Indonesia Could Soon Become an Economic Powerhouse
As the corporate world continues to shift its attention toward emerging markets, more companies are digging deeper to uncover where the next surge in economic growth could stem from.
With Indonesia's President-elect Joko Widodo vowing to bring economic growth in his country back to its impressive levels of the early 1990s, it could become an even more desirable destination for corporations looking for further international expansion. According to a recent report from Bloomberg, Widodo is aiming to target a number of areas that would have far-reaching effects, and would ultimately be a boon for new business.
"We must address shortcomings in infrastructure, manufacturing, and then we need to invest more in strong human capital," Widodo said in an interview, according to the news source. "When our economy grows more than 7 percent, I am very confident it will strengthen Indonesia's role in international forums."
Already the largest economy in the Southeast Asia region, Indonesia could potentially regain this rapid economic growth in as little as 2 years, Widodo asserted. Indonesia has already recorded enormous investments from foreign buyers in recent years. Despite the influx of capital its infrastructure and public transportation systems haven't kept up with the public demand. This has resulted in supply bottlenecks, and many believe these issues have put a cap on their economic growth potential.
Widodo has a level had on his shoulders and isaiming to bring "realistic" improvements. This would include lowering subsidies to certain sectors, which would open up new funds for infrastructure investment. Widodo hopes this will curb the rampant government/corporate corruption that has plagued Indonesia’s economy for years.
Building Indonesia’s Economy from the Ground Up
Widodo certainly has a formidable task ahead of him, though. In the 1st quarter of 2014, the country's economy grew 5.1%- the slowest growth since 2009. What's more, it's been well over a decade since Indonesia's economic growth was at 7%- a number Widodo is aiming for.
"When our economy grows more than 7%, I am very confident for Indonesia to play a role in the world, not only in the Asean Economic Community but also in international forums," he said, according to the media outlet.
Reuters reported that the second quarter will likely see marked improvement, though. Experts predict growth of 5.3%for the second quarter of the year, driven by the higher spending that has been seen during the run-up to the election.
This came alongside typical spending increases in the 2nd quarter.
"Government spending has increased and also capital expenditure by companies," said Tony Prasetiantono, an economist at Gadja Mada University.
Indonesia’s Domestic Consumption Could be a Game Changer
The second quarter's growth can also be attributed to considerably higher domestic goods consumption. Much of this is due to election preparation, however, the country's manufacturing industry also played its part. In June, the HSBC/Markit manufacturing index showed the goods producing sector rose to its highest level ever, and the record was again beaten in July.
Although Indonesia reported a trade deficit of US $2.21 billion in the second quarter - compared to a surplus of US$1.07 billion in the previous quarter - there is a positive sentiment in the country that the conditions are in fact improving.
"I predict we will post a trade surplus in August because (the mining companies) have their concentrates pilling up in their storehouses that they can export at once. If it's worth US$5.3 billion for a year, for half year it can amount to US$2.5 billion," Finance Minister Chatib Basri explained, according to Reuters.
Although Indonesia's economy could be a viable option for international expansion, there are still plenty of risks any organization will face when moving in. To access the risks and learn more about safety and security, make sure to visit Indonesia's risk assessment country guide. Brazil faces a similar situation where they have experienced sizeable economic growth over the past 4 years, but have seen a decline in employment rate.