The investment case for Indonesia

Admin   |    26 October 2018

Indonesia holds tremendous potential for foreign investment across various sectors. In recent years the biggest sectors to receive foreign capital have been in mining, tourism, geothermal energy, transportation, communication, finance, and real estate. Below we explore the key macroeconomic factors that have driven this investment recently, and the factors that are likely to accelerate foreign capital inflows henceforth:

  1. Indonesia’s Stable Economic Growth

Indonesia’s economy has time and time again proved its quality despite the looming global uncertainty. Based on the statistics released by Statistics Indonesia (BPS), Indonesia’s economic growth has been fairly stable at around 5% in the last three years. If we look at the key contributions to Indonesia’s growth stability, the improvement in investment and export growth which grew 6.15% and 9.09% respectively in 2017, h

  1. Under-developed Infrastructure

As has been stated frequently, one of the government’s most prominent objectives is an extensive infrastructure plan. The obvious logic for this is the improvement in factor productivity through a better connected workforce and flow of goods and services. Mochamad Basuki Hadimuljono, the Minister of Public Works and Public Housing under Joko Widodo's Working Cabinet, explained that in order to accelerate the construction of infrastructure, the ministry has received an allocation IDR110 trillion in the recent budget. This number is greater than the previous allocated budget in 2018 of IDR107 trillion. The increase of this allocated fund shows the level of importance that infrastructure has to the Indonesian government.

  1. Easing of Licensing and Bureaucracy

Indonesia continues to harness developments in technology to accelerate business registration, as can be seen in the recently integrated electronic licensing system. With this system, people can quickly and practically register their business  with the government and avoid long and time-consuming bureaucracy. The Coordinating Ministry of Economic Affairs recorded as many as 30,505 businessmen or investors who have used the integrated business licensing system or online single submission (OSS) since it was launched on July 9, 2018.  OSS registration is dominated by micro small and medium enterprises (67%), with 71% domestic / 29% foreign. Other measures are also in the process of being introduced which should further reduce bureaucracy - certainly the governments commitment to a more practical and efficient start up environment is there for all to see.

  1. A Growing Middle Class

The growing number of middle class citizen is undoubtedly a positive  for the Indonesian Economy. This is significant as middle class spending patterns show a greater shift to their secondary or tertiary needs, since their primary needs are already fulfilled. McKinsey Global Institute revealed Indonesia’s consumer class could grow from 45 million in 2010 to 135 million by 2030. The general idea is that business sectors, such as property and tourism, will now be of increasing popularity as well as several other discretionary consumer sector. We believe this is an attractive segment for investors to focus.

 

We believe the investment case for Indonesia is compelling, based on a naturally high rate of economic growth through a rapidly expanding middle class supported by a government that is easing regulation and allocating capital to  areas where its most needed - i.e infrastructure. The government has undoubtedly  created an investment environment which is much more attractive to foreign capital in our view and we believe several sectors will continue to benefit- please reach out to us if you have any interest in getting exposure to these investment themes.


Written By : Fajar Adi Nugroho



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