NOT only is the Indonesia economy South East Asia’s largest, it is also one of Asia’s most resilient and one of the hottest emerging economies in the world. Much is written about the continuing growth of China and India but Indonesia’s strengthening domestic situation, its abundance of natural resources, supportive government and strong private sector are attracting global interest.

Mining is playing an important, and growing, role in the economy, particularly coal exports, but the key to Indonesia’s economic success now and into the future is its diversity with agriculture, oil and gas, and manufacturing also playing key roles. This is also ensuring foreign investment from a range of sources. It is a big draw for global investment banks chasing fee revenue on deals and fund raisings, but which are also well aware of the inherent dangers - from corruption, poor infrastructure and a lack of transparency to market volatility.

Evidence of Indonesia’s current strong economic situation include ratings agencies upgrading Indonesia’s debt, the stock market being up by a fifth since last October, a well-stocked IPO pipeline and investment banking fees growing far faster than elsewhere in Asia. Thomson Reuters estimates show that fee income in the island nation is up seven-fold, rising annually since 2000 to $391.4 million in 2011. In the same period, fee income trebled across South East Asia. It’s these type of figures that have attracted global banks to Indonesia and will continue to attract them in the future.

In 2011 Indonesia’s economy grew at its fastest pace since the 1997-98 Asian crisis with experts saying the vast domestic market in the world’s fourth most populous nation is helping to shield it from the global economic turmoil impacting its export-oriented neighbours. Gross domestic product (GDP) grew by 6.5% in 2011 and is expected to show similar growth in 2012. GDP has grown more than 5% in seven out of the past eight years, and even in 2009, when many countries slumped into the global financial crisis, Indonesia’s economy managed 4.5% growth.

Foreign direct investment (FDI) in Indonesia grew 20% to a record $20 billion in 2011 as companies invested in everything from coal mines to car factories to tap the vast natural resources and 240-million strong domestic consumer market. FDI is likely to remain robust over the medium term after Moody’s Investors Services and Fitch Ratings recently upgraded Indonesia’s credit to investment grade, a change that allows its bonds to be added to benchmark global indexes.

The country’s Finance Minister Agus Martowardojo recently told the media that he expects total investments made by private sector and the government to grow as much as 10% this year, after rising more than 8% in 2011. Adding to this optimism, particularly in the longer term, is the passage of a bill throughout Parliament in December that aims to expedite land purchases for infrastructure projects and which could spur significant growth in the construction sector.

Lack of infrastructure and lack of legal protections has held back Indonesia’s growth but there are signs that the government is tackling the first issue and it has taken steps in the past few years to also take on the second, with the new Mining Law providing concrete evidence of this in the mining sector. Economic experts say the country can take further steps to improve the investment climate by revising rigid labour laws.

As far as mining is concerned, coal will continue to be the major economic player. Indonesia is the world’s largest exporter of thermal coal and the second largest exporter of coal overall behind Australia. A recent International Energy Agency coal report stated, “Global demand for coal will continue to expand aggressively over the next five years despite public calls in many countries for reducing reliance on the high-carbon fuel as a primary energy source...” Coal is already the single-largest source of electricity generation globally, and the report says the main reason for the projected increase in coal demand over the next five years is surging power generation in emerging economies, particularly China and India. This bodes well for Indonesia’s booming coal industry.

Other mineral resources, including tin, nickel, copper, gold, silver and manganese are also major contributors to the mining industry’s input. These resources will all play their part in the future with new coal, precious metals and base metals projects set to come on line in the next 12 months, including the Martabe gold-silver project of G-Resources.

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Sylwia Pryzbyla, Editor

Sylwia Pryzbyla
Editor, ASIA Miner and Australian Editor, E&MJ
[email protected]

Sylwia Pryzbyla has more than two decades of experience in media and publishing industries.