Wed, Sep 19, 2012 - Page 15 News List

Indonesia may overtake Germany by 2030

Bloomberg

Indonesia may surpass Germany and the UK by 2030 to be the world’s seventh-largest economy, generating US$1.8 trillion in annual sales for agriculture, consumer and energy companies by that year, McKinsey & Co said.

The country may add 90 million people to its “consuming class” in that period, the most after China and India, the consulting company said in a report yesterday.

Energy demand may triple from current levels, convenience stores will lead a “revolution” in retail and the largest business opportunities will be for financial-service providers, it said.

Indonesian President Susilo Bambang Yudhoyono is increasing spending on roads, seaports and airports as he woos investment to spur Southeast Asia’s largest economy. More than a decade after the Asian financial crisis forced the nation to seek an IMF bailout, Fitch Ratings and Moody’s Investors Service have raised Indonesia to investment grade and the country’s growth is among the fastest in the G20.

“Indonesia is in the throes of a rapid transformation,” McKinsey said. “The Indonesian economy is larger, more stable, and more advanced than many companies and investors around the world realize.”

Indonesia is currently the world’s 16th-largest economy, with GDP of about US$846 billion last year, according to IMF data. That may rise to US$1.8 trillion in 2017, compared with Germany’s US$3.9 trillion economy and the UK’s US$3.2 trillion in the same period, IMF data shows. The McKinsey report didn’t give GDP projections for 2030.

Only China, the US, India, Japan, Brazil and Russia will be bigger than Indonesia by 2030, McKinsey said.

Indonesia’s growth potential has spurred companies including Toyota Motor Corp to boost investments in the country and prompted Standard Chartered PLC to predict the nation will join China and India as the engine of the third global “super-cycle.”

Indonesia isn’t “a typical Asian manufacturing exporter driven by its growing workforce or a commodity exporter driven by its rich endowments of natural resources,” McKinsey said.

“The reality is that, to a large extent, it is domestic consumption rather than exports, and services rather than manufacturing or resources, which are propelling growth,” it said.

“Over the past decade Indonesia has had the lowest volatility in economic growth of any OECD or BRIC [Brazil, Russian, India and China] economy, while government debt has fallen by 70 percent and is now lower than in the majority of the OECD economies,” McKinsey said.

Annual growth of 5 percent to 6 percent in Indonesia will add 90 million people to the “consuming class,” which is defined as those with yearly net incomes of more than US$3,600 at 2005 purchasing power parity, McKinsey said.

An expansion of 7 percent a year, as targeted by the Indonesian government, would increase those ranks to 170 million people from 45 million in 2010, it said.

“This growth in Indonesia’s consuming class is stronger than in any economy of the world apart from China and India, a signal to international businesses and investors of considerable new opportunities,” McKinsey said. “But surging demand for a range of products and services will inevitably strain Indonesia’s natural and capital resources.”

The country’s other challenges include boosting productivity to achieve a 7 percent rate of expansion, uneven distribution of growth across the archipelago, and infrastructure and resources that cannot keep pace with rising domestic consumption, according to the McKinsey report.

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