Indonesia Not so Much a Skunk as a Tiger

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HSBC Chief Michael Geoghegan may be looking to secure his place in history by starting a new acronym like the Goldman Sachs inspired BRICS used to describe major emerging markets according to an FT article. Mr Geoghegan’s new acronym is CIVET covering Cambodia, Indonesia, Vietnam, Egypt, Turkey and South Africa his suggestion for the next tier of emerging countries (though admittedly CIVET doesn’t really convey South Africa too well). The article playfully points out that Civets which look like a cross between cats and raccoons were blamed for the SARS outbreak in Asia. The animal is also said to emit a strong scented spray like a skunk, not the most endearing of terms to be labeled with but probably better than the widely used PIGS to describe Portugal, Italy, Greece and Spain. Nevertheless such associations notwithstanding, the members of the Civet club do have much in their favor in terms of growth prospects this decade.

Indonesia in particular finds itself both the object of considerable overseas attention largely as a result of its wealth of natural resources. That attention and those resources though also bring their own responsibilities. A Reuters report advised major mining companies like BHP, Freeport McMoRan and Newmont Mining are lining up to develop major deposits of thermal coal, iron ore, copper, zinc, nickel and gold, in addition to Indonesia’s established position as a major tin producer. But at the same time, as an increasingly responsible member of the world community (and it must be said the beneficiary of a US$1bn aid deal with Norway aimed at avoiding greenhouse gas emissions) the government enacted a two-year ban on permits for forest clearing. The clearing of carbon-rich natural and peat-land forests caused the vast majority of Indonesia’s emissions so curbing deforestation is seen as a quick fix. The magnificently named Susilo Bambang Yudhoyono, president of Indonesia, has vowed to cut greenhouse gas emissions by as much as 41% by 2020. Meanwhile $14bn of mining investments are being held up pending clarification on how the ban will be implemented.

Indonesia’s prospects look good nevertheless, with growth of 6%+, a low cost labor force and improving political stability, the world’s fourth most populous country is attracting downstream investment too. Posco and Arcelor Mittal are both setting up steel making ventures with local firms. Posco in a 6m-ton operation with Krakatau Steel and ArcelorMittal have shortlisted the country for a  $5m steel plant investment. China Investment Corporation may eventually plow up to $25bn into the country but is starting with $2bn into coal, electricity and badly needed port projects. Indeed that will be Indonesia’s challenge, to attract investors keen to build downstream value add production facilities not simply extract raw materials for processing overseas. There are early signs of success. FDI (foreign direct investment) is forecast to rise by 25% this year to reach $13.25bn helped by South Korea’s LG Electronics and US equipment maker Caterpillar Inc saying they will pick Indonesia as their SE Asian manufacturing base.

So being tagged as a skunk or not does not appear to be holding back the new Asian tiger. In a world short of natural resources and with the Chinese market metaphorically on their doorstep, Indonesia holds considerable promise to lead the pack of new emerging market economies.

–Stuart Burns

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