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The country assignment has to be done on the basis of hand-out that was distributed in the class today. All
the parameters with respect to analysis are given there.

The objectives for the assignment are to


Analyse the potential of the country as an Emerging Market.


Identify the sectors which throw up opportunities for investment. Justify your choice/s.


Parameter that identify an Emerging Market and how they apply for Indonesia (Chapter 2+3)
a) Demographics
b) Rising middle class
c) Consistency of growth
d) Better fiscal conditions
e) Better inflation targeting
f) Rising currency values
g) Better banking systems


open trade
consumption and investment
better political governance
more privatisation
Technology and innovation
Higher savings rate
Deeper/Broader financial markets
Better transparency

Political stability and governance
Business conditions
Technology, innovation and infrastructure development
Human development
capital market
Opportunities for investment according to sectors

Is Indonesia an emerging Market

Here you find some short data about Indonesia:


Economic Conditions
Indonesia is the largest economy in Southeast
Asia. Its gross domestic product (nominal) in the
year 2015 is US$861.933 billion and the GDP per
capita (PPP) US$11,1001. After the year 2012 the
GDP has seen a slowdown as depicted in the
The downtown can be explained with the loss of
the export boom of commodities2. As for the year
2016 the GDP is said to be growing again to
US$936.955 billion3. Before the export of
commodities and services was the reason for
growth. Also because the price for labour and
therefore for services and commodities were
rising, the exports in this field were decreasing. In
this year the shift towards growth that is highly
motivated by innovation and internal demand can
be seen. This phenomena can alsoseen in China
or Brazil4. The GDP real growth rate in the last
years was very positive. In the last three years it
was growing around 5% whereas in developed
countries it would be around zero or even
negative. The Inflation rate in the last 10 years was stabilizing. In 2006 it was quite high with
around 15% which meant a weaker currency and lower return on investments. Since the last
five years the inflation was around 5 to 10 percent as can be seen in the figure. In the year
2014 Indonesia has Foreign Exchange Reserves of US$111.9 billion5. Their imports were
178.2 billion in 2014 which means Indonesia would be able to finance its imports for more
than half a year. In case of recession this is very important and Indonesia has a good
position. The Investment as a percentage of GDP was 34.5% in the year 2015. This shows



4The emerging markets handbook


Indonesias efforts in terms of R&D and its way of being internationally competitive6. The
debt-to-GDP ratio is 27 percent, which is compared to other emerging markets like Brazil
with 70 percent quite low7.

Indonesias positive growth in the past, the successful shift to growth not only through
exports but also internal consumption and the other benchmarks imply that Indonesias
growth is sustainable and longer lasting.

Financial Factors
Indonesian banks were ranked the best among the ASEAN countries. They have the
strongest balance sheets, enough capital to support business and in terms of exogenous
shocks help them to sustain8. Indonesias non-performing loan ratio in 2015 was 2.4% which
is very positive. The Indonesian Rupiah was in 2015 Asias most-volatile currency. But
Indonesia therefore had taken measures9. The rating agency Fitch rated Indonesia in the
year 2011 to BBB- which means stable. That meant, considered from an investment
perspective, that investing in Indonesia was changing from a speculative grade to an
investment grade10.






In a globalized world trade seems to be one of the key drivers when regarding the growth of
emerging markets. The trade balance during the last years was varying11. In the chart you
can see surpluses as well as deficits. In 2016 there seems to be a surplus12. As there are
neither large surpluses nor large deficits for longer periods there is no need to worry. When it
comes to trade barriers, Indonesia is part of the ASEAN
and therefore allows quite open trade. Apart from that
Indonesia also has Free Trading Agreements with many
countries. Nevertheless there had been some measures
that prohibited foreign investments in infrastructure
which has been given up in 2016 and opened the
economy up13. in 2014 Indonesia was the 25th biggest
exporting country in the world14. Nevertheless there are
also high imports and Indonesia is shifting from a
country that is dependant on their commodity exports to
a more independent and innovative country. This is
necessary as by now the country is still dependant on
exports of (palm) oil, timber and other primary goods
and attract foreign investments

Political stability and governance

The political stability and a good governance is crucial
when determining emerging markets. There is no chance of doing business where war and
threat is determining the daily life. On the other side an emerging market does not
necessarily be a democracy. China as an example of dictatorship was economically doing
very well and many other countries just passed a dictatorship. More important is, that there
are property rights and legal rights existing15. The economist Intelligence Unit (EIU) political
risk is measured from 0 to 100 with 100 being a very high risk. Indonesia itself was in the last
years improving that index so that in the year 2012 the scale of 55 could be reached.
Indonesias Freedom from corruption index continuously rose and in the year 2016 reached
the score of 34. This is a positive development, as 100 means complete freedom of



15 the emerging market handbook

political stability index during the last years improved from -1,87 in 2004 to -0,37 in the year
2014 (-2,5 being worst and +2,5 being best). All the parameters show, that Indonesia is
improving in this area during the last ten years.

Business Conditions
According to the World Banks report about Doing Business Indonesia was in 2010 ranked
126 out of 1 to 183 ranks and could improve up to the rank 109 in 201517. The ranking
monitors the regulations that influence the ease of doing business in a certain country. China
for example is on rank 84 and the Philippines on 10318. All in all the positive development
needs to be highlighted. It suggests, that the country is taking steps to simplify the way of
doing business in Indonesia.

Technology, innovation and infrastructure development

Internet penetration has largely grown from the year 2000 with only 0.93% of Indonesians
using the internet to 17.14% in 201419. The mobile phone penetration is Indonesia in the
year 2016 is nearly 40% of the population. It is expected to grow even stronger and
remarkably in 2016 Indonesia has already become the third largest market for smartphones
in the Asean-Pacific region, following China and India20. One of the bottlenecks of
Indonesias growth is its infrastructure. Huge traffic jams, bad conditions of roads and even


safety issues hamper the country21. The government is aware of this and started huge
infrastructure projects which are going to take time until being established22.

Human development
According to UNESCO Indonesia spent 3.37% of its GDP on education in the year 2013. In
the UK it was in comparison 5.72%. The figure shows the percentcage of GDP that is spent
on education in Indonesia from 2007 to 201323.

The health spending per capita in 2014 was US$99. India is below with US$75, whereas
developed countries like France or Sweden spend around 5 to 6 thousand US$ per capita.
The life expectancy of someone born in 2014 is 69 years old, and the literacy rate in 2011
was about 92,81% which is very positive24.

Indonesia had a huge growth in the last years concerning the CO2 emissions. This is typical
for emerging markets. Developed markets already passed this step of high CO2 emissions
and are now trying to reduce those by means of technological advantage and awareness. In
the chart you can see the growth in Indonesias CO2 emissions25:



The amount of renewable energy output was going down. In 2001 it was 17.4% of the total
energy output whereas in 2012 it was only 11.4%. The amount of electricity production from
coal was increasing from 2001 37.2% to 51.2% in 201326. This can be explained with the
huge growth of economy and therefore higher demand for energy.

Capital Markets
It is important for an emerging market to attract foreign capital and therefore market
transparency is also very important. The foreign direct investment (FDI) in India was rising
extremely from the beginning of the 20th century. After having FDI of US$25.3bn in 2014 it
was going down in 2015 to US$15.5bn27. In February 2016 Indonesia opened up 35
business sectors for 100% of foreign ownership, which definitely will attract more FDI.