Reforms have made the country an attractive destination for investors.
Malaysian have been investing in a big way in Indonesia for more than a few years already. Here are some facts that you may find interesting:
- Malaysian companies such as Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd (KLK) and Genting Plantations Bhd have about 602,000ha of oil palm plantations in Indonesia (Indonesia has about 6.7 million ha of plantations compared with Malaysia’s 4.4 million ha);
- Axiata Bhd’s XL Axiata is now the joint second largest telco in Indonesia (after Telkomsel and joint second with Indosat, in a country with 162 million subscribers and less than 60% penetration rate);
- CIMB Group Holdings Bhd’s PT Bank CIMB Niaga Tbk is the fifth largest commercial bank and second largest mortgage lender in Indonesia; CIMB Niaga currently contributes 20% of CIMB group’s profit and will likely contribute up to 40% by 2015 according to CIMB group chief executive Datuk Seri Nazir Razak; and
- Total Malaysian investment in Indonesia (2004-2009) stood at US$2.1bil; total foreign direct investment flow into Indonesia for the same period was US$36.6bil.
In 2005, when my firm started to research Indonesia’s equities, there were quite a few businessmen who were skeptical and doubtful about investing there, perhaps from years of negative perception.
Today, that perception has changed. There are many Malaysian businessmen going to Jakarta and other Indonesian cities for the first time, impressed with the country’s vibrancy and prosperity.
More importantly, many investors find that there are plenty of commercial opportunities available. Indonesia has been able to attract investors from the US, Europe, Australia and Asia after reforms were put in place over the last three years.
In the last decade or so, Indonesia has opened up many sectors of the economy to foreign investors such as up to 99% ownership in banking, oil and gas, toll roads, water, agriculture, power generation and many other sectors. Some recent incentives include allowing foreign investors to own 67% in hospitals and 49% in plantations for staple food.
How did it get so good, so fast?
Changes in perception take time. But once momentum is built, confidence breeds more confidence. Indonesia’s reforms, which started after the Asian financial crisis in 1997/98, went through many periods of uncertainty and skepticism.
I guess a string of successful political and economic reforms after President Susilo Bambang Yudhoyono took office helped the country gain positive international perception. First, Susilo’s government was lauded by investors for cutting fuel subsidies during the peak of the crude oil price spike in 2008 (Susilo’s government managed the politically/socially sensitive issue wisely by giving cash rebates to millions of Indonesia’s poor).
Second, Indonesia weathered the 2008/2009 global financial crisis well. It was one of the few countries which posted positive gross domestic product (GDP) growth (4.5% growth in 2009) despite the challenging period.
And finally, the big re-election victory of Susilo in 2009 and the subsequent appointment of technocrats to the cabinet reinforced political stability in Indonesia; this was a big draw to many global investors.
Another key to Indonesia’s success is its social stability – a very important factor for an emerging economy – to deal with unemployment, poverty, affordability (i.e. inflation).
Under Susilo’s leadership, Indonesia has charted steady economic growth (average annual GDP growth rate for Indonesia is 5.6% per annum in the last five years) supported by rising private consumption (which accounts for 58% of GDP); increasing consumer purchasing power is fueling demand for cars, motorcycles and mobile phones.
What’s in store for the future?
Indonesia’s rising domestic demand and supportive commodity prices and exports to China will likely ensure a sustainable economy.
Political stability will ensure a conducive environment for businesses and investment, and continuing structural reforms will be the catalyst for more growth opportunities.
Four to five years ago, there was a lot of hype on Indonesia’s infrastructure spending but much of the proposed spending was stuck due to land reform problems.
Susilo has pledged to double spending on roads, seaports and airports to US$140bil over the next five years, to help deliver average GDP growth of 6.6% over the remainder of his term ending in 2014, according to a May Bloomberg report. Inflation in Indonesia remains well under control at below 4%. Therefore, there is room for interest rates to remain at current low levels of 6.5% (Bank Indonesia rate).
I believe low inflation rate expectations and rising investor confidence mean a stronger rupiah. We expect the rupiah to be one of the fastest appreciating Asian currencies in the next three years.
Performance of the Indonesian stock market is also reflective of good progress and potential of the economy. The Jakarta Stock Market Index over the last three, five and 10 years has performed comparable to or better than many other emerging stock markets like Brazil, Russia, India and China.
However, from our past few years of investing in Indonesian equities, not all is smooth sailing. While it may not be easy to do business in a different country like Indonesia (there are many obstacles, expected and unexpected), there are also many opportunities available for entrepreneurs, if one is fully committed.
Like any venture, there are risks and success is not assured. For example, satellite TV operator Astro All Asia Networks plc foray into Indonesia via a joint venture with Lippo Group was not very successful. However, there are plenty of success stories from companies like CIMB, XL Axiata, KLK and so forth.
It is a mistake to assume that a business model which works well in one country will work well in another. One of my earlier stock picks in Indonesia did not do well because I assumed the company would perform similarly to my success story in Malaysia.
I should highlight that one should spend time to understand Indonesia and in particular, the local culture. One needs to work hard to find a win-win situation among the many opportunities in Indonesia. The growth of Indonesia’s economy will create many business opportunities for its trading partners, especially neighbouring countries.
I was in Guangzhou, China, recently for a gathering of business people from Hong Kong, Shenzhen and Guangzhou, and happened to mention that the Malaysian Chinese Chamber of Commerce would be organising a conference on doing business in Indonesia in July.
I was surprised by the strong interest and enthusiasm shown by many of the Chinese businessmen, who were keen to explore business opportunities in Indonesia.
To investors who have not been to Indonesia for a long while, hop on a plane and go have a look at Jakarta. It will be the start of a journey of positive changes to your perception of Indonesia.
by Teoh Kok Lin. The writer is the founder and chief investment officer of Singular Asset Management Sdn Bhd.
Source: The Star Online
Thanks Batix and Nucleus, for sharing the good news!
Popularity: 12% [?]
I hope more and more Indonesian also perceive their closest relative warmly and positively as well. Overreactions for the past few years are totally embarrassing.
Relation between Indonesia-Malaysia has been trough ups and downs, and that is normal, as we are very close in geography, and culture. Even husband and wife sometimes fight each other.
Malaysia, to Indonesia is not only friend, it is brothers
I would like to give my sight about this:
1. Investment in oil palm plantation can not only considered as good for Indonesia. It is widely known that investment in oil palm plantation rises forest destruction and soil degradation. In general, it caused environmental damage and also social problem.
2. I really can not take Susilo’s government in cutting fuel subsidies is a good policy for Indonesian people (maybe only good for investor). Giving cash rebates to millions of Indonesia’s poor only make them dependent and always waiting for charity.
I do love good news from Indonesia, but please see the issue not only from foreigners or investors’s view. The most important thing, of course the interest of our people.
Thanks,
Regards,
Tatat
For me, some negative points (and it’s for some people only, not all) in the writing doesn’t mean the writting is totally negative. I slightly agree about the oil palm plantation issue. It is is not fully preferable, as it’s said to have impact on natural environment. However for some people, oil palm is not that bad considering its contribution to country’s income, many workers involved in oil palm industry, and its benefit to many industries. Oil palm is very important comodity. It is raw material for many derviative product, from cooking oil and margarine to soap, shampoo, or cosmetic and even bio fuel. One of my friend doing research to use “by product” of oil palm industry to produce H2 (hydrogen), it is fuel for fuel cell. As reverse action of electrolysis, H2 + O2 will create electric current (thus energy) and water (clean waste). Bio fuel utilizing corn, wheat etc. which is important foodstuff, will cause price increase of food, people will suffer because of that, they should compete with engines.
Regarding the the subsidy, I looked it the other way. Subsidy only make rich people happy. How many barrel of subsidized oil sold illegally accross our border? Don’t depend everyting to the country. Indonesian people have to be strong and fully motivated not to expect the country to serve people, but we serve the country. In fact without subsidy, our economy is getting strong because cost of subsidy can be used for other posts.
Sorry for long comment, this is only my opinion. We are in democratic country though.
Dear Mr Tatat, i really value your comments, and i would say that in general, i have similar thoughts with you. Now, allow me to give my 2nd opinion.
1. Investment in oil palm plantation can not only considered as good for Indonesia. It is widely known that investment in oil palm plantation rises forest destruction and soil degradation. In general, it caused environmental damage and also social problem.
—> People are always complaining when new land is opened for agriculture. Many millions of newly-opened area have drawn critics and condemnation. But, it is only recently, why? I am not sure. We need to grow more rice, we need to produce more rice, we need to feed more people. Rice cant be grown on barred land for sure, that is why, to me, to some extent, deforestation is inevitable. I might get shot for this comment though.
2. I really can not take Susilo’s government in cutting fuel subsidies is a good policy for Indonesian people (maybe only good for investor). Giving cash rebates to millions of Indonesia’s poor only make them dependent and always waiting for charity.
—> In a long run, subsidy is poisonious. That is for sure. We lost many billion of dollars a year to subsidize fuel, while neglecting development in education, and infrastructure. By cutting subsidies, govt can now divert the money to build schools, roads, bridges, affordable public transportation. You can see many millions of people driving from Jakarta to Bandung, and return, and we subsidize their fuel. While a grand mother in jogja, has to take care of her 5 grandsons, without any assistance from the govt. And she has no moto-vehicle, so she literaly gets nothing from govt subsidy for fuel.
@batix
In one side, the writing is promote Indonesia. That’s the good side. But about the oil palm plantation, I do agree that it becomes source of income for some parties, for example farmers who grow it. But in fact, people who take biggest advantage from it is not Indonesian. They are multinational companies who invest, and then they export crude palm oil to other countries with lower price, and then turn it into goods like you mention (cosmetics, etc). Even if it proceeds in Indonesia, the biggest benefit not come to us. It goes to Unilever, Nestle, and others, and left oil palm farmers still in poverty.
About the fuel subsidy, I agree that subsidy shouldn’t be given to the rich. But government not only remove subsidy to the rich, poor people also. Government claimed that they give subsidy to the government in form of cash rebates. This is the point which I disagree. Do you agree with this cash rebates? Yes, this also only my opinion. People free to comment as long as respect each other.
Mr Akhyari,
I can debate no more.
I didn’t talk about rice agriculture. I talk about oil palm plantation. About rice, I fully agree with you. Government should give land to the farmers/peasants so they can grow more rice to feed our country. Government shouldn’t give land to corporate to grow rice. Because we already have millions of farmers who produce it for us (and they still poor). But now, government invites foreign investors to invest in food agriculture (for example food estate in Merauke) and also oil palm plantation. I suggest you to read more literature about oil palm plantation, who’s the owner, who’s the management, where it is exported, how much the price, and take time to deeply think. Who’s party get the biggest benefit from it? Indonesian people (the rich and the poor) or foreign investors? About your opinion which was agree with deforestation, yeah..people free to comment though
About the subsidy, we can evaluate some. After government cut the subsidy, is there any quality improvement in education? Or in health facilities? We all should remember that most of our fellows Indonesian still live in poverty. As I said in my previous comment, I agree that government should cut subsidy for the haves.
About your illustration, how’s the grandmother life after government cut the subsidy? does got 100 thousand rupiah each month (but now stop) really help her? She still have to pay more for her transportation after government cut fuel subsidy. Public transportation of course increase the fares afterfuel subsidy removal.
That’s only my opinion,
regards,
Tatat
Mr Tatat,again, i value your thought. You certainly have sharp ideas. Allow me to talk more about this :
Government shouldn’t give land to corporate to grow rice. Because we already have millions of farmers who produce it for us (and they still poor). But now, government invites foreign investors to invest in food agriculture (for example food estate in Merauke) and also oil palm plantation. I suggest you to read more literature about oil palm plantation, who’s the owner, who’s the management, where it is exported, how much the price, and take time to deeply think. Who’s party get the biggest benefit from it? Indonesian people (the rich and the poor) or foreign investors? —-> We must also underline that they are numerous succesful palm farmers nationwide, without sidelining the poor ones. We might need to also broaden our view, that Indonesia as a whole gains so much from Palm plantation, in export, and job creation. I must stress one thing that I disagree deforestation for logging business, but for the benefit of millions of people as primary and secondary beneficiaries, i think i can accept that.
About the subsidy, we can evaluate some. After government cut the subsidy, is there any quality improvement in education? Or in health facilities?
—> We have more money, much more, to be allocated for education and health system. We certainly have witnessed that the poor had enjoyed it trough cash distribution. I serve that as benefit, regardless the method. This is a start, and we might need to improve much better in times ahead.
About your illustration, how’s the grandmother life after government cut the subsidy? does got 100 thousand rupiah each month (but now stop) really help her? She still have to pay more for her transportation after government cut fuel subsidy. Public transportation of course increase the fares afterfuel subsidy removal.
—> She gets justice after all. That now goverment has cut the flow of subsidy to the haves.
That’s only my opinion,
regards,
Tatat
Apparently, there has been a warm, vibrant discussion up there. Such a nice exchange of opinions. But I’m here not to heat up the already lukewarm battle of wits.
Apart from the pros and cons mentioned, let’s hope there are many more foreigners like Teoh Kok Lin who realize how economically ‘sexy’ Indonesia has become recently and there will be no more people’s interests being sacrificed.
Long live Indonesia!
If only I had a dollar for each time I came to goodnewsfromindonesia.org… Amazing writing.
If you can write more about this I would be very happy!