INDONESIA - THE NEW EMERGING ECONOMY
By Ruma Dubey
Indonesia is fast emerging as the new Asian tiger. The country is currently at a crux – from a small, fledgling country to becoming a booming, prosperous one. It is at that exact juncture where India was 10 years ago- about to take off. And auto makers around the world, which were touting India to be the new Detroit are now heading South East.
The emergence of Indonesia can be attributed directly to the two natural calamities in 2011 – first the devastating tsunami in Japan and then the ravaging floods in Thailand. Both are auto hubs in the sense that they provide cars and parts for cars to the world. The recent flooding in Thailand left the entire supply chain in a lurch, with car manufacturers left hanging for months for car parts to get delivered from Thailand thus putting the entire delivery schedules around the world in disarray. Thailand is today one of the world's biggest sources for vehicles, especially pickup trucks. That is the time when the auto sector around the world realized its vulnerability, giving rise to the urgent need to spread its risks in terms of location.
That apart, the Indonesian economy is on the verge of a boom. The middle class is slowly but surely rising, there is more disposable income in the hands of the people, inflation and interest rates are stable and so is the economy. Domestic demand is itself so strong that car makers setting shop there see huge opportunity. As per Wall Street Journal, less than one in twenty of Indonesia's mostly young and increasingly affluent population of 240 million people owns cars. Sales in other countries have either started tapering off or have plateaued while on the other hand, car sales in Indonesia, given the rising GDP are expected to take off. And it is not just auto makers; overall the country is attracting a lot of foreign investment based on its potential. Last year, it attracted a national record of $20 billion in FDI as its GDP rose 6.5%. And while rating agencies might be reducing ratings of most of the countries, Moody's last month upgraded Indonesia's debt to investment grade. And this means, it is rating the country as a destination for investment, ripe for investing.
Right from GM, Ford and even our very own Tata Motors, everyone wants to set shop there. GM, which left the country seven years ago, is investing $150 million to reactivate a plant to produce a seven-seat van in Indonesia. Ford which only sells its cars presently in Indonesia is planning to set up manufacturing facility there. China's Zhejiang Geely Holding Group Co. is planning to expand its vehicle-assembly capacity. Tata Motors is contemplating setting up a plant to manufacture Nano in Indonesia. Hyundai is also looking at setting up manufacturing facilities there. But for all these, a formidable competition stands in the form of Toyota, which literally rules the roost. It was the first entrant in the country and today Japanese companies control about 90% of Indonesia's market and Toyota alone controls 60%. Suzuki, Nissan and Daihatsu already have set base. Suzuki plans to invest 60 billion yen ($782 million) to increase capacity in Indonesia, including setting up a new factory to build engines. Nissan is investing more than $20 million at a plant in Indonesia to double annual capacity in the country to 100,000 vehicles by 2013.
What does all this mean for India? It will not be affected directly but it does mean that another new auto hub is emerging in South East Asia. Indonesia is clearly going to emerge a force to reckon with in the ASEAN automotive arena. A lot hinges on Indonesian government's stability and long-term investment policies. Vietnam could be the next big thing in 2018 once it brings down its import duties to be at par with Thailand, Malaysia, Indonesia and the Philippines. India too needs to de-risk and like Tata Motors, many would do better look ‘SouthEast’wards. Yes, Indonesia is the new fast emerging market and India, instead of ruing over want it has lost, should also get in its foothold and make it strong in such emerging economies.