Doing business in Indonesia

The I of ‘CIVETS’ – some of the world’s fastest emerging markets – we look at what Indonesia has for British businesses

The CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa) are promising to be the fastest emerging markets over the next 10 years. Foreign investment in these nations is growing and – as most of their own production is in raw materials – there is a growing market for secondary goods. If the UK Government is to succeed in its plan for an export-led recovery then the UK must focus on these markets.

Indonesia is the world’s fourth most populous country and the world’s seventeenth largest economy by GDP, with 238 million people spread over 17,508 islands.

Fast rising economy

At the 2011 World Economic Forum the Indonesian president claimed that his nation would feature in the world’s top 10 economies in the next decade: can this be true?

Industry is Indonesia’s largest economic sector and accounts for around 46.4% of GDP. The next largest contributing sectors are services and agriculture, accounting for 37.1% and 16.5% respectively.

Historically, agriculture has been the biggest employer, but it has been overtaken in recent years by the services sector. This is a clear indicator of the country’s economic progression.

Indonesia is the world’s 27th largest exporter with primary markets being Singapore, Japan, the US and China. Much like the other CIVETS nations, Indonesia has a large supply of natural resources. These include crude oil, natural gas, tin, copper and gold. All of these materials are heavily exported, alongside textiles, electronic goods and plywood. These nations also account for the majority of Indonesia’s imports.

Indonesia ran a trade surplus for the first time in 2005 with exports grossly outweighing their imports. This is not to discount their import levels, but simply highlights how well their economy is performing.

Socio-historical factors

Indonesia’s economy has long suffered as a result of the nation’s political instability. The early 1960s was a particularly damaging time as a young and inexperienced government employed a policy of economic nationalism. By the time this government was ousted in the middle of the decade Indonesia was left with a legacy of 1,000% inflation, shrinking exports and a crumbling infrastructure.

Oil price rises in the 1970s brought export profit and the beginnings of economic prosperity. The country enjoyed growth for the majority of the 70s and early 80s and investment from overseas began to vastly invigorate the manufacturing sector.

This spell of prosperity was interrupted by the Asian recession of the late 1990s. However, sensible policy making and a hard working youthful population led to further growth in the early 2000s that helped steer the nation through the recent financial crisis.

Export opportunities for British businesses

The country is on the up and its prospects will continue to improve. A rapidly urbanising population and ever improving infrastructure is boosting business in the region and personal wealth is improving.

Indonesia has a proven track record of importing and British businesses have not even touched the sides in that respect. Like the other CIVETS nations, Indonesia is an essential target marketplace if the UK is to export its way out of recession.

The great news is that Indonesians are already importing heavily, and not only from next door. British businesses have to take advantage of this opportunity, and soon.

Torrie Callander is a corporate dealer at independent foreign exchange provider, Global Reach Partners

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