Our Current Economic Situations & Outlooks

In recent months, the Indonesian economy at the level of real sectors outstandingly experiencing bad periods. Some large companies such as Astra International (ASII), Perusahaan Gas Negara (PGAS), Gudang Garam (GGRM), Semen Indonesia (SMGR), until Jasa Marga (JSMR), all recorded a decline in net income in the first quarter of 2015. While in the smaller businesses, the condition is not much different. Here are some of the 'testimony' I collected from my entrepreneur friends in several cities in Indonesia.

(Andri Tan - Jakarta) I have a small furniture company, and we’re currently experiencing hard times. From January 2015 until today, the turnover is increasingly down. Some of my colleagues in the fields of building materials, tires, groceries, are also experiencing the same difficulties, caused by higher operating expenses because the Government raise the tariff of electricity, increase the taxes, etc.. That’s all I could say, thanks.

(Budi Kusuma - Jakarta) I have a business in the manufacture of iron/steel wire and its derivative products. We purchase raw materials from steel mills in the country such as Krakatau Steel (KRAS), Gunung Garuda, and also import from China. Lately, we experienced a decline in business turnover. We have customers from many business sectors like chicken feed mills (Charoen Pokphand), paper mills (Fajar Surya Wisesa), and the construction firms. But since the end of 2014, the demand for iron wire has been dropped from all sectors. In the past, if the demand from construction business has decreased, for example, then we could still supply iron wire for the chicken feed sector, and contrariwise. But today, everybody is gone.

As a result, some of our production partners reduce the working hours of their employees, or even do some layoffs. At the very beginning of 2015, we had been hoped that the construction projects from SOE’s construction firms (Wijaya Karya, etc), and private ones (Nusa Raya Cipta, Total Bangun Persada, Acset) would start soon, so we will received many orders for steel products. But the current situation is exactly the opposite: Our revenue is significantly dropped because of low demand.

(Yulianto Tanaya - Surabaya) We’re selling fabric as raw materials for the making of bedsheets and bed covers. Since the lunar new year, the sales turnover continued to go down, even drop 50% in last March. Currently, the situation ain’t better.

Some of the things that caused these bad situations:

1. The prices of raw materials continue to rise because it must be imported, while the Rupiah exchange rate continues to weaken until it already more than Rp13,000 per US Dollar.
2. Because the prices of basic necessities also continue to rise these days, the regional minimum wage in Surabaya went up, so we had to spend extra costs for employee salaries. Because on the other hand the tariff of electricity rises, the price of gasoline rises, then we had no option but to raise the price of our fabric. And that’s when our customers started to walk away from our shops. 

Here’s the situation: A few months ago, our customers always spent more than Rp3 million on average (about US$ 300) every time they buy our fabric, but today they spend about Rp1 million only. Some customers even totally gone. Of course I ask them what’s wrong (the price of our fabric is indeed rise, but I thought that’s not the only cause). And all of them complained that recently, the demand for bedsheets and bed covers is significantly dropped. Currently, our shop is still serving customers, but some of our competitors have started to reduce their staff since last February because there is no order.

My question is, what’s wrong with our new Government? Back to the era of President Susilo Bambang Yudhoyono, we also have had some bad periods but never as bad as now.. Just info:

1. My older brother opens a gold shop in Lombok, its turnover drop.
2. My friend opens an engine oil shop in Solo, and its revenue also drop that he is now struggling to sell the remaining stock in the warehouse.
3. My aunt become a distributor for cigarettes and Nutrisari, its turnover also drop.
4. My other friend had a business of expedition trucks in Jalan Slompretan, Surabaya, and his revenue has been down because of lack of orders. In addition he was also confused in determining the service price to his customers because of the frequent changes of fuel prices (as we know, President Jokowi has removed the subsidy on fuel prices, so that the fuel prices in Indonesia will always change following the world’s oil price).

(Hermawan Honggo - Semarang) Now I want to share of what happened in Semarang. Since the stock market have been silence lately, I’ve spent most of my time to walk around the city, and pay visit to my friends. Here’s what I’ve been observe:

1. I’ve had a chat with an owner of transport business in Chinatown, Semarang. And he told me that, while he usually made about US$ 150 - 200 in normal days, today he only make less than US$ 90 per day. In his storehouse, I can see that the goods (to be transported) are not much as usual.
2. Pekojan road, Semarang, there are many shops of building materials and ceramics, and the road usually so crowded in business days so that I always spent more than twenty minutes everytime I pass the road with length of less than two kilometers. Thats why I usually avoid this road. But yesterday I had to go to the fish market, and the road is my fastest route to back home. So well, I decided to drive my car through there.. and it turns out that the road is so empty that I needed less than five minutes to pass through it.
3. One day my phone rang, it’s a salesman from Toyota, 'Sir, do you want to upgrade your car? Innova 2014, discount Rp25 million.' I casually told him, 'How about Rp50 million discount?' He said no. But then I was invited to come to the exhibition at Paragon Mall, and there the sales person complained.. ‘We have almost no sales in the last three months’. When I asked the sales person from Nissan, Datsun, Honda.. they answer the same: ‘No sales!’

Well then, how about your own business?

Then what about the future?

I think it is relatively easy for everyone to be able to see that the current economic situation is the result of a new policy of the new government (under the administration of President Jokowi) that quickly removing the subsidies from basic necessities like gas, electricity, and fuel and raise tax rates (which causes prices to rise), while the national economy is still struggling from the impairment of Rupiah and the declining in commodity prices since the end of 2011. On the other hand, the plans of various infrastructure projects are still not implemented yet. As a result, as it has been informed by the Central Bureau of Statistics some time ago, the national economy grew only 4.7% in early 2015, or far below the record of 6.9% in 2011 ago.

Although the situation seemed bad, however, if we take the example of the financial performance of the large listed companies on the Stock Exchange, they only experienced a decreasing profit instead of losses let alone bankrupt. Also, there isn’t a bank that should be liquidated like in 1998 and 2008. If you are a businessman, then your business turnover may down indeed, but in general your business is still running, is not it? So if some people say that the monetary crises could happen this year, I think it's too much. Yes, our economy worsened recently, but we've had a situation that is far worse than today’s.

The only question now, will the condition be like this, or there would be some improvements? Well, because the causes are quite clear, then the national economy will grow better in the future if the Government is willing to change or loosen their policy in terms of subsidies and taxes, and immediately implement the constructions of infrastructure which will certainly drive the economy to grow. Beyond the Government factor, if the price of commodities such as coal and CPO could rebound in the future, then the value of Indonesia's exports will increase, the Rupiah exchange rate will be strengthened, and the economy will grow faster. If you remember, in early 2009, Indonesia's economy only grew 4.1% because of the global crisis a year earlier. But thanks to various government policies (one of them by poured US$ 400 million to buy back the shares of SOEs in the stock market) plus the 'grace' of the booming of CPO price, the national economy successfully grew 6.2% in 2010 or just a year later.

Therefore, if anyone asks, could the economy to grow 5% again in the future? I would answer, let alone 5%, 6% is also possible, ‘cuz we did it before! But whether our economy will improve in the future or become even worse, it depends on many factors. Let say, if the government still not providing certain incentives for businesses and did not immediately implement the construction of the infrastructure, while on the other side the commodity prices continue to weaken and the Rupiah exchange rate also remains low, then well: Instead of improving, the rate of economic growth could be lower further in the future.

But a little enlightenment, recently President Jokowi visited the Eastern Indonesia including the Province of Papua, to inaugurate the beginning of constructions of several major infrastructure projects such as the Trans Papua Highways, food estate in Merauke, until the fiber optic network owned by PT Telkom in Manokwari. Is this a sign that the government has begun to implement the construction of the infrastructure? Let's hope so!