Indonesia’s government has introduced a package of reforms aimed at pulling the country from its slowest growth rate in six years.
How well Indonesia recovers is increasingly important to Australia.
Indonesia is predicted to become the world’s 5th largest economy by 2030.
With a population of 251 million, it is the world’s fourth most-populous nation.
Australia’s 10th-largest trading partner, its exports to Indonesia grew by 9% last year.
But with its economy slowing, where are the opportunities?
Singapore-based Aaron Chipper is in Melbourne visiting family but has been doing business in Jakarta for more than 20 years.
“Working with telcos, we’ve seen the massive growth in the rise of smartphones and a far more connected populace. The use of internet as well has also grown, as well as people using that to build small businesses.”
Aaron Chipper is currently working with a business-to-business mobile solutions provider: Fusion Payments.
PricewaterhouseCoopers partner Andrew Parker says the mobile sector is a strong part of Indonesia’s economy.
“Indonesia is a very young country, so the use of technology, in particular mobile technology, is very very prevalent. In terms of social media it is one of the most active markets in the world. The opportunity in Indonesia is a consumer market, Indonesia has been a consumer growth story now for the best part of a decade.”
Half of Indonesia’s population is under the age of 30.
PwC’S Andrew Parker predicts by 2020 there will be 141 million middle-class consumers.
“Those consumers, as their incomes rise, will spend money on things like technology, which they’re already doing, but also health, education services, financial services: these are all growing industries in Indonesia.”
Like Australia, those incomes rose as Indonesia benefited from the commodities boom, becoming the world’s biggest thermal coal exporter.
Professor Ross Garnaut, from the University of Melbourne, says China’s economic slowdown has hurt Indonesia’s economy.
“Just like our coal industry was dumped by the change of policy in China, the change of growth model in China, the Indonesian coal industry took a heavy hit as well and that’s painful for many people especially in regional areas like Kalimantan and Sumatra, where coal mining is important.”
Indonesia’s GDP fell to 4.67% year-on-year in the second quarter – its slowest rate since 2009.
Its current account deficit is close to $9 billion US and the ratio of foreign debt to GDP stands at 34%.
All up, it’s in a worse position than in 2008.
Ross Garnaut says that’s prompted President Joko Widodo to introduce a new package of reforms, cutting taxes to support employment while relaxing business regulations to attract foreign investment.
“How these work in practise we’ll have to wait and see. The general tone of this government isn’t one of strong deregulatory activity, so I’d be surprised if the changes in reduced regulation are transformational.”
Aaron Chipper says it wasn’t particularly difficult to set up a business in Indonesia.
“On paper it is actually reasonably straightforward to set up a business. Obviously everything is done in Bahasa-Indonesian so it takes a little time to figure these things out but also getting involved with local partners makes a massive difference so they can help guide you through the local processes.”
Meanwhile on a much larger scale, Professor Garnaut adds, Malcolm Turnbull gives the Australia-Indonesia relationship a new start.
“I think he gives us a chance of a new start… the Abbott aberration was not seen very warmly in Indonesia. Some of the actions of the previous government were seen as being unnecessarily provocative and raucous. I think that the new Prime Minister’s style will be more cooperative, will be seen as being more respectful.”