By Frank Holmes
Indonesia’s workforce is growing 7,000 people stronger each day, adding an estimated 21 million people to its workforce by over the next decade. This is second only to India as Asia’s fastest growing workforce.
CLSA says this growth has given birth to a burgeoning middle class willing to spend money on durable goods such as clothing, personal-care items, home appliances and electronics. Currently, domestic consumption accounts for two-thirds of Indonesia’s GDP. We’ve already seen double-digit growth in sales for televisions, cars, computers and laptops over the past few years. More importantly, this trend is just getting started …
Currently about three of every four of the country’s middle class spend $4 or less a day. With easier access to low-cost financing and greater employment opportunities, CLSA says disposable incomes could rise by 11 percent annually over the next five years. CLSA says the country’s elaborate network of islands could provide challenges for newcomers, helping companies with an existing footprint in Asia experience superior growth.
But don’t count out foreign investment. The Southeast Asian economy has already attracted six times more foreign investment in 2011 than it did 10 years ago. Toyota recently announced plans to build a second Indonesian factory at an estimated cost of $342 million, according to Bloomberg. In addition, the country is also in discussion with several Japanese manufacturers to diversify operations away from flood ravaged Thailand and relocate to Indonesia. Nearby Singapore has invested more than $8 billion in Indonesia’s mining, telecommunications, metals and electronics sectors.
Increased foreign investment and a rising middle class have kept Indonesia’s economy afloat despite the turmoil in global markets. Citigroup Global Markets’ analysts estimate Indonesia’s GDP growth to reach 6.3 percent in 2012 and 6.5 percent in 2013—good for third-best in the region. Based on anticipated earnings growth, Citi expects “20 percent upside potential” in the Jakarta Stock Exchange in 2012.
With rising levels of incomes, a high savings rate and an emerging middle class on the cusp of a spending spree, Indonesia appears well positioned for future growth.
About The Author - Frank Holmes is CEO, Chief Investment Officer of U.S. Global Investors, an investment management firm specializing in commodities and emerging markets based in San Antonio, Texas. Frank is also the co-author of The Goldwatcher. (EconMatters author archive here.)
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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