The country has the capacity for a strong long-term economic growth of around 5.4 per cent per year over the next few years (2016 to 2020), according to IHS, a premier provider of global market, industry and technical expertise.
Published: Tue 22 Dec 2015, 1:00 PM
Last updated: Tue 22 Dec 2015, 3:11 PM
Indonesia is an emerging Asian powerhouse that has been labelled as one of the world's most stable economies. As per the latest economic indices the country has become the fourth largest economy in East Asia after China, Japan and South Korea, and is the 8th largest economy in the world on a purchasing power party (PPP) basis. On track to become Asia's next trillion-dollar economy in two years, Indonesia will join the ranks of China, Japan, India, and South Korea. The country has the capacity for a strong long-term economic growth of around 5.4 per cent per year over the next few years (2016 to 2020), according to IHS, a premier provider of global market, industry and technical expertise.
Strengthening fundamentals
Well on its path to become one of the top 10 world economies by 2030, Indonesia continues to grow despite constraints and global uncertainty. Global consulting firm McKinsey recently suggested that Indonesia is one of the most stable economies in the world, owing to increased productivity among the country's massive middle class. Indeed a maturing system of democracy, which is a new dimension in the country, has strengthened the overall investment environment of Indonesia. The country offers both political and economic stability to investors. In the recent years the FDI to Indonesia has increased by more than 20 per cent. At the same time there has been a jump in domestic investment by around 40 per cent.
Indonesia is presently aiming to seek ways to strengthen its economic development in order to grow even faster. The country's economy grew at an annualised rate of 4.7 per cent through the third quarter of 2015. The government expects full-year growth of 4.8 per cent in the revised 2015 state budget. Looking at a growth of 5.3 per cent next year, Indonesia is betting on higher public and household spending, supported by a series of stimulus packages rolled out since September and a boom in public works projects.
With the economy expanding slightly less than expected in the third quarter, the country is faced with a weaker export demand. Although infrastructure spending, which is a vital aspect of the economy, caused the economy to perform better, more spending is necessary in the months ahead. President Joko Widodo's government has already announced five rounds of policy packages in recent months to kick-start the economy. The country's Coordinating Minister of Economics Minister Darmin Nasution recently announced another round of stimulus to accelerate growth. Investors will now get a tax holiday of between 20 per cent and 100 per cent for up to 25 years in Indonesia's special economic zones. The exemption of value-added tax for companies importing raw materials in these zones is also on the cards.
Economic ties with the UAE
Interestingly, the UAE is poised to play a significant role in positioning itself as a bridge of strategic partnership between emerging and developing countries. Indonesia's investment promotion centre in the UAE showcases its commitment to the relationship. As one of the few trade promotion offices around the world, it is going strong and has successfully invited several investment and business delegations from Dubai and Abu Dhabi.
In 2014, the UAE was Indonesia's 15th export destination country. The country's non-oil exports to the UAE in the 2010-2014 period witnessed a growth trend of 10.28 per cent. Last year the total trade between Indonesia and the UAE stood at $4.2 billion, a whopping 127 per cent increase compared from 2013 ($3.3 billion). In the first four months of this year alone (January-April 2015), the total trade between the two countries touched $1.1 billion.
Indonesia recently listed at least four sukuk valued at Dh22 billion, the largest ever carried out by a sovereign issuer on Nasdaq Dubai. Minister of Finance of Indonesia Bambang Brodjonegoro, who rang the market-opening bell to celebrate the listing of the Islamic bonds, said it was an important step forward in further strengthening the country's ties with the UAE and the wider Middle East. Notably Indonesia, a Muslim-majority nation with a total population of 255 million, has become a frequent sukuk issuer in the global markets. Since its international debut in 2009, the country has issued global sukuk valued at $7.65 billion. The four sukuk listings by the Indonesian government under its Trust Certificate Issuance Programme (TCIP) comprise one issuance of $2 billion, two of $1.5 billion each, and one of $1 billion.
With its vast economic potential and hitherto untapped markets, Indonesia has the potential to be the next big Asian power.
sadiq@khaleejtimes.com
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