Indonesia aims to step up its economic growth

Indonesia's economic growth has lagged that of neighbours such as the Philippines and Vietnam. But soaring commodity prices could change that.

Indonesia “punches notably below its weight”, says Chris Anstey on Bloomberg. The country has the world’s fourth-biggest population and sits on “geographically pivotal” maritime trade routes between the Pacific and Indian oceans. Yet growth has lagged that of neighbours such as the Philippines and Vietnam over the last ten years, while per capita GDP “is little more than half that of Thailand’s”.

But soaring commodity prices may change the picture, says Barclays. Indonesia is running “large trade surpluses in palm oil, natural gas, coal, copper, rubber, iron and steel”. Higher export earnings have boosted the rupiah, which has been the best-performing Asian currency against the dollar over the past two years.

Attracting investment

Still, Indonesia will need to remedy its growth problem in order to build on this opportunity, says Shotaro Tani in Nikkei Asia. Growth has averaged 5% in recent years, less than the 6% level that the government thinks it needs to avoid the middle-income trap. President Joko Widodo has done a good job of addressing the country’s long-standing infrastructure problems, with 6,240km of roads and 15 new airports being rolled out during his first six years in office. 

Now his government is planning to start restricting the export of unprocessed minerals, including nickel, tin, bauxite, gold and copper in order to encourage foreign companies to invest in more manufacturing capacity domestically. This strategy means the government is rolling out the red carpet for international investors. 

GoTo growth

The MSCI Indonesia stock index has gained 13% so far this year, bucking a gloomy start to the year for emerging markets. Foreign investors are noticing: inflows of $0.7bn into the stockmarket this month have been large relative to its recent history, say analysts at DBS. Financial stocks make up more than half of the index: banks were hardest hit by the pandemic crisis, but now look well-placed to ride the “long runway” of an earnings recovery, says Societe Generale.

Other sectors, such as tech, point to the future. Local super-app GoTo listed this month, raising Rp15.8trn (£0.87bn), says TechCrunch. The listing, which made GoTo Indonesia’s fourth-biggest publicly traded company, is notable because the IPO market has been so flat globally this year. The shares enjoyed a post-flotation pop, but they have since dropped below the listing price.

The GoTo float was richly valued, say Tim Culpan and Andy Mukherjee on Bloomberg. But that speaks to excitement about the growing middle class and digital economy. Indonesia’s 273 million people are “mostly young, increasingly connected, and eagerly embracing the convenience economy”.

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