On 5 November, the Indonesian Central Statistics
Agency (Badan Pusat Statistik/BPS), released the rate of economic/GDP growth for
the third quarter of 2015, which is 4.73% y-o-y. The rate, though still below
the expectations of the Ministry of Finance and Bank Indonesia of 4.8 – 4.9%,
but it’s better than the second quarter, which was only 4.67%. And if we take a
look at the components of the economy itself, we will obtain some interesting
facts.
The first, as you know, the formula of GDP (gross
domestic product) is Consumption + Investment + Government Spending + Exports -
Imports. And in Indonesia, household consumption is still the largest component
of GDP, but the percentage is slightly down from 55.3% in the third quarter of
2014, to became 55.0% in the third quarter of 2015. Meanwhile, the investment component
rose from 31.8 to 32.8%, as well as the component of government spending rose
from 9.5 to 9.8%. Along with the low price of two Indonesian export commodities,
namely coal and crude palm oil (CPO), the export component is still down from
22.5 to 20.7%, but whether because of the impairment of Rupiah or another, the
import component fell deeper from 23.2 to 19.9%, and it helped the economic
growth rate to rise (because in the formula of GDP calculation, imports are the
negative components).
So it appears that the composition of our economy
in this year has slightly shifted from household consumption into investment
and government spending, and it is quite clear that this was the impact of the
transfer of government subsidies, from subsidies of fuel, electricity etc, to
infrastructure spending. On the other hand, the level of consumption in
Indonesia is actually still grew 4.96%, or higher than the total economic
growth of 4.73%, but the growth of government spending has been greater, which
is 6.56%. From here it appears that the revoke of subsidies did not reduce the
level of consumption (prices are rising but still under control), while the
plan of infrastructure spending has begun to be executed, so that the level of
government spending grew significantly. However, the investment only grew
4.62%, or lower than the total economic growth, indicating that the private
sectors are still hesitate to expand/invest because they think that the economy
is still in slowdown. But if later they could see that the level of consumption
in the country was still growing significantly, they should be aggressive again.
At the end, the slowdown in the country since 2011, actually is more because of
the low commodity prices which led to the drop in the value of exports, and not
because there is a particular problem in the country.
What is also interesting, although export growth
remained negative (dropped 0.69%), but imports fell 6.11% aka much more, so
that the rate of economic growth is not hampered. This explains why the central
bank, ie Bank Indonesia (BI), was like doing nothing despite the Rupiah
continues to impaired in the last months, and only intervened after the Rupiah
exchange rate was nearly pass through the psychological level of Rp15,000 per
USD, some time ago. Because to keep the positive trade balance, the value of
the Rupiah must be at a certain level (not necessarily strengthen). BI itself
had declared that fundamentally, the Rupiah exchange rate should be at the
level of Rp13,700 per USD. And when this article was written, the rate was indeed
at the level of Rp13,700's per USD.
Secondly, based on the business sector, in the
last year the mining sector was still experiencing negative growth, precisely
minus 5.64%. However, it’s the only sector that has negative growth. While some
sectors that has grew above the average economic growth of 4.73%, are the
sector of information and telecommunication (IT) 10.83%, financial services and
insurance 10.35%, education services 8:25%, corporate services 7.61%, construction 6.82%, and health services
6.49%. From this, it appears that the slowdown or decline in the sector of
natural resources/commodities has been offset by the growth in the sectors of service,
but the industry/manufacturing still only grew a little (3%). If later the
mining sector reached a point where it’s not declining further, while the
service sectors are still growing, and manufacturing sectors in the end also
grow because it has been supported by the infrastructure, then, well, we may witness
a record where the economic growth of the nation successfully reached 7% or
more, on year on year basis.
And third, since Indonesia's independence in 1945,
one of the biggest problems in the national economy is that the economy is
still highly concentrated in Java, and until today the conditions are still the
same, which from GDP amounting to almost Rp3,000 trillion (about USD 270
billion) in the third quarter of 2015, 58.3% of which comes from the Island of
Java. Actually, since the 2000s, the economy outside Java, especially Sumatera
and Kalimantan (Borneo), also grew rapidly due to booming of coal and CPO. But
since 2011, in line with the decline in the price of the two commodities, the
economic growth in these two islands dropped. Even for Kalimantan, the rate was
negative (minus 0.41%) in the third quarter 2015.
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| Map of distribution of economy in Indonesia. Figures in percent. Source: Badan Pusat Statistik |
However, in the last year, the government built much
infrastructure (power plants, ports, hospitals, dams), whether it has been
ready to operate or are still under construction, in Bali and Nusa Tenggara, and it stimulated the economy in the region
to grow significantly, ie 11.75%. Similarly, Sulawesi, where there was built
railway lines, nickel smelters, oil refineries, until the networks of fiber optic,
and the results the island’s economy grew 8.2%. Actually, the government not
only build this and that in Bali, Nusa Tenggara, and Sulawesi alone, but it
built everything in all large islands throughout Indonesia, including in Java,
and the fact that the economy of Java still grew 5.39% (so in the period of ‘crisis’,
in the last year, the most affected area is Kalimantan, where the economic growth was negative). But the point is,
if this trend of equitable development continues, then in the long term all
regions in Indonesia, not only Java, will enjoy sustainable economic growth.
Because the development of infrastructure in a region will not only stimulate
the economic growth in the region when the infrastructure is built, but also
after the construction is finished and ready to operate. So this is different
from the economic growth which driven by booming of commodities such as several
years ago, whereby when the boom period was over, the economy will be
immediately dropped.
In conclusion, I do not know with you guys, but I
saw that the economic development in the country is not as bad as it looks, but
only slightly slowed down to square off in order to take off. In fact, if I may
be honest, it's amazing that the Indonesian economy, which already the largest
in Southeast Asia, can still grww 4.73% or higher than some of its neighbors
such as Malaysia 4.70%, Thailand 2.90%, or Singapore 1.40%, and only lower to the
Philippines 5.60%, but remember that the GDP of the Philippines is also only a
third of Indonesia's (so that the economy of Manny Pacquiao’s country is easier
to grow than Indonesia), whereas until today the value of Indonesia's exports are
still dropped! Because of the decline in prices of coal and CPO.
Well, in the case I remember when some time ago I
told an entrepreneur friend that I someday want to move to Singapore, because
as a country that (apparently) more advanced in economy, it seems that the
opportunities of investment in there are more attractive than in here in
Jakarta. But he said, ‘Who says that invest in Singapore is delight? Try yourself
to buy the shares of SingTel or DBS, I would be amazed if you can generate a
profit of 25% in five years. Compare it to if you buy the shares of Telkom or Bank
BRI in here, where you might pocket a profit of almost 100% in the same period.
So, still say that Singapore is more attractive than Indonesia?’ Well, he is
right indeed, is not he? :)
Any inquiries about investment in Indonesia Stock Market, please send an email to teguh@averepartners.com
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