- Thursday, 08 November 2012 07:11
- Category: Featured Article
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Indonesian Investment Coordinating Board (BKPM) incorporated with International Herald Tribune (IHT) has once again successfully delivered the message to local and global investors of how important Indonesia as an ideal place to invest during the Indonesia Investment Summit, which is attended by more than 500 registrants. On the first day, global economic situation was exclusively presented by Bert Hofman as a world Bank's Chief Economist for South East Asia.
Bert delivered impressive thought of Indonesian economy outlook. Another important panelists were also Enrico Tanuwidjaja from RBS, Morten Rosse from McKinsey, Tom Byrne from Moody and others. These panelists have given clear message to global investors that Indonesia is an ideal place to invest.
With the economic slowdown from US and Europe, the world's attention has been shifting to Asia. It is plotted that Asia with his ASIAN economic power would create economy balance between western and eastern world. Until 3rd quarter of 2012, Indonesia's economic growth is predicted to reach 6.1% and would not make big differences until end of 2012. At first, economist from world bank, IMF and local including Bank of Indonesia, Ministry of Finance and more had predicted it would reach in between 6.3% to 6.4% maximum.
Indonesia is now the 16th largest economic countries in the world, its GDP is mostly contributed by large population with more than 259 million people. Surprisingly, investment and farther than that is domestic consumption which cover more than 70% of Indonesia's GDP. An interesting thought was delivered by Nicole Fall as a founder of ASIAN Consumer Intelligence and other speakers stating that key driver of Indonesia's economic growth is mostly driven by its middle class power that reaches 45 million people.
How do we define "middle class" people? Well Debnath Guharoy from Roy Morgan Research has conducted in-depth survey that counts people who has television set, refrigerator and car / motorcycle are classified as middle class people. Even Guharoy predicts that 50% of Indonesian people will be "middle class" by end 2013, while there was "only" 28% of population back in 2008.
McKinsey added that driven by this 45 million people, Indonesia has surpassed its neighbors such as Singapore, Malaysia, Thailand, Vietnam and other South East Asian Countries. Another several facts have also been delivered by key speakers during this event:
- Mike Wiluan as a CEO of Infinite Frameworks: Indonesia is the 3rd largest market for Twitter
- Mike Wiluan, Indonesia has more than 170 million television viewers out of total population 259 million people
- Siladitya, Associate Director from P&G said Indonesia's women who economically active, highly literate are the one making purchasing decisions
- Varma, a Managing Director of YUM! Restaurant International Asia said both KFC and Pizza Hut had to adjust with Indonesian culture. Originally KFC served with no rice and Indonesia was the only exception country that include rice in the menu. Eventually, this differentiation strategy has been followed by other countries too.
Now we have heard good things about how potential and prospective Indonesia market is, Enrico previously said if Indonesia could reach 8% of economic growth, he responded quickly and said yes, yet the question is how. Minister of Trade H.E. Gita Wirjawan said investors in Indonesia can look forward to share of $36 trillion big cake. Now let's see how Indonesia can boost its economic growth to 8%.
1. Education seems to play important role here, increase number of literate people will drive urbanization to big cities and ultimately upgrade status of low class to middle class consumer.
2. Win-win solution between investor and labor. It has been known that labors in Indonesia demand outsourcing should be eliminated. Indonesia manpower / labor law only permit ours sourcing for practices such as cleaning service, catering, security, transportation and mining supporting jobs related. Obviously, in the practice most of labor works in Indonesia are employ to handle jobs beyond this allowed section. Henceforth, Budiono, Vice President of Indonesia emphasized on how important creating win-win solution for all stake holders.
3. Removing oil subsidy, this may not look as an instrument to reach economic growth. It has been burden for government to allocate its budget for fuel subsidy and indirectly it may be one of the key driver that upgraded low class people to middle class. If fuel subsidy is revoked, middle class consumers will definitely hold their consumptive behavior adjusting to their budget. Thus, we might not fully agree to say that Indonesia will by the 7th largest economy countries by 2030.
Ultimately, Indonesia middle class consumers are still "luckily" driven by the full advantage of fuel subsidy. Let's say one liter of gasoline costs IDR 4,500 or equivalent to USD 46 cents. One passenger type vehicle may contains 30 liters of subsidized gasoline amounting USD 14, let's assume that the weekly expenditure costs around USD 50, the remaining USD 36 can be allocated for other purposes. This gap enhanced the benefit of middle class people to allocate this USD 36 for other consumption goods such as cellular phone, car / motorcycle installment, insurance and other things).
If this subsidy is eventually revoked by the government, well the impact will cause this middle class consumers to adjust their expenditures and at the same time, hold their breath to purchase other things. China and India are also listed as the most populous countries in the world and for sure, their population and local consumption drive the national GDP as well.
However, trade balance of China last September 2012 has widen to USD 26.7 billion compared to Indonesia with only USD 1 billion surplus of trade balance. Key indicators of China economy is mainly driven by export performance and inbound investment as well as local consumption.
Thus, the question arises, should Indonesian government take off the fuel subsidy and thus allocate this subsidy to develop other priorities such as education, provide house and job for people. Or hold this subsidy allocated to rise this middle class people and boost the Indonesian economic power to the 7th largest by 2030? (Source: Invisindo)
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Blessed with abundant resources, Indonesia is one of the must countries to consider, supported with competitive labor rate, skillful worker as well as the 4thmost populous countries in the world.