Fireworks explode behind the Welcome Monument in Central Jakarta on Jan. 1, 2015. (Antara Photo/Andika Wahyu)
Despite Challenges, Indonesia Is the Place to Be for Investors in 2015
BY :MIGUEL LATORRE
JANUARY 05, 2015
"This is your opportunity to invest." This was the straightforward message from the President Joko Widodo at the APEC CEO Summit in Beijing on Nov. 10. The message of the president was clear -- the reality is that Indonesia is indeed at this moment the place be for doing business.
Indonesia is experiencing a rapid transformation, fast urbanization and rising incomes. Over the past decade, the economy has grown strongly and become more stable; today it is more diversified than many outsiders realize. Indonesia is on course to become the seventh-largest economy in the world in 2030, up from the 15th-largest today.
But the news isn't all good. Joko's administration faces some daunting tasks before the country can reach its full potential.
An additional 90 million Indonesians could join the global consuming class by 2030, powered by the continued rise of urban Indonesia. Only China and India are likely to surpass this increase in absolute terms, while Brazil, Egypt, Vietnam and other fast-growing economies will each bring less than half of Indonesia's number into the consuming class in the same period.
Indonesia's newly rich seem to have a particular appetite for luxury brands, including sports car maker Lamborghini. It opened its doors in Indonesia in 2009 and since then the country has become its third-largest market in the Asia-Pacific region. More and more international chains are expanding their business in Indonesia, opening new branches across the country.
Indonesia is the fourth-most populous nation in the world, with over 250 million people. A rapidly urbanizing population also provides for strategic pools of labor force in centers of investment. More than 60 percent of its citizens are currently of working age, between 20 and 65 years.
On top of that, the World Bank forecasts that the Indonesian economy will grow at 5.6 percent in 2015 and 2016.
These levels of growth are still appealing for long-term investors, including most recently furniture giant Ikea, clothing chain H&M and BBVA, the Spanish bank.
Hope for change
Democracy is blossoming in a country that was ruled with an iron fist for three decades until 1998. Indonesia has transformed from an authoritarian state to a regional role model.
The election of Joko as president of Indonesia is not only good for the country, but for the entire Southeast Asian region. The former furniture businessman has an air of honesty and integrity about him that has come to symbolize hope for the Association of Southeast Asian Nations' largest economy. He has a vision for Indonesia and seems determined to solve the country's many problems.
Infrastructure is one of the main issues that Joko will have to tackle -- although at the same time this offers a great opportunity for investors and construction companies. The country needs more investment to upgrade infrastructure and cut down logistics costs, which will ultimately boost economic growth.
The estimated budget for infrastructure is over $450 billion by 2019, but private investment is needed. Some of the main projects include the much-needed Jakarta Mass Rapid Transit (MRT) -- the capital is currently the largest city in the world without a metro.
The MRT, although one of the most expensive public projects in the city's history, is one of the main answers to avoid total traffic gridlock in Jakarta. For foreign visitors, the traffic has become a major problem as most arrive with very limited time and often have to cancel or postpone meetings as they get stuck. Locals understand the setback but the damage has already been done. For long-time residents, commuting can be a nightmare.
But Indonesia is not only Jakarta. Foreign direct investment (FDI) in provinces outside Java continues to increase. According to Indonesia Investment Coordinating Board (BKPM) statistics, 47 percent of total realized FDI from January to September 2014 was made outside Java.
Among the fastest-growing cities are Pontianak and Balikpapan in Kalimantan, Makassar in South Sulawesi and Pekanbaru in Sumatra, with GDP growth of 9.5, 8.6, 9 and 9.8 percent, respectively. These local economies are mainly benefiting from the commodity boom, and in order to guarantee structural progress toward a diversified economy, the nation will have to rid itself of corruption and boost the education of its citizens.
By 2030 the demographic dividend, which Indonesia currently enjoys, with more than 50 percent of the population under the age of 30, will come to an end. Indonesia will need to seriously invest in higher quality education as a top priority.
Over 80,000 Indonesian students are currently studying abroad, mainly at the tertiary level. It is of paramount importance to boost these numbers, as today's students are the future leaders of the country.
I first came to Indonesia over 10 years ago and the country has experienced an extreme makeover, not only in the development of Jakarta as an important commercial hub in Southeast Asia but also in the fight against corruption.
Current Jakarta Governor Basuki Tjahaja Purnama, known as Ahok, is one of the symbols of this change. He was lauded for his efforts in combating graft when he was district head of East Belitung, and now he is having a go at Jakarta. This is difficult to measure, but as a long-time resident in Indonesia I can feel the "Ahok effect" already.
Also, as I have long been working with foreign companies looking to enter the Indonesian market, I am used to hearing concerns about the security situation. But this preoccupation seems to be decreasing as well.
One of the main features of Joko's emerging vision for Indonesia is the idea of a "mental revolution" -- a transformation of Indonesia's human and social development, especially to get rid of bad habits like corruption. The goal is for Indonesia to become a successful and modern society, leading the prosperous Asean Economic Community that is set to go into effect at the end of the year.
I, for one, am convinced that in Indonesia, the best is yet to come.
Miguel Latorre is director and senior adviser at the Jakarta-based market entry company Global Expandia.