Indonesian business shows the way

SOUTH Africa and Africa should start paying more attention to Indonesian companies, with that Asian country’s economy set to charge ahead.

Lyal White, director of the Centre for Dynamic Markets at the University of Pretoria’s Gordon Institute for Business Science (Gibs), said this week the Indonesian economy would “arrive”, much like those of China, India, Brazil and Turkey had.

“Indonesia is growing at a much faster pace than some other countries [in the BRICS grouping]; its economy is three times the size of South Africa’s; it has an enormous population and a good demographic dividend compared to a country like China, which will start having an ageing population soon.

“China will essentially grow old before it grows rich.”

Michael Power, strategist at Investec Asset Management, said this week that Indonesia was the “dark horse” among emerging economies.

“Far more than South Africa and even Russia, it deserves to be a BRIC. There are [almost] 250million people, the country has resources like you would not believe, it is hard working and starting to get its act together politically. It is a really impressive setup,” Power said.

White said Indonesia was becoming an easier place to grow a business, despite it being placed at 128 among the 185 countries on the World Bank’s latest ranking on ease of doing business.

This is far below countries like South Africa, in position 39, Colombia, at 45, and Rwanda, at 52.

“We cannot always take these surveys and measurements as the Holy Grail of the investment environment. You have to interpret it a little bit more thoroughly. The opportunities in Indonesia are a lot higher [than indicated in the survey].”

The Organisation for Economic Cooperation and Development (OECD) said in its 2012 economic survey of Indonesia that Asia’s fifth-largest economy had enjoyed significant progress in social and educational dimensions since the 1997-98 Asian crisis, thanks to strong policy reforms and improved governance.

However, the economy was still far from growing sustainably at 7%-9% a year, which is needed to achieve the government’s objective of becoming one of the 10 largest economies in the world by 2025, the OECD said.

“To a large extent, institution building is a precondition for Indonesia to reach this ambitious growth objective. At this stage of economic development, a key challenge for the country is to enhance its productivity, which will in turn raise prosperity.”

White said that Indonesia had a long history of large multinationals almost like state-owned enterprises and very similar to the big Brazilian companies.

“A lot of these companies are now starting to become outward lookers.

“You will start seeing Indonesian companies [investing] in Africa,” he said.

South African businesses are also becoming more interested in the way business is done in Indonesia.

The National African Federated Chamber of Commerce and Industry (Nafcoc) sent a business delegation to the 13th World Export Development Forum in Jakarta in October.

Nafcoc president Lawrence Mavundla said at the time that South Africa could learn from small, micro and medium enterprises (SMME) being a key driver of economic growth in Indonesia.

The SMME sector was protected and nurtured in Indonesia, and the 51million registered SMMEs accounted for 53% of GDP there, he said.

However, the OECD said many SMMEs in Indonesia suffered from low productivity, which limited their role in boosting living standards.

Informal employment currently accounted for 62.2% of total employment in Indonesia.

“Formalising of workers and firms will be a key source of productivity growth and could be encouraged by preventing excessive increases in the minimum wage, introducing a sub-minimum wage for youth and implementing reforms to make the formal labour market more attractive to workers and firms,” the OECD said.

The OECD pointed out that inequality was increasing in Indonesia.

Adrian Saville, chief investment officer of Cannon Asset Managers and an associate professor at Gibs, said that while Indonesia’s GDP per capita of R34 800 to R43 500 was about half that of SA’s, the distribution of wealth was still much more equal than in SA and growth was on a structurally higher plateau.

White said one of the most pressing concerns in Indonesia was the strengthening of the private sector, which was still riddled with corruption.

Indonesia ranks 100th out of 183 countries on Transparency International’s 2011 Corruption Perceptions Index.

White said he would like Indonesia, the most populous Islamic country, to become a much stronger voice in the Islamic world in terms of creating a modern state and a modern political economy.

“As with any Islamic state, there is a downside, but they managed it . effectively.”

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