Country Focus
Indonesia’s economy shapes packaging industry Indonesia is revving up its manufacturing sector scorecard, raising points for the food/beverage and packaging segments, against the back of the upcoming AEC and TPP agreements, says Angelica Buan in this report.
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he world’s 16th largest economy is in the troughs of economic transformation in anticipation of the upcoming ASEAN Economic Community (AEC) end of this year. This is along with its plan of joining the Trans-Pacific Partnership (TPP), and opening up to FDIs to shore up its manufacturing sector by reviewing its protectionist regulations, as well as offering tax incentives. Projecting a 5.3% GDP growth in 2016, which is up from the 4.7% GDP from the second quarter, yet slightly off the 5.5% GDP mark aimed by the government, the World Bank lauds the investment reforms initiated by the country to impede the recurrence of deficits. Thus, efforts are starting to pay off. Indonesia’s Investment Coordinating Board (BKPM) data showed that FDIs rose from over US$16 billion in 2010 to nearly US$29 billion in 2014. In the third quarter (July-September) of the current year, BKPM pegs the country’s FDIs at close to US$7 billion, an increase of 18.1% from a year ago. Manufacturing cornerstone in Asia With a more solidified capital investment, Indonesia maintains its ranking as the third manufacturing hub in the Asia Pacific region. It has high potential to gravitate up the ranks and outpace China or Vietnam with its production-conducive climate. This includes an hourly wage rate that has remained comparatively attractive; 250-million strong domestic market, rapid urbanisation, and substantial purchasing power that can support its priority industries such as packaging, automotive, household goods, electrical & electronics, and medical devices. By 2030, McKinsey Asia Consumer Centre (MACC) forecasts that Indonesia will account for
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almost 40% of ASEAN growth. Its population will expand at a rate of 2.9 million a year. Incomes and urbanisation will have vertical growth and will further support its domestic consumption. A report by the McKinsey Global Institute (MGI) also collaborates that by 2030, Indonesia would have become the seventh largest economy, propped up by the 135 million consuming class, and a healthy US$1.8 trillion market with opportunities in many sectors. More recently, US President Barack Obama won Indonesia’s endorsement for the contentious TPP with the President of Southeast Asia’s largest economy vowing to join. Joko Widodo has, thus, risked the ire of economic nationalists in Indonesia by pledging to join the pact.
“…US President Barack Obama won Indonesia’s endorsement for the contentious TPP..” Twelve countries are currently party to the TPP, including Australia, Canada, Japan, Mexico, Vietnam and the US, creating the world’s largest free trade area. The deal is seen by some as a counterbalance to growing Chinese economic clout in the region. Roping in the F&B industry Amongst the industries that will benefit from a revitalised manufacturing sector, the food and beverage is specifically addressed as having been largely contributory to the country’s GDP. This was stated by President Joko Widodo during a recent meeting with the Indonesian Food and Beverage Association (Gapmmi). Deregulations are being carried out to further propel the competitiveness of the F&B segment. In the ASEAN, Indonesia offers plenty of market opportunities for F&B, according to the BKMB, which has projected a 400% growth in food and manufacturing FDI projects from 2010 onwards. Demand-wise, market research firm Canadean finds demand for commercial beverage production in Indonesia to continue to expand. Soft drinks are growth drivers in the sector, it said, accounting for over two-thirds of the total beverage market. In the coming term, new soft drink products will be launched and new industry players will permeate the market, Canadean says.