The “Indonesian Trade and Investment Update 2013” held at the Indonesian embassy in Doha on September 26 is a good occasion to give an update on the investment environment in the world’s most populous Muslim country. There is no doubt that the Southeast Asian nation holds a multitude of opportunities (as mentioned in the May 12 edition of this column, for Gulf firms especially in the oil and gas sector), but also, at least since lately, mounting challenges which should not be concealed.
First of all, the macroeconomic environment in Indonesia has deteriorated and is currently not the best in Southeast Asia. The country has been hit hard by the volatilities on the global financial markets to an extent that its currency, the rupiah, showed the worst performance in Asia this year ahead of the Indian rupee and the worst of any major currency worldwide. This had to do with Indonesia’s export-heavy economy in line with weakening external demand, its heavy exposure to the global financial markets, but also with the fact that the country’s central bank made a number of wrong decisions throughout 2013.
Furthermore, the investment climate has also worsened and the country has become a tough place for investors especially in the banking and mining sectors, were regulations have been put in place that signal that economic nationalism is on the rise again.
During the heydays, the government unfortunately not paid as much as it should have attention to structural reforms in many sectors and so wiped out many a business prospects. Newly introduced investment rules are not really welcoming such as the altered minimum capital requirement that now stands at $1.2mn, which is not a problem for multinationals and cash-rich Gulf companies, but for most smaller businesses. The fiscally necessary phasing down of the fuel subsidies this year has not only led to the usual rampant protests but also to a surge in inflation from 4.5% to 9%, a development that is not really encouraging for investors.
Economic growth is still impressive in Indonesia, but the investment party seems to be over for some time. The boom of the middle class is stagnating, and the country’s vastly untapped commodity reserves will remain untapped until capital feels safer to flow back in. At the moment, investment in Indonesia should rather be seen as a long-term venture requiring at least 10 years on the ground to really milk the rewards and, even then, success cannot be taken for granted.
Do you have experience with the current investment environment in Indonesia? When would be a good entry point? Let us know through Twitter: @insideinvestor using hashtag #gulftimes.
Our columnist Dr Arno Maierbrugger is Editor-in-Chief of www.investvine.com, a news portal owned by Inside Investor focusing on Southeast Asian economic topics as well as trade and investment relations between Asean and the GCC. The views expressed are his own.
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