Let’s look at Indonesia’s three investment drawing cards one by one.
The first is stability. This factor is often taken for granted and is considered the basic responsibility of governments therefore not worth mentioning among private sector talks. Yet facts prove the opposite is true.
Take the European Union for example. After three years following the 2008 financial market eruption in the United States, the EU remains unable to stabilize the European economy both between and within the member countries, despite the presence of 10 strong governments and the involvement of countless world leaders and scholars.
Stability here is obviously not defined by low volatility in the capital market. After all, portfolio investors can still benefit from both up and down in the market. Far from that, stability here is a firm and adaptive social consensus rooted in a cohesive sense of direction and aspiration for nation building by the people. This kind of stability is a luxury in the global economy these days.
The US has had stability rooted for over a century, China has aspired for it since entering the World Trade Organization but is still deciding what the best format would look like.
Indonesia can be proud that its stability is real and firm as it has all the characteristics of a modern, productive and expanding democracy. These characteristics include widespread economic, political and social autonomy, which have produced for Indonesia a sufficient amount of immunity and therefore resilience in responding to global shocks.
This kind of stability is a reward from the massive and fundamental reform the country swallowed painfully in 1998, and in the ensuing years of transformation it endured consistently thereafter. Especially in the last ten years whereby stability has been followed by rapid and widespread prosperity building.
Which brings us to Indonesia’s second pillar of unique strength. In early 2011, Indonesia’s income per capita reached $3,000, a record achieved briefly by the late President Soeharto in 1997 before the Asian financial crisis hit in 1998 and engulfed the country for years.
By mid 2011 the measure was at $3,600 when the rupiah was at Rp 9,500 per US dollar, and by early 2012 the measure was at $4,000, or up by 20 percent every semester. By April 2013 due to declining global commodity prices and sluggish global demand for Indonesian exports which resulted in the weakening rupiah, income per capita slowed down but still grew to $4,300 at a prevailing exchange rate, or equal to around $4,600 at a stable exchange rate.
Indonesia’s gross domestic product growth is also another factor to cheer, which has consistently been placed as one of the top five fastest growing economies in the world in the last eight years.
Such prosperity building, driven by stability coupled with deep penetration of consumer technology, modern banking and consumer finance, as well as increased civilian power, adds around 3 million new middle class Indonesians every year.
Moreover, this kind of prosperity will only scale up given the fact that out of Indonesia’s 253 million people, only less than a third or around 60 million are categorized in the affluent middle class, two thirds or around 150 million are low but equally modern middle class, and 65 percent of all the population are below 35 years of age.
Therefore, the next batch of to-be-affluent-middle-class gives the enormous scalability and “expand-ability” for almost all sectors of the economy to grow bigger, faster and better in the next few decades.
A few sectors will receive special boosts and therefore offer better returns for investors such as consumer related sectors including telecommunications, banking, finance and technology, food and energy processing, followed by transportation, property and infrastructure.
Prosperity and scalability are the second and third natural, unique and intrinsic strengths of Indonesia that must be the envy of other economies and must not be overlooked by any investor interested in Asia, especially Southeast Asia.
Finally I have a forecast to share. Whether one realizes or not, such stability and prosperity building was taking shape even when the state budget was strangled by huge fuel and electricity subsidies. This was before the government decided to lift fuel subsidies, which now frees up tens of billions of dollars every year.
In hindsight, although the huge subsidy really did heavily burden the state budget, it nevertheless allowed years of prosperity building for middle class consumers (some argue unfairly), as well as boosted spending and savings for the people to absorb the impact of the decision. Hence again, ensuring stability.
To this, all credit must be awarded to Indonesian democratization. Despite critics and protests against the government’s seemingly indecisiveness, the kind of stability, prosperity and scalability that Indonesia has attained is only allowed by exactly that kind of lengthy process.
If in anyway this hindsight indicates that right timing is crucial for successful investing in Indonesia, that timing is now.
Sandiaga Uno is the co-founder of Saratoga Capital in Jakarta.
The Jakarta Globe
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