco industry in Indonesia still holds many opportunities for businesses, including:
Rising Market Demand
While global tobacco consumption declines, Indonesia’s tobacco demand increases. The average number of cigarettes smoked daily stands at 6–13 per smoker, with rural areas showing a higher rate.
Unique Product Appeal
Kretek cigarettes, a blend of tobacco, clove, and spices, dominate the market, offering a niche product for both local and export markets.
Growing Youth Consumer Base
Indonesia’s youth population remains a substantial segment, driven by aggressive marketing and low prices. A pack of kretek cigarettes costs approximately IDR 21,000, making it highly affordable.
Import and Export Opportunities
With 240,000 metric tons of tobacco production in 2023, Indonesia also imports raw materials to meet industrial demand, opening avenues for international trade partnerships.
Also read: 10 Reasons Why You Should Invest in Indonesia
Indonesia Tobacco Business Regulation
The Indonesian government maintains a complex stance on tobacco regulation. While tobacco excise increased by 12% in January 2022 to boost state revenues during the COVID-19 crisis, prices remain low compared to other countries. Regulations include:
- Minimum Smoking Age: Purchase of tobacco products is restricted to individuals 18 years and older, though enforcement remains a challenge.
- Advertising Restrictions: Some limitations exist, but digital platforms remain underregulated, enabling targeted youth marketing.
- Tobacco Taxation: Excise rates are increasing but still insufficient to curb consumption effectively.
Foreign investors entering the market should carefully navigate these regulations while collaborating with local industry experts. (you can contact us for FREE consultation about Indonesian business!)
Also read: Indonesia Investment Incentives: Government Support for Foreign Businesses
Leading Tobacco Companies in Indonesia
Indonesia’s tobacco market is valued at over US$34 billion, making it the second-largest cigarette market in the world. The market leaders are:
- PT Gudang Garam Tbk: Holds nearly one-third of the market.
- Philip Morris International (PMI): Operates via PT HM Sampoerna Tbk, a dominant player in kretek and premium cigarette brands like A Mild and Dji Sam Soe.
- PT Djarum: Another major kretek producer with a strong market presence.
These companies dominate the market, particularly in kretek production, showcasing the potential for joint ventures, partnerships, or direct market entry.
How to Start a Tobacco Company in Indonesia
To establish a tobacco business in Indonesia, there are several things that must be considered, especially for foreign investors. Here are some of them:
Understand Local Regulations
Work with legal consultants to ensure compliance with taxation laws, health regulations, and licensing.
Choose Your Market Segment
Focus on niche products like kretek or premium white cigarettes to stand out.
Partner with Local Suppliers
Leverage Indonesia’s strong tobacco production capabilities to ensure a steady supply chain.
Marketing Strategy
While traditional media is regulated, opportunities lie in digital platforms and export markets.
Secure Investment Permits
Obtain proper licensing through Indonesia’s Risk-Based Business Licensing system.
Also read: Can a Foreigner Own 100% of a Business in Indonesia?
The tobacco industry in Indonesia offers vast opportunities for foreign businesses looking to enter a high-demand market. While navigating regulations and societal challenges like the Indonesia smoking problem remains critical, the industry’s economic importance cannot be ignored. Strategic partnerships and compliance with legal frameworks will help investors thrive in this unique market.
If you are considering starting a tobacco business in Indonesia, there are a number of resources and support services available to help you get started.
InvestinAsia is among the companies that specialize in aiding you with Indonesia company registration. We boast a team of seasoned experts who can guide you throughout the process of:
- Foreign company / PMA registration in Indonesia
- Indonesia representative office registration
- PT PMDN Set Up
- Virtual office setup in Indonesia
- Business registration number in Indonesia
- Indonesian Business Licenses
- Indonesia Trademark Registration
If you are interested in starting a business in Indonesia, you can start by contacting us for FREE consultation.
Sources:
