Having previously been overlooked in favour of other Asian countries, such as India and China, the Indonesian economy is now impossible to ignore.
Indonesia | The Emerging Tiger
Indonesia’s peculiar characteristics are now enhanced by political stability, self-reliance and robust economic growth that saw the country largely shielded from the most recent global economic crisis. Indonesia is now at a key point in its transition from a low-income to a middle-income economy and from being a primary producer to becoming a value-added exporter as well as offering a knowledge-based economy. Investment opportunities are ripe in all sectors, ranging from infrastructure to manufacturing and services. This has created a window of opportunity for investors to participate in the fastest-growing market in the region – and one that not only exhibits strong fundamentals, but is poised to flourish. Undoubtedly, Indonesia is well positioned to be a leading global economy in the coming decades.
Indonesia is endowed with diverse natural resources and is ideally located among markets with a high demand for them. The country was the only South East Asian member of OPEC until 2008 and continues to be a major liquid natural gas exporter. In the energy and mining sector, Indonesia is the world’s leading thermal coal exporter, the largest tin exporter, and home to vast deposits of precious metals such as gold, silver, and copper. Its unique topography yields highly sought after attributes.
The vast availability of land coupled with low levels of productivity in terms of choice crops gives scope for increased output in the future. Indonesia’s geographical proximity to energy- and resource-hungry China and India provides natural markets for future exports alongside its own rapidly growing domestic market.
LARGE AND YOUTHFUL DOMESTIC MARKET
As a country of approximately 280 million people, the size of the Indonesian domestic consumer market is an alluring attribute for any investor. The country’s resilience over the course of the global financial crisis illustrates the merits of its immense population and economic self-reliance.
Bucking the trend of most other G20 economies, in 2009 the country recorded 4.5% GDP growth and achieved a growth of 6.1% in 2010 which was higher than expected. This can be attributed to strong private consumption, which accounts for more than 60% of the total GDP growth. This placed the country in good stead as demand for exports from developed markets tailed off with the financial crisis leaving many other emerging economies in a state of flux.
The 2020 pandemic rocked the country’s flourishing tourism industry, but there are few doubts that when international tourism returns, the industry is poised to prosper like never before.
The World Bank’s 5.3% gross domestic product (GDP) growth forecast for Indonesia in the 2018-2020 period implies accelerating growth from the estimated 5.1% (y/y) growth pace in 2017. However, the forecast is not as optimistic as the Indonesian government’s 5.4% (y/y) growth target that was set in the 2018 state budget.
One of the key reasons why the World Bank expects a solid jump to 5.3% (y/y) GDP growth for Indonesia in 2018 and beyond is because the nation’s household consumption is estimated to improve as a result of rising wages. Meanwhile, rising commodity prices are also expected to boost the economy of Southeast Asia’s largest economy. Indonesia is one of the world’s biggest commodity exporters.
Indonesia Economic Growth
Growth is expected to accelerate somewhat this year, mainly supported by stronger domestic demand. Favorable financing conditions, rising inflows of FDI and higher commodity prices should spur private investment, while public investment will be scaled up through higher public infrastructure spending. Moreover, public finances will be kept in check, although the rising indebtment level of SOEs may encourage the government to spend public resources to ensure their financial viability. Cooling demand from China and rising global interest rates pose the main downside risks to the outlook.
Dropping inflation could fasten GDP growth and positively support depreciation.
Inflation has also been subdued, reaching 3.3% in November 2017. Bank Indonesia expected a further deceleration in 2018, reducing its target to a range of 2.5% to 4.5% from 3% to 5% in 2019.
Infrastructure and FDI
Indonesian foreign policy is strongly aimed at luring investors from a number of countries to invest in various infrastructure projects. The projects offered to investors range from airports, seaports, electric plants and roads, to the tertiary sector of telecommunications, fashion and the movie industry. The government’s plan needed funds of US$500 billion to develop infrastructure projects from 2015 to 2019 . The projects offered to the investors also include the 10 new Balis project.
Where Indonesian government is predominantly seeking to attract the growing Chinese middle-class, especially after 2017, become the year in which for the first time the Singaporean travellers have been outnumbered by the Chinese counterpart.
Jokowi’s plan will see the contribution of tourism to the economy climb from 4.5% in 2016 to 7.5% by 2021.
As the biggest economy of Southeast Asia, Indonesia escaped the brunt of the 2008 global recession. Its diverse industrial portfolio, at 47.1%, contributes as the major share of the country’s gross domestic product. Indonesia’s industry sectors provide employment to 18.6% of the total workforce of the country. Some of the major industries of Indonesia include petroleum and natural gas, textiles, apparel, footwear, mining, cement, chemical fertilizers, plywood, rubber, food and tourism.
REAL ESTATE INDUSTRY
The spike in demand for hospitality buildings, with the relative supply curve in decline, will translate in a positive and profitable spike in prices for long-term investors and realtors.
Housing lease transactions are not regulated by the Indonesian government, and therefore landlords do not pay tax, which offers an appealing and profitable investment.
TOURISM AND HOSPITALITY
The Indonesian travel and tourism industry is forecasted to be valued at $88.5 billion in 2022 with a substantial increase of about 38.3% since 2017, according to Marketline (2018).
The compound annual growth rate of the industry is predicted to reach a 6.7% growth within the period 2017-2022.