core sector communique

Indonesia: A burgeoning middle class

By:Rick Westhead

Lumped into a group of emerging markets such as Vietnam, Iran and Pakistan?

Think not, Indonesians say.

With a population of 238 million, making it the world’s fourth-most populous country, rich resources, and an economy that grew 6 per cent last year, best among the G20 countries, Indonesians argue their country deserves a more rarefied status and should be mentioned in the same breath as BRICS members.

It’s time, Indonesians say, to change BRICs to BRIICs.

There’s little arguing with Indonesia’s recent gains. It’s shipping coal and gas to China and India, and palm oil to the rest of the world. Foreign money is pouring in. Foreign investors spent $16.2 billion (U.S.) in Indonesia last year, up 52 per cent from the previous year. The central bank says the economy will grow a further 6.5 per cent this year, fuelled by rising demand for consumer goods and commodities.

At least 60 per cent of the population is aged 39 or younger. The country’s per capita income is now around $3,000. Indonesia’s middle class — homes with a disposable income of at least $3,000 a year — numbers 50 million, says the Nomura Group, a Japanese bank. That number could grow to 150 million by 2014.

Locals flock to new shopping malls on new scooters. About 8 million two-wheelers were sold in Indonesia last year, compared to 1.7 million in Thailand and 11.3 million in India. Many Indonesians, armed for the first time with disposable income, are making vacation plans. Boeing recently announced an agreement to sell 230 aircraft worth $21.7 billion (U.S.) to Lion Air, Indonesia’s largest carrier.

Politically, Indonesians say their country’s recent history serves as an example of how a nation can thrive once it’s out of the grip of a dictator. Suharto, Indonesia’s former president, held office for 32 years before he was forced to resign in 1998 after violent street protests and riots.

But there are rumblings that Indonesia’s democracy is wobbly.

International observers say its 2009 election, won convincingly by incumbent President Susilo Bambang Yudhoyono, lacked transparency. Some 14.4 per cent of votes cast were said to be invalid.

Poverty remains a pressing concern. More than 100 million Indonesians make $2 a day or less and only half of the rural poor have access to clean water.

Corruption, inefficient governance and archaic tax laws hamper growth. In 1998, oil companies drilled 145 wells in Indonesia. Yet in 2007, with oil prices spiking, only 39 were drilled, according to the Center for Petroleum and Energy Economics Studies in Jakarta.

Canada’s Fraser Institute says a recent survey of mining companies revealed Indonesia was tied for first place out of 68 countries for its potential.Yet, in terms of ease of doing business, Indonesia was ranked No. 68.

In the World Bank’s 2010 Logistics Performance Index, which measures how much red tape companies face, Indonesia ranked 75th, far below Thailand and Malaysia.

A new investment law that promises less bureaucracy may help spur more mining activity, and there has been big-ticket spending. India’s Tata Power paid $1.1 billion for an interest in several coal mines, while ArcelorMittal is said to be considering $10 billion in new investment.