Vincent Lagger, fund manager at Swiss & Global Asset Management, examines Indonesia’s role in Asia’s ongoing growth story.
Since the financial crisis, Asia has benefitted from loose monetary policies, low leverage, unabated investment and consumer spending. This positive backdrop translated into a swift recovery, widening the growth gap between emerging and developed economies.
Growth in Asian economies such as Indonesia has been characterised by favourable demographic and social trends, a sound banking system, a diversified economic base, robust financial health and supportive economic policies.
While China and India are commonly considered the engine of future global growth, Indonesia can claim a similar status based on its own merits. Indonesia’s population, which is spread across 17,000 islands, is greater than Japan, France and the UK combined. Indonesia’s central location creates strong supply lines into China, India and Japan.
As a global competitive supplier of energy and soft commodities, Indonesia can leverage both India’s industrialisation and China’s urbanisation. It also has strong exports and is a leading supplier of palm oil, rubber, cocoa, rice, coffee and tea worldwide. For example, Indonesia is the largest global exporter of palm oil producing over 45% of the world’s global production.
The increase of foreign direct investment into Jakarta’s stock market portrays the improving confidence in the countries prospects. There is also a wide range of undiscovered small and mid caps providing ample opportunities for global investors.
Urbanisation trend
Indonesia’s workforce is growing by two million people per year, and the country exhibits the same urbanisation trend as China and India: by 2020 more than 60% of its 262 million citizens (fourth largest in the world) will be living in cities. The region’s corporates rank third among Asian countries in profit growth since 2002, just behind China and India.
Thanks to a sound banking system and a reduction in the country’s debt-to-GDP ratio from 100% to 26% since the 1997 Asian crisis, Indonesia’s sovereign debt earned a rating by both Standard & Poor’s and Fitch during 2010 and from Moody’s in February 2011.
Indonesia has witnessed promising political developments with President Yudhoyono heading the first elected government free of IMF guardianship. He is expected to further ramp up public spending to address persistent infrastructure bottlenecks.
An emerging young middle class, political stability and strong ties with its mighty neighbours provide a fertile ground for consumption, resource and infrastructure investments in Indonesia.
