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Nationalism, infrastructure two key issues for Jakarta
Rod Morehouse, Regional Senior Trade and Investment Commissioner South ASEAN (Indonesia, Singapore a
11-01-2010
ATI ASIA2010 Magazine
JAKARTA – The global financial crisis seems to have skirted around Indonesia (and Vietnam) even as it swept through other Southeast Asian countries in its path.
Being one of the few countries to continue to grow during this crisis says a lot about the resilience of Indonesia. Maybe the acronym for BRIC – Brazil, Russia, India and China – should be changed to BRICI, to include Indonesia.
Indonesia has been growing at around four per cent annually over the past 12 months. It is projected to grow at 4.5-4.9 per cent in 2010, and there is no reason to anticipate that such growth cannot continue to expand. Some pundits are saying that Indonesia will move to beyond six per cent annualised growth over the next few years.
The IMF sees no downside on Indonesia’s outlook. One reason is that Indonesia has revamped its banking sector – Indonesian banks are now highly regulated, controlled, and conservative. The second reason is that Indonesia’s growth has been based almost entirely on internal consumer demand. And, like Australia, Indonesia is benefitting from continuing growth in India and China, generating strong demand for its resources.
Unlike its neighbours, exports have not been a dominating part of the Indonesian economy. Exports contribute 20-25 per cent of gross domestic product (GDP), compared with 40, 50 or even 60 per cent for other countries like Malaysia, Singapore, the Philippines and Thailand. And, if you take out resources, particularly oil, gas and coal, the export figure drops to some 10-15 per cent.
The financial crisis has had an impact on external trade, though. Indonesia’s imports, for example, fell from 20-25 per cent at their peak in June 2008, to just 15 per cent in recent months. Now we are seeing the rebuilding of commence. However, business opportunities in Indonesia are tempered by concerns of a heightened sense of nationalism, bordering on xenophobia. We see this in the new mining law, which has caused concern in the international community. We are seeing more pressure on industry to be driven from national rather than pure economic concerns.
The second concern is infrastructure, which has not grown substantially since the East Asian financial crisis of the late 1990s. These two factors could hold Indonesia back for developing its full potential.
The newly-elected Government of Susilo Bambang Yudhoyono says it is focussed on improving infrastructure – in fact, infrastructure development was on SBY’s campaign platform. Good infrastructure development could add one per cent to Indonesia’s GDP growth. It would allow supply of electricity to be guaranteed – and logistics to develop. This would boost the Indonesian export sector.
But, for this to happen, we have to make the assumption that the Government can mobilise resources to make the private infrastructure market transparent and financially viable; to ensure that land can be make available for infrastructure development projects; and to ensure that the forces of corruption involved in infrastructure are held at bay. A big task, but one the new Government seems determined to take on. Despite such potential threats, we still actively encourage Australian firms to continue their drive into the Indonesian market. Opportunities are there.
Domestic consumption in Indonesia is fuelled by a growing, hungry middle class. An AC Neilsen survey found that Indonesia has more buying power in the top two (consumer) segments than the combined buying power for Australia and Singapore. Consumers in these segments have disposable income of up to US$5,000 per head.
Australians may have missed the point of Indonesia’s increasingly-important regional centres. They look to Jakarta and overlook the buying power of Jogjakarta, Surabaya and Medan and others. These cities are fast becoming decision-making centres in their own right.
Money is shifting from Jakarta to such regional centres, under a regional autonomy policy started by former President Megawati Soekarnoputri. SBY has continued with the policy, under which there is a flow of revenue out of Jakarta into the regions.
There was once a time when 80 per cent of the country’s revenue was held in Jakarta and 20 per cent by the regional centres, but that ratio has changed to 60-40. There is no discernible change yet to marketing channels, which are still centralised in Jakarta – the capital still controls 80-90 per cent of products entering the country. But for how long?
Local government procurement will grow in future as the equivalent of town mayors get more funding for economic development. Take the area of power, where decisions are being made for rural electrification projects. We might also be talking about clean energy. Indonesians need solar-powered water pumps and membrane filtering systems to purify the water. Opportunities such as this are starting to emerge.
Inbound investment has stalled as investors hold back to see how implementation of the new mining law works out, and who makes up the new Cabinet for SBY’s second term. The Government, however, appears to be listening to the concerns of foreign business groups, and large multinational companies continue to make representations. Passing of regulations to implement the new mining laws are being delayed for another six months.
There is a continuum in the corruption problem. It is a generational issue, and it will take two or three generations for Indonesians to change. The good news is that there is no let-up in the Government’s anti-corruption drive. The bad news is that the police and the courts appear to be winning back some of their power that has been ceded to the anti-corruption Commission. Also bad news is the extent of corruption within the anti-corruption Commission itself, with the arrest of the head of the Commission, Antasari Azhar, in May after police implicated him in a murder case. Now, two of Azhar’s deputies, Chandra Hamzah and Bibit Rianto, have been charged with abuse of power by issuing travel bans against two people being investigated for graft.
On the positive side, however, there are certainly more people fronting up on anti-corruption charges. The effectiveness of the Government’s anti-graft drive is apparent, and in this five-year term, the President has vowed to continue fighting corruption.
Companies looking to Indonesia should consider using it as a base to the broader ASEAN market. Trade flows are changing within the region. Australians have become blasé about ASEAN, but its member States are working towards an ASEAN economic area by 2015. Pundits say that, within the next 10-15 years, ASEAN will become one of the major trade flow regions of the world – in fact, there is debate as to whether ASEAN or India will be the next largest market after China by then.
ASEAN signed its formal charter of co-operation in October last year to facilitate free trade in cars by 2011, and in all goods and services by 2015.
I was working in Europe when the European Union was coming into being, and remember all the concerns about how to get the countries to work together. In Europe, it was said, the only commonality was the fact that they were Caucasian. I am now hearing similar arguments about ASEAN. But today, look again at what the EU has achieved. Why don't we believe ASEAN can be just as successful?
This has implications on how Australian companies market into ASEAN. We are seeing ASEAN companies, like the Singapore-based telecom company, Tekamsel, and Europe's Thai-based Macro, starting to organise themselves as regional players. A lot more Southeast Asian-based firms are starting to follow suit, as are the more enlightened Australian companies, like Leighton, Bluescope and ANZ.
We have seen a 20 per cent increase in the number of Australian companies doing business or having a presence in multiple countries in ASEAN. We are suggesting to our companies to change their mindset, and to move from being country-specific to think of ASEAN as a regional market.
In my view, we all need to be thinking of ASEAN now! It is clearly Australian industry's place to grow for the future.
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