Weekly Post -09/30/18-

This week I want to talk about the one of those emerging economies that sometimes flies under our radar, Indonesia. You see, when I want to talk about that nation, most people only know two things about it, either they talk about Bali or Sumatra; yet, Indonesia has too much to offer for everyone, specially to investors.

Firts, let’s lay down the facts. Indonesia is the largest economy of South East Asia, the sixteenth largest economy in the world and the seventh when it comes to PPP. Just for the kicks, Mexico is the fifteenth and the eleventh in those categories. Its main export is coal briquettes, while its main import is refined petroleum. In both cases, its main partner is China with Japan and Singapore being next. GDP is composed in the following manner when it comes to economic sectors: agriculture (13.9%), industry (40.3%), and services (45.9%). In addition, Indonesia is the third fastest growing economy in the G20 with a growth rate of 5.3%.

Second, after reading those facts, what’s the outlook? It is rather mixed because even thought it is growing at fast rate, its growth has been locked at 5% for a decade. It doesn’t slow down nor it rises up. This is a direct consequence of the government consciously sacrificing growth in favor of stability, which is not bad move considering that most prosperous era for this nation came solely from the commodities boom prior to the Great Recession.

However, critics argue that  more growth is needed to further stabilize the economy in the long term, as around 57% of total employment comes form the informal sector. The remedy to this situation has become the deregulation of many bureaucratic procedures along with incentives to foreign investors. A repatriation occurred last year, and it was rather successful with 70% of expected repatriations being collected, and declared funds totaling 40% of that year’s GDP.

Third, Indonesia is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which will give its exporting sector a much needed boost since commodity prices have been down (oil is currently at rally, but Indonesia is net importer when it comes that specific commodity). Most successful foreign investments have been in the manufacturing sector, which has positioned itself as an good alternative to China in the garment sector.

Thus, the outlook of Indonesia is stable but it has the potential to grow, I dare say to even double-digits, if foreign investors manage to see all the profit opportunities that can arise thanks to its geographic position between China, Japan, India, and Australia, and between the Indian Ocean and the Pacific Ocean.

Sources:

https://www.reuters.com/article/us-indonesia-economy/indonesias-regional-elections-will-not-derail-economic-reforms-fin-min-idUSKBN1EZ0Z2

https://www.indonesia-investments.com/finance/financial-columns/tax-amnesty-program-indonesia-ended-what-are-the-results/item7719?

https://www.cia.gov/library/publications/the-world-factbook/fields/2012.html

https://driftaway.coffee/the-taste-of-sumatran-coffee/

World’s Fastest Growing Economies In 2018

https://www.linkedin.com/pulse/5-promising-business-sectors-indonesia-2018-herpiani-ng/

https://www.lowyinstitute.org/publications/indonesia-economy-between-growth-and-stability