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Indonesian economy is approaching an exciting new economic position

The Indonesian economy is approaching an exciting new economic position. By the end of this year, Indonesia’s economy may produce a nominal GDP of around Rp 6,400 trillion, roughly equivalent to US$700 billion.

With a total 2010 population of 238 million people, Indonesia should achieve an average per capita GDP of around US$3,000.

The strategic value of this important point was addressed during a recent meeting between the management of one Indonesian bank and its counterpart from Japan. One of the Japanese delegates emphasized the importance of achieving a nominal per capita GDP of $3,000, but failed to elaborate further.

My curiosity brought me to seek out a number of new articles. For example, on People’s Daily Online, the flagship media outlet of the Chinese Communist Party, described that during its annual congress in 2002, the Chinese Communist Party set a target for China to achieve a per capita GDP of $3,000 GDP by 2020. This ambition was reiterated by President Hu Jintao during the Boao Economic Forum in Hainan in 2004.

Why is the level of per capita GDP so important?

People’s Daily explained that reaching the $3,000 per capita GDP level will result in “accelerated development”. Korea experienced surging economic growth for 11 years after achieving that level.

By achieving that level a number of sectors will experience stronger demand, such as the automobile industry, durable goods like refrigerators, televisions and air conditioners, property, retail, tourism among many others.

Therefore, the Chinese government was determined to prepare the groundwork so that once that level was achieved, the infrastructure necessary to accommodate the surge in the economy will already be in place.

Thousands of kilometers of highways were built together with mass rapid transportation in big cities. High speed trains were also launched in several places. In terms of planning, China has done a remarkable job preparing for when the tipping point will be achieved.

Apparently the Chinese economy achieved that level not in 2020, but in 2008-2009. And as we can witness, car sales in China have surged from around one million units in 2000 to around 13 million units in 2009. That made China the largest car market in the world, surpassing the US.

Similarly, we can assume the sales of durable goods also experienced a high growth in line with the rising sales of new houses and apartments.

In many places in China we can now see millions of new houses with solar heaters on their rooftops. We also see that China is home to the world’s largest shopping mall.

The strategic importance of achieving that per capita GDP level was the focal point of a recent seminar organized by Bank Central Asia (BCA) Learning Service, the CSR training branch of BCA, Indonesia’s largest private bank.

The title of the seminar was “Indonesia’s Progress Toward the Next Wave”, and was basically designed to remind government’s policymakers and private businesses that Indonesia is very close to the tipping point that may accelerate the economy.

The seminar was a big success, with various prominent speakers from the government and the private sector contributing interesting points of view.

Just what are the concrete implications of achieving that level of GDP in our economy?

One important sector that will be affected is the automotive industry. In 2010, Indonesian car sales may reach a level of over 700,000 units, a record, if achieved.

In fact, as of September 2010 car sales had already reached 555,000 units. By the end of October, Indonesia is likely to pass the previous auto sales record of 607,000 units in 2008.

The government has predicted that by 2015 we will achieve an auto sales level of one million units.

However, looking at this year’s performance, the target may be achieved only two years from now. During the months of June to August, monthly car sales in Indonesia reached 70,000 units.

“We are apparently in the midst of a hectic investment cycle that will rapidly bring the Indonesian economy forward.”

If that level becomes the norm in 2011, we could expect automobile sales of between 800,000 to 900,000 units in 2011. If that level is reached, then the milestone mark of one million cars sales will certainly be achieved in 2012.

That requires ambitious expansion plans on the producer side. Nissan Motor Ltd. recently affirmed their expansion plan of production capacity from 50,000 to 100,000 units.

Volkswagen plans to build a plant with a 50,000 unit capacity in 2012. Mercedes Benz has also decided to build a large assembly line to produce various products for both the Indonesian and the regional market.

The Indonesian government recently decided to expand the capacity of the Soekarno-Hatta International Airport with a third runway and fourth terminal.

In the interim, the government has decided to move a portion of airline traffic to Halim Perdanakusuma Airport to accommodate surging air traffic.

The rapid growth of the airline business seemingly comes as a surprise to the government.

Soekarno-Hatta International Airport has been so overcrowded that passenger convenience levels have been significantly compromised.

An airport designed to accommodate 22 million passengers is now serving 30 million passengers a year, with a growth rate of 15 percent annually.

Once again, this is exactly the type of implication associated with achieving a per capita GDP of $3,000 — a larger number of middle class people that can afford to fly, some even in business class.

That level of the per capita economic strength brings many new business opportunities. Coffee giant Starbucks has continued to expand its business in Indonesia, at a time when the growth of Starbucks operations in Australia is on the decline. J-Co, the Indonesian fast food company, has experienced strong growth in recent years.

Fitness centers, skin care products, premium movie theaters, among other businesses, have expanded their operations in Java and throughout Indonesia.

We are apparently in the midst of a hectic investment cycle that will rapidly bring the Indonesian economy forward.

Published on the Jakarta Post 20/10/2010

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