Indonesia looks to build on recent tourism growth

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A more diverse product offering and a broadening of the destination base are at the centre of a new campaign to attract investment to Indonesia’s rapidly growing tourism sector.

Under a plan first mooted in 2016, Indonesia is ramping up efforts to develop regional destinations as major tourist centres under its 10 New Balis programme. The scheme seeks to replicate the success of the resort island of Bali, which currently attracts some 40% of all inbound tourist arrivals.

Australia, one of Indonesia’s key tourism markets, is supporting the project, committing $2.3m in funding in August through the World Bank to assist in advancing several destinations on the list.

Indonesia is also seeking to involve the Australian private sector in the programme. To this end, in August Indonesian officials conducted a five-city investment roadshow across Australia showcasing opportunities in tourism and infrastructure development.

Looking to engage other regional investors, at the Singapore-Indonesia Investment Forum in September, Arief Yahya, Indonesia’s minister of tourism, spoke of the ministry’s aim of adding 120,000 hotel rooms, thousands of eateries and up to 100 recreation parks to existing stocks in the regions.

Three of the 10 locations have been earmarked as developmental priorities: Lake Toba, Lombok in West Nusa Tenggara province, and Borobudur-Yogyakarta-Prambanan in Central Java province and the Special Region of Yogyakarta.

Broader goals for tourism development

The 10 New Balis effort falls within the broader Indonesia Tourism Development Programme (ITDP) being undertaken with assistance from the World Bank, which, in a draft document published in June, outlined proposals to provide a $180m loan to support the initiative and a further $570m using a Programme-for-Results financing instrument. The implementation of the latter involves “monitoring the performance of the institutional arrangements, and monitoring and verifying results”.

There are four “results areas” under the broader plan: improving the sustainability and tourist capacity of selected destinations; promoting domestic participation in the sector; creating an environment conducive to private sector investment; and increasing the capacity of institutions to facilitate tourism development.

Regional competition and sector fundamentals

Currently, Indonesia lags behind some of its South-east Asian neighbours in regards to tourism, ranking 42nd of 141 countries in the World Economic Forum’s Travel and Tourism Competitiveness Index 2017. By comparison, Malaysia was 25th and Thailand 34th.

Nonetheless, Indonesia’s position in the latest report represented an eight-place improvement on the previous year’s index, and it is likely to move further up the index in future thanks to improvements under the ITDP to tourism service infrastructure, where it ranked 96th, and the supply of hotel rooms, where it placed 93rd.

The fundamentals of the sector have strengthened significantly in recent times, with arrivals rising by 7.2% in 2016 to 11.5m, according to data issued by the Central Statistics Agency. The upward growth trajectory continued this year: in the January-July period, 7.81m tourists entered the country, an increase of 23.53% on the same period last year.

Inbound traffic also rose in July, when it hit 1.35m, representing increases of 30.8% year-on-year and 21.5% month-on-month.  

Challenges to development

However, several obstacles could weigh on progress towards the ultimate vision of 10 New Balis. First and foremost among these concerns Bali itself, with recent seismic activity at the island’s Mount Agung widely predicted to be indicative of an impending volcanic eruption.

Thousands have already been evacuated from the exclusion zone that stretches 12 km from the crater, and regardless of the severity of any eruption, the tourism industry will certainly be impacted at least in the near term.

Diversification of tourism offerings – as per the government’s goals – would certainly help the country weather similar circumstances in the future, but some industry insiders have also stressed the need for differentiation in the pursuit of the initiative.

“While Bali can be a source of inspiration for other regions across Indonesia, the challenge for each of the new tourism hubs will be to identify each destination’s uniqueness, thereby differentiating their tourism products,” Talef Rifai, secretary-general of the World Tourism Organisation, told OBG “This will allow each to stand on its own merits and attract a specific market.”  

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