TWO articles published last week underscore Indonesia’s lustrous economic prospects. If Southeast Asia’s largest economy fulfils its potential, Malaysian policymakers should welcome this outcome: a turbo-charged Indonesian economy is an opportunity, not a threat.

Written by Roben Farzad in Bloomberg Businessweek, the first article focuses on calls by economist Nouriel Roubini and institutions like Morgan Stanley for either Russia to be ousted and replaced by Indonesia in BRICs or for Indonesia to join and transform the grouping to BRIIC. Comprising Brazil, Russia, India and China, BRICS is an acronym coined by Goldman Sachs in 2001 for developing countries that the US investment bank said would be the most dominant economies by 2050.

Today, Russia’s negatives include policymaking drift in the Kremlin, demographic atrophy and endemic corruption, Farzad says.

More appealing are Indonesia’s fiscal prudence, economic growth as well as strengthening social and political institutions. Moreover, more than half of Indonesia’s population is less than 30 years old while Russia faces a paucity of productive labour, Farzad adds.

A BNP Paribas report, written in March, notes Indonesia’s budget deficit last year – 1.6% of GDP – was the smallest in the region, after Singapore. Moreover, the archipelago’s public sector debt has tumbled from a peak of 92% of GDP in 2000 to 31% last year and could fall to 28% in 2014, the International Monetary Fund says.

Written by Anthony Deutsch in the Financial Times, the second article says in the coming decade, more than 60 million low-income Indonesians are poised to join the middle class, a development that will make the country of nearly 240 million people the fastest-growing consumer market after China and India.

Market research group, Euromonitor, expects the number of households in Indonesia with US$5,000 to US$15,000 in annual disposable income to expand from 36% of the population to more than 58% by 2020.

One indicator of growing consumer spending in Indonesia is rising car sales. Prijono Sugiarto, president of Astra international, the republic’s biggest carmaker, predicts Indonesia will probably surpass Thailand this year as the region’s largest automotive hub, with output of 730,000 cars and 7.2 million motorcycles.

Another indicator is increasing cement sales, which BNP Paribas says is even more spectacular than that for cars. Equally noteworthy, cement consumption in other cities and provinces outside Jakarta is strong. A more decentralised Indonesian economy will underpin continued consumer spending, BNP Paribas adds.

Optimism about consumer spending attracted billions in foreign capital inflows to Indonesia’s stock market, a development that propelled the Jakarta Composite Index to soar from end-December last year to Nov 19 this year by nearly 47% to 3,725.038 – significantly outpacing the Kuala Lumpur Composite Index’s 18.33% rise.

Because Indonesia, like Malaysia, is a resource-rich Muslim country, it is tempting to regard the republic as a competitor. However, closer analysis shows both countries’ complementary aspects outweigh the competitive elements.

First, Indonesia has an abundance of land and low-cost labour. For Malaysian plantation companies like Sime Darby and Kuala Lumpur Kepong, instead of being hamstrung by land and labour constraints in this country, investing in Indonesia has opened up a new and stronger growth path.

Second, Malaysia’s economy is heavily export-oriented while Indonesia is largely driven by private consumption. The same BNP Paribas report says private consumption growth contributed 61% of Indonesia’s GDP growth last year, up from 51% in 2008.

What cannot be denied is an economically buoyant Indonesia will mean a bigger market for Malaysian goods and services.

One Malaysian beneficiary of Indonesia’s consumer-driven growth is CIMB Group. Thanks to the Indonesian unit’s focus on consumer lending, CIMB Niaga’s 34% share of group profit before tax was larger than that from all the other Malaysian units – the first time this has happened.

By 2015, Indonesia’s contribution to group profit could be larger than Malaysia’s, chief executive officer (CEO) Datuk Seri Nazir Razak said in an interview.

Another potential corporate beneficiary is AirAsia. Its CEO, Datuk Seri Tony Fernandes, said the company’s Indonesian operations may surpass that of its Malaysian counterpart in the not-too-distant future, although this country’s economic activities are more than three times larger than that of its neighbour.

Malaysia’s medical tourism industry will also gain from increasingly affluent Indonesians. A Frost & Sullivan report says the number of medical tourists visiting this country has quadrupled since 2003 to an estimated 425,500 last year and Indonesians make up 69% of Malaysia’s medical tourists.

If and when Indonesia closes the economic gap with this country, Malaysians will have good reason to be joyful rather than fearful.

Opinions expressed in this article are the personal views of the writer and should not be attributed to any organisation she is connected with.

(Source : www.thesundaily.com - Tan Siok Choo - 29/11/2010)