JAKARTA — Indonesia has received another rapt review of its economic potential in
the coming decades, with a new report suggesting the Southeast Asian powerhouse
has what it takes to become the world’s seventh-largest economy by the year
2030.
With an annual gross domestic
product of nearly $850 billion last year, Indonesia is currently the world’s
16th-largest economy, trailing only China, Japan, India and South Korea in
Asia.
The projections of the new
report, by consultancy McKinsey, seem consistent with the wishes of President
Susilo Bambang Yudhoyono, who last year outlined plans to make Indonesia a
top-10 economy by 2025, and a projection by Standard Chartered last year that
the country could take the No. 6 spot by 2030.
In January this year HSBC was the
skeptical outlier, projecting Indonesia to be 17th on the 2050 list of biggest
economies, just behind the Philippines.
In its 100-plus-page study,
McKinsey assumes Indonesia can maintain its current annual growth rates of better
than 5%, and it highlights the fact that Indonesia growth in recent years has
been less volatile than any member of the OECD or the BRICS nations.
The real story, it says, is the
rise of Indonesia’s “consumer class,” those people with annual incomes
exceeding $3,600 in purchasing power parity, at 2005 exchange rates. Such
consumers could rise from 45 million currently to 135 million by 2030 – a rise
only outdone by populations in India and China.
This growth “is a signal to
international businesses and investors of considerable new opportunities,”
McKinsey said in the report. “Brazil, Egypt, Vietnam, and other fast-growing
economies will each bring less than half of Indonesia’s number into the
consuming class in the same period.”
Businesses that can tap into that
rise stand to reap dividends, the report says, with private-sector companies
standing a chance to benefit from $1.8 trillion in business opportunities by
2030 in several sectors that are expanding at least as rapidly as the broader
economy: consumer services, agriculture and fisheries, and resources.
The lion’s share of those
opportunities—as foreign banks jostling for position in Indonesia know
well—will come in the form of introducing Indonesia’s millions of consumers to
financial services that currently only an elite few enjoy.
The report will be unsurprising
to many Indonesian observers already aware of the coming population dividend to
be paid out by one of Asia’s youngest populations.
“The middle class is growing and
the good news is demographically I think we are blessed,” Gita Wirjawan,
Indonesia’s trade minister, said in an interview on Monday. “Some 60% of our
population is younger than 39 years old,
50% younger than 29 years old, and
we are productive, very productive. And we’re going to have this
demographic profile for the next 10-15 years. That I think is the capital that
we have. We just have to make sure they get educated.”
McKinsey, for its part, suggests
Indonesia is something less than very productive, warning that its growth
projections require the country catch up with the productivity and efficiency
of neighbors like Malaysia. The report also cautions that the country’s overall
growth will be limited by its ability to meet the growing demand for millions
of semi-skilled and skilled workers, which could increase from 55 million today
to 113 million by 2030.
Late last year and early this
year two of the three major international credit ratings agencies upgraded
Indonesia to investment grade. Indonesia has been one of the bright spots in
the global economy in recent years, with economic expansion hitting 6.5% last
year, the country’s highest since the Asian financial crisis of the late 1990s.
The government has forecast growth of 6.1% to 6.5% this year, and said it could
be slightly higher in 2013.
Foreigners have taken note, last
year sending in a record of nearly $20 billion in foreign direct investment.
This year the government hopes the number will rise to $28 billion.
Privately many industry leaders
say the number could be even higher were it not for significant barriers to
investment in the form of inadequate infrastructure and uncertain regulatory
environments in sectors such as banking and mining.
McKinsey acknowledges these
risks, but it says it takes the long view.
“If you look at the successful
foreign investors in China, South Korea and India, for example, the prize was
big for the people who could look through the cycles,” Raoul Oberman, one of
the report’s authors, said in an interview. “It’s a huge opportunity for
foreign investors.”
Ben Otto
Business & Investment Opportunities
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