28 June 2019

Indonesia maturing into a compelling growth

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Despite stable growth in the past five years, a prudent fiscal policy, low inflation, a proportionately large population under the age of 30 and positive progress in the investment grade assigned by all three of the top ratings agencies, Indonesia has not been top of mind for international investors. However, with the successful conclusion of the country’s recent election which will create business certainty and set the course for five years of economic reform and development, will Indonesia’s economy finally enter into its golden moment and how will it happen? This was a question which nearly 1,000 clients of HSBC recently converged in the commercial centers of Medan and Surabaya, in addition to the capital city Jakarta, in search for the answer.

“Indonesia is once again in the limelight for global investment destinations and deservedly so, “ said Sumit Dutta, President Director of PT Bank HSBC Indonesia, at the opening of the HSBC Economic Update 2019, the first major economic event in the three cities bringing together public and private sector leaders since the Presidential election was held in mid April. “We are confident that, if infrastructure development continues at the current pace and the implementation of a series of economic reform policies such as labour and taxation accelerates, the government’s target of higher growth at seven per cent per annum is achievable.”

Speakers at the Economic Update, entitled “The Golden Moment of Indonesia Economy”, all agreed that foreign direct investment (FDI) is key to achieving the next level of growth. “Getting the attention of international investors is highly competitive, “ explained Mukhtar Hussain, Head of Belt and Road, and Business Corridor, Asia-Pacific. “Investors need to build confidence in both the macro case and get comfort on detailed implementation challenges (regulations, permits, local authority approvals). They will look to the example of others investors and it would be helpful to have a few case studies to share. FDI is an essential enabler to more economic development.

The recent trade tensions between the United States and China may hasten the relocation of some of the supply chains to Southeast Asia, compounding a trend already taking place. “If you look at the inbound FDI ASEAN has received it’s actually higher than China for the past year.” Meanwhile, thanks to stable growth, Indonesia’s contribution to global growth will soon be higher than any country in the Euro zone including Germany, “ explained Joseph Incalcaterra, ASEAN Chief Economist, Asia-Pacific. “The challenge here is how determined the country will be in pushing the necessary reforms, in the areas of labour regulation as well as upgrading its human capital through education, in order to accelerate growth to the next level.”

From the perspective of “ease of doing business” the World Bank’s ease of doing business rankings saw Indonesia rise from 120th in 2014 – between Swaziland and Jordan – to 73rd in 2019 – between Mongolia and Greece, a significant improvement in the past five years. “We encourage the government to look at how the country can break into the top 50,” said Mukhtar.

“Indonesia has for long been a country of high potential, With the government’s focus on infrastructure – including new airports, seaports, toll roads and high speed rail to link the country closer together, and with progressive and business friendly policies over the next 5 years, Indonesia has the opportunity to convert that high potential into high performance. We believe this will make Indonesia even more attractive as an investment destination for global investors,” concluded Sumit.

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