BKPM (Indonesia Investment Coordination Board) expects foreign investments to grow to USD 19,2 billion in 2012 from USD 18,7 billion.
This concurs with the recent upgrade of Fitch and Moody’s of Indonesia to investment grade level which is received with much applause. Indonesia is back on this level after 14 years and the expectation is that S&P will follow suit later this year. The International world has acknowledged the reformations Indonesia has made. This is a remarkable effort, given that on other parts of the world it is raining downgrades.
Foreign investors have seen this reformation back in their investments. Currently foreign investors own about 43% of the Indonesian stocks and 32% of the Indonesian government bonds, these figures are among the highest foreign interest in Asian stock markets. Awkward detail is that the foreign positions are concentrated in the top 15 highest liquid stocks.
Another impact of the booming economy is growing interest of foreign banks in Indonesia. Although last year Bank Indonesia suggested limiting foreign ownership in banks to be less than 50%, earlier this month Bank Indonesia mentioned that it would not implement a shareholder cap for banks.
This is good news especially for Malaysian banks like CIMB and Maybank who have already large stakes in their joint ventures and clears the path for smaller banks like RHB who wants to buy Bank Mestika Dharma. Other banks like ANZ have increased its stake in the JV with Panin Bank from 85% to 99% in the past weeks and HSBC bought Bank Ekonomi.
So far the financial industry and investments in the energy sector have been the main beneficials for foreign investments but other sectors like consumer goods are seeing increased interest. This comes with the acknowledgement that the middle income segment in Indonesia is growing fast.
More and more Indonesians have increased spending power which exceeds the basic primary needs. Companies like the Korean supermarket store Lotte is expanding not only organically but has taken over Makro to speed up the expansion. It expects to invest over USD 6 billion in Indonesia over the coming years.
FMCG companies like Unilever, Proctor & Gamble and Nestle poured more money in Indonesia to grab a bigger market share in the fourth most populous country in the world.
Automotive industry is another industry which is booming in Indonesia. Not only is the number of new cars being sold increasing in Indonesia. This year 2012, will mark a new landmark number whereby car sales will reach more than 1 million. Due to massive flooding in Thailand, many car producers are moving their plants to Indonesia. Volkswagen, Mitsubishi, Toyota, BMW, General Motors and Nissan have made some initial investments recently and do expect to expand further. In total the car industry committed more than USD 2 billion in 2011 for Indonesia.
The GDP of Indonesia was 6,5% for 2011 and for 2012 6,7% is forecasted. The expectation is that the coming years Indonesia will continue to grow around these figures. Surely there are some clouds in the forecast; the government plans to reduce the subsidized price on petrol in April which can spark the inflation to 7%.
In early 2014 elections are held although the general thought is that the political and economic democracy of the last years which helped Indonesia to get back into the investment grade level will not fade away with any new president at the helm of the country.
Robert Andriessen, Managing Partner, PT Andriessen Consulting.
Email Robert Andriessen at: Robert@Andriessen-consulting.com
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.
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Robert Andriessen is a Managing Partner at Andriessen Consulting.