Indonesia – Retail Rising

Indonesia – Retail Rising

By on Jun 11, 2015

rupiah smallWhile the western press has been emphasising the scale of the task facing anti-corruption reformers, reporting the challenges faced by a president whose origins are remote from traditional sources of power and commenting unfavourably on aspects of the country’s enforcement of its criminal courts’ sentences, Indonesia has been progressing on its journey as an emerging market with some success. The country has just risen three places to 12th position on AT Kearney’s annual Global Retail Development Index.

With per capita GDP (at PPP) passing USD$10,000 and a population of over a quarter of a billion, the market is becoming more attractive. Economic uncertainty appears to be diminishing after President Widodo’s election, although it is true that he must run a difficult course affected by a combination of some populist tendencies, the power brokers in his own party and Jakarta’s vested interests.

Perhaps the most exciting aspects of Jokowi’s action to date centre on the concrete moves taken to reduce opportunity for corruption – in particular an improved investment-approvals process and the moving of many government services online. Putting the names of his nominees for senior government positions in front of a corruption watchdog and acting on their findings may have been symbolic, but it was a very strong symbol.

While the western press is quick to point out how slow progress is – and Indonesia does still rate in 107th place (out of 175 economies) on Transparency International’s list – it is worth remembering that more concrete steps have been taken against corruption in Widodo’s administration than had occurred in a significant amount of time before his election. The longevity of these reforms is not yet certain, and some parallels to President Aquino’s efforts in the Philippines exist. Like Aquino, Jokowi must maintain momentum, and the true test will be whether reforms last longer than his presidential term. Nevertheless, the outlook for Indonesia is positive, and in the words of one senior western executive based in Jakarta, “it is a myth to suggest you can’t operate in Indonesia without any corrupt activity. We manage.”

Economic liberalism in Indonesia is a very slow process. However, abolition of $18 billion in fuel subsidies that no previous administration had dared to cut is clear evidence of Jokowi’s intentions. Additionally, the retail sector is showing strong signs of revival after a slow 2014, and second-tier cities are starting to be targeted by the major players. Significantly, local players are building presence and strength in these areas, although western firms are also investing: Warburg Pincus is engaged with a local partner to develop hypermarket-anchored malls across tier 2 and tier 3 cities. QSR brands are increasing their presence.

Japanese and Korean retailers are also investing heavily. Lotte, which has department stores in Indonesia, has opened its first supermarket in Jakarta. Aeon has announced strong expansion plans, as has Malaysia’s Parkson.

In short, Indonesia’s retail market is likely to get stronger. For western firms, the question – as they wait for more open and transparent market conditions- is how much opportunity they are prepared to miss.