Jakarta. The benchmark stock index of Indonesia — like those of its Southeast Asian peers — declined significantly on Monday, on concerns that the Greek debt crisis could spill over into the region.

The Jakarta Composite Index declined 1.33 percent to close at 4,916.74 on Monday, with the sharpest decline led by finance-related stocks. In the year-to-date, the JCI has fallen by 5.93 percent, with analysts attributing this decline to various reasons, including weaker economic growth, the weaker rupiah and lackluster corporate earnings.

Around 5.18 billion shares worth Rp 4.4 trillion ($329.3 million) were traded on Monday. Decliners beat gainers 228 by 61, with foreign investors dumping Rp 174.5 billion in shares more than they bought.

The rupiah weakened to 13,353 per dollar from 13,316, according to data from Bank Indonesia.

“The global stock markets were affected by negative sentiments from the outcome of Greece’s referendum,” said Alfiansyah, head of research at Valbury Asia Securities, as quoted by the Antara news agency.

Greeks overwhelmingly voted “No” in a historic bailout referendum on Sunday, partial results showed, defying warnings from across Europe that rejecting new austerity terms for fresh financial aid would set their country on a path out of the euro.

“Market players were being overshadowed by worries over the Greek debt crisis, they tended to make selling moves,” Alfiansyah said, as quoted by the state-run news agency.

An index that traces 85 finance-related stocks at the Indonesian Stock Exchange (IDX) declined 1.81 percent, leading the sectoral fall. It was followed by an index that tracks 36 consumer goods industry, which fell 1.78 percent during the day.

The top laggard stock on Monday was that of state lender Bank Rakyat Indonesia, followed by those of consumer goods giant Unilever Indonesia.

BRI’s stocks, traded under the code of BBRI, declined 3.93 percent to close at Rp 10,400 per share. BBRI is a heavyweight stock with market capitalization recorded at Rp 254 trillion.

Unilever stocks, traded under the code of UNVR, declined 2.11 percent to close at Rp 40,500 per share. Its market capitalization at the end of the day was Rp 309 trillion.

Elsewhere in Southeast Asia, shares also declined.

In Kuala Lumpur, the key index dropped 1.2 percent, to its lowest since June 30, as the ringgit hit a 16-year low after reports linked the country’s prime minister to an alleged corruption case.

Singapore’s benchmark Straits Times Index retreated from a closing high on Friday. The benchmark index in Singapore declined 0.67 percent.

Indexes in Thailand and the Philippines extended losses from Friday. Vietnam bucked the trend, rising for a third straight day.

However, the Greek impact is not expected to last very long as, fundamentally, Asian economies are not materially exposed to Greece, analysts from Maybank Kim Eng wrote in a report.

“Regional currencies and equity markets can be expected to be volatile with weakness bias in the short-term, pending clarity on the Greece crisis’ end-game, mainly due to ‘safe haven’ flows into major currencies and asset denominated in such currencies,” they said.

GlobeAsia, with additional reporting from Reuters

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Jakarta. Berca Hardayaperkasa has become the latest company to pile into the nascent 4G LTE scene in Indonesia, announcing that it will launch its “Hinet” service to subscribers in Bali, Makassar and Pekanbaru in October.

Karuna Murdaya, a director at Central Cipta Murdaya, Berca’s parent company, said the company planned to spend up to $150 million to deploy the service in the three cities.

“We have a target to capture 12 cities outside Java, but rather than tapping into those cities together and not offering quality services, we prefer to win these three cities first before expanding,” said Karuna, who is the son of CCM founder Murdaya Poo.

Linggajaya Budiman, Berca’s managing director, said the company would work with Chinese telecommunications company Huawei to build the infrastructure and network for the service.

The planned investment is expected to cover the cost of establishing a network of 400 base transceiver stations, or cellular towers.

The company has not said how much it will charge subscribers for the service.

Berca joins a growing list of telecommunications firms rushing to set up 4G LTE networks in Indonesia, including the country’s three biggest cellular operators – Telkomsel, XL Axiata and Indosat – and Internux.

Berca is not a new player in the sector. In 2009, it won a tender to provide broadband wireless access at the 2.3 gigahertz frequency, securing the right to use two bands in 14 cities in Indonesia.

At the time it offered its Wigo service offering an early iteration of the 4G technology using Worldwide Interoperability for Microwave Access (Wimax) in Denpasar, Medan, Balikpapan and Batam. However, Wimax technology was eclipsed by 4G LTE, deemed more friendly for cellular operators.

GlobeAsia

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Jakarta. State-Owned Enterprises Minister Rini Soemarno is speaking out about the controversial cooperation between Indonesia’s state controlled Telekomunikasi Indonesia, or Telkom, with Singaporean telco company Singapore Telecommunications on Saturday in a breaking of fast gathering with journalists.

Rini clarified that the data center being built by Telekomunikasi Indonesia International Singapore (Telin Singapore) in Jurong, Singapore, “will not host” Indonesian government data.

Rini, who invited top executives from state firms, including from Telkom, at an informal breaking of the fast gathering at her residence in the Widya Chandra complex, South Jakarta, said Telkom’s data center was built “purely” to tap Singapore’s potential market.

“It’s for businesses in Singapore only. Telkom is building its third data center in Singapore after winning a tender, through Telin Singapore, for permission to operate a data center in Jurong. Telin is fully a subsidiary of Telkom.

Last week, an NGO called Indonesia Club filed criminal charges against the minister, accusing her of authorizing Telkom to build a data center in Singapore, partly owned by a Singapore parastatal, with the assumption that “it would host” Indonesian government data.

“I was surprised, I just came back from China and France, but I had a surprising gift: the media reporting negatively about the cooperation between Telkom and Singtel [Singapore Telecommunications],” she said.

Gigih Guntoro, director of  Indonesia Club, pointed out the risks of Telkom and Singtel hosting Indonesia’s e-government services, saying the cooperation may violate state intelligence and electronic communications laws.

He further argued that electronic systems and transactions in Indonesia, especially those that relate to data servers for public services, must be located within the country.

Rini, however, remained defiant and said she was unphased by the police report filed by Indonesia Club.

“Go ahead, we haven’t done anything wrong,” she said. “Of course we will abide by our own regulations. Data servers for public services must be located here [in Indonesia].”

Rini declined to reveal whether she plans to counter-sue Indonesia Club over the report.

Unrelated issues

Indra Utoyo, director of Innovation and Strategic Portofolio at Telkom, explained that the Telin-3 data center, Telkom’s cooperation with Telin and Telkom’s intention to win the tender for e-government services developed by President Joko Widodo’s administration “are completely unrelated issues.”

He insisted that Telin-3 data was necessary as Telkom’s first and second data centers have reached 70 percent of their maximum capacity rate.

“There was a tight tender process for this project. Many [companies] are proposing to build a data center in Jurong. We went through the bidding process and we won,” Indra said, emphasizing that the data center “will not” host Indonesian government data.

After winning the tender on June 5, Telin Singapore kicked off construction of the $115 million Telin-3 data center in Jurong with a ceremony that included Rini and Telkom chief executive Alex J. Sinaga, who is also named in Indonesia Club’s police report.

With regards to the joint venture between Telkom and Singtel, Indra clarified that Telkomsigma, Telkom’s data center subsidiary will merge with NCS, previously called National Computer Systems, a fully-owned subsidiary of Singtel.

NCS has its core business in IT system integration, supporting the Civil Service Computerization Program as well as data center projects, according to its website.

Telkom’s e-government services, meanwhile, still has to undergo a tender process by the government, Indra said.

The government has yet to reveal whether it will appoint Telkom for the project, which may involve synchronizing Joko’s welfare programs, such as the Indonesian Health Card (KIS) and Indonesian Smart Card (KIP).

Rini explained that the joint venture may instead help Indonesia develop the “system” for the state’s e-services, instead of hosting government data.

“It may, for example, develop an e-education system or help manage a system that could help reduce dwell time at ports,” she said.

Rini explained that the project would require the efforts of multiple government agencies, but the nation is in dire need of “a one-window system.”

“In regards to data management, it would still be handled by the respective ministries,” she said, adding that it may also include participation from the home affairs ministry.

She did not elaborate on how the data center or e-government system would work, but Telkom’s Indra Utoyo said the company is “ready to help,” banking on the strength of its Telkomsigma, which already has three data centers in Serpong, Tangerang; Sentul, West Java; and Surabaya, East Java.

The unit is currently building new data centers in several other Indonesian cities, including Balikpapan, East Kalimantan. The company has announced it intends to expand Telkomsigma’s data centers from the current 55,000 square meters to to 100,000 square meters by the end of this year.

GlobeAsia

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Jakarta. Private investment in Indonesia is likely to disappoint, while companies operating in the country are increasingly concerned about plummeting profitability, according to a report published by Morgan Stanley.

The New York-based investment and financial services company held its “Indonesia Entrepreneur Trip” in the country this week, in which it met representatives from 13 companies and experts to discuss Indonesia’s economic condition, business outlook and overall investment climate.

“Private investment likely to disappoint: Companies were discouraged with overlapping regulations and increased uncertainty potentially impacting their investment plans in the foreseeable future,” Morgan Stanley’s “Indonesia Equity Strategy” report said.

Nationalist-leaning government policies and court rulings in recent months have spooked foreign investors already wary of Indonesia’s notoriously slow and tangled bureaucracy.

In February, the Constitutional Court quashed a law permitting the privatization of piped water services. One of the main proponents of the petition, Muhammadiyah, an Islamic organization, plans to also challenge the government’s scrapping of $20 billion worth of fuel subsidies.

Japanese investors, meanwhile, have publicly called on Indonesia’s Investment Coordinating Board (BKPM) to provide greater assistance on the perennially messy issues of land acquisitions, import licenses and permits for skilled foreign workers, as they attempt to make good on $20.6 billion worth of planned investments in the country.

Plunging profitability

Morgan Stanley said that based on its meetings, it believed local executives were “in the process of reviewing their capital expenditure plans downward as the uncertainty regarding a second-half recovery has increased.”

“Hence, it is likely that even if government investment expenditure picks up in the second half, private investment may disappoint,” it added.

Morgan Stanley also said companies operating in Indonesia saw a rising probability of a “downward spike in profitability.”

“A continued and sharp recent growth slowdown seems to have taken a number of companies by surprise, particularly while most were hoping for a second-half recovery,” it said in the report.

“The positive read-through is that companies are now focusing on cost management amidst growth uncertainty. However, considering the high consensus expectations and laggard effect of cost control management on profitability, we believe that there is an increasing probability of a potential downward spike in profitability over the next 1-2 quarters,” it said.

It added that “hope for revenue growth recovery in the second half of this year is fading.”

“We also sensed a growing pessimism on the outlook for the second-half growth recovery. This is largely driven by a combination of current sluggish trends and uncertainty regarding coordinated and assertive action by the government,” Morgan Stanley said.

“There is some hope for signs of improvement post a widely expected cabinet reshuffle in August this year, however, details are thin.”

Certainty of law

Analysts attribute the increasingly hostile investment climate to government policies deemed conflicting, overlapping, or downright unfriendly.

In a prominent case, Multi Bintang Indonesia, one of the country’s biggest brewers and a unit of Dutch giant Heineken, put a major investment plan on hold following a ban by Trade Minister Rahmat Gobel on sales of beer at minimarts.

“We want certainty of law,” Multi Bintang’s president director, Michael Chin, told the Wall Street Journal in April. “We want to know that the investments we have put into the country will continue in the foreseeable future.”

The company had planned to invest $43 million in new plants over the next three years.

Chin was not among the executives who spoke with Morgan Stanley during its “Indonesia Entrepreneur Trip.” Those included Hary Tanoesoedibjo, the chief executive of media conglomerate MNC Group; James Riady, the CEO of the Lippo Group (with which GlobeAsia and the Jakarta Globe are affiliated); and Noni Purnomo, the president director of Blue Bird, Indonesia’s biggest taxi operator.

“Based on feedback from the companies we met on the trip, it appears that companies in general are discouraged from overlapping regulations and increasing uncertainty potentially impacting their investment plans in the foreseeable future,” Morgan Stanley said.

GlobeAsia

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Jakarta. Indonesia plans to invest Rp 278 trillion ($21 billion) in improving broadband connectivity across the country, an official at the Ministry of Information and Communication said on Thursday.

Muhammad Budi Setiawan, director general of information and communication technology resources and standards at the ministry, said the so-called “Indonesia Broadband Plan” targets 71 percent of Indonesia’s urban area to have internet capabilities of 20 megabytes per second (Mbps)  and 30 percent of urban populations to have access to it by 2019.

Meanwhile, for rural areas, the government is targeting at least 49 percent of households in villages to be covered by up to 10 Mbps internet speed and 6 percent of the population in rural areas are expected to use the fast internet access.

“We are pushing further for a better connectivity,” he told reporters in Jakarta in a discussion on Thursday, adding that the government is considering appointing state-controlled telecommunication company Telekomunikasi Indonesia (Telkom) in developing broadband networks in Indonesia.

Budi Setiawan said broadband development in Indonesia already has a captive market with government-related agencies.

He said the administration of president Joko Widodo is pushing for the implementation of e-government, e-health, e-education, e-procurement and e-logistics, meaning that the government will link all of those services online to improve transparency and efficiency.

“The captive market is there are 4.5 million civil servants, including the police and the national military force. There are also 50 million students from elementary to high school and university and 3 million teachers, “need the internet for work, homeworks. It’s very big captive market,” Iwan said.

Meanwhile, Telkom’s director for network Abdus Somad Arief said Telkom already has a program called “Indonesia Digital Network,” in which the company is developing the backbone for optical fiber infrastructure in the major islands of Indonesia.

Today, Telkom has developed up to 77,000 kilometer of optical fiber in Indonesia and as many as 13.2 million customers have enjoyed Telkom’s “Home Pass” services, or fixed-line internet services via optical fiber, which offers high speed.

“Until the end of this year, we will add five more Home Pass subscribers, so by the end of the year, the total number will be 18.2 million,” said Abdus.

GlobeAsia

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Jakarta. Lippo Cikarang, an industrial township developer, is upbeat it can achieve its marketing sales target for this year, with major projects like mixed use property project like Orange County is progressing, the company’s chief said in a statement late on Tuesday.

Meow Chong Loh, president director at Lippo Cikarang said performance in the first quarter “has fulfilled” the company’s expectations, despite the property sector is embracing a slowing economic growth and a tighter regulation environment for housing loans.

Lippo Cikarang expects marketing sales, or sales before a property construction is completed, to grow 67 percent this year to Rp 2.5 trillion ($190 million).

“In general, the businesses … went really well in the first quarter of 2015,” said Loh, adding that the company’s Rp 250 trillion mixed use property development project in Cikarang, West Java is expected to contribute to a sustainable revenue growth for the company.

The company has begun marketing apartments for the development — the Irvine, WestWood and Pasadena Suites — all of which sold out at a preview event.

Orange County also offers number of facilities like Hikari Japanese School, Cinemaxx, shopping center and culinary centers like: Hypermart and Maxx Coffee.

Lippo Cikarang, which is affiliated with GlobeAsia and the Jakarta Globe through the Lippo Group, now has paid a stronger attention for the development of commercial buildings and lifestyle center.

The statement also said a general meetings of shareholders on Tuesday has approved the appointment of three new commissioners — Jenny Kuistono, Johannes Janny and Hadi Cahyadi — and the appointment for new vice president director Hong Kah Jin.

GlobeAsia

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Jakarta. President Joko Widodo should free himself from the suffocating political “straitjacket” and focus on the economy for the rest of his term, as investors begin wondering if on-going sagas may start affecting his ability to govern the nation effectively, an analyst has said.

Wellian Wiranto, an economist with OCBC Bank in Singapore said that Joko has been at the helm of Indonesia for just over half a year, or about 10 percent of his five year term — with a long way to go until another election in 2019.

“However, the public gaze is never far away and some investors may be beginning to wonder whether the apparent drop in his popularity might start to affect his ability to govern effectively,” said Wellian in an “Inside Indonesia” report released last week.

“From the police chief appointment saga earlier this year to the more recent honest-to-a-fault admission that he has not perused everything that he signs off on — including an indefensible approval for hand-outs to state officials for car purchases — he appears to have been busy shooting himself in the foot,” the economist said in the report.

Wellian also cited the confusingly inconclusive leadership tussle within Golkar, a powerful opposition party, whereby one faction has clamored to join Joko and bestow his coalition with a parliamentary majority.

Where Golkar would swing is important for investors as with the party’s support, Joko could win supports against the opposition.

“On top of that, the pre-election talks about how he is at the beck and call of Megawati, the head of PDI-P [Indonesian Democratic Party], have been rekindled, courtesy of her rather pointedly delivered speech in a party conference,” Wellian said.

“As if things are not challenging enough on the political front, Indonesia’s economy faces a tricky period as well,” Wellian said.

“Dragged down by commodities weakness and a lackluster global economy, Indonesia’s growth has slowed to just a whisker above the 5 percent level in the last quarter of 2014 and may well have dipped below that in the first quarter of this year,” he said.

Indonesia’s economy expanded by 5.01 percent year-on-year in the fourth quarter of 2014, accelerating from 4.92 percent year-on-year in the previous period.

Meanwhile, for the year of 2014, the economy grew at 5.02 percent, the lowest in five years.

Josua Pardede chief economist at Bank Permata — a joint venture between UK lender Standard Chartered Bank and Indonesia’s top automotive distributor Astra International — also projected first quarter growth to be weaker than the previous quarter.

“Investment remains slow as investors are still in wait-and-see [mode] over promises of Joko and over the law and political stability,” he said.

Still, even though Bank Permata has a gloomy outlook on the first quarter growth forecast, its full year estimate, somehow, is a bit rosy.

It said Indonesia’s economy is expected to expand by 5 to 5.3 percent this year, as the government spending is larger than last year and taking into account over Joko’s promise to accelerate infrastructure development, reduce complex bureaucracy and focus on welfare programs.

However, in overall assessment, wellian of the OCBC concluded: “The first tenth of Joko’s presidential term has been filled with too much political drama and, on balance, not enough economic actions.

“While the political challenges do not look like they will abate any time soon, Indonesia’s future will be much better served if Joko re-focuses his efforts on reviving economic growth with foreign investors.

“Ultimately, how the economy performs will be the major determinant in just how secure his political career will be. A key plank in Bill Clinton’s successful campaign strategy in the 1992 US presidential elections comes very bluntly to mind: “It’s the economy, stupid.’ ” Wellian said.

“That will be a smart thing to remember as he tries to seize the agenda for the remaining 90 percent of his present term,” Wellian said.

GlobeAsia

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Jakarta. Asuransi Jiwa Sequis Life, one of the top 10 life insurers in Indonesia, seeks to expand its business reach to include asset management and general insurance services, the company’s chief executive said last week.

Sequis has forged a strategic partnership with Japan’s Nipppon Life Insurance Company last year to help strengthen its capital and enrich its technical expertise by learning from Asia’s biggest life insurer.

Japan’s Nippon Life paid Rp 4.78 trillion ($369.2 million) to acquire an equivalent of 20 percent stake of Sequis’s enlarged equities through a rights issue.

The expansion is part of Sequis’s move to achieve its ambitious target of becoming  the third biggest life insurer in the country by 2020, from its current eight position.

Sequis Life president director Tatang Widjaja said the company plans to submit a proposal for the establishment of an asset management company that will operate as its subsidiary, to the Financial Services Authority (OJK) by September this year.

“Hopefully, by the end of this year, the permits will be approved so the unit can start operating in 2016,” said Tatang.

Sequis also seeks to purchase a general insurer, either through acquiring an existing firm or establishing a new company from scratch.

“Considering that our clients have grown rapidly, we plan to own a general insurer, so that it can be synergized with our life insurance services,” Tantang said.

“We would be able to cater to our clients under one service center.”

The executive, who has led the company since 2003, spoke to GlobeAsia on the sideline of a ceremonial event held in Jakarta last Wednesday to announce the company’s brand transformation.

Sequis previously offered its services under different flagships, such as Sequislife for its life insurance services and Sequis Financial for its business in alternative distribution channels of insurance.

The overhaul will see the company offer only the single umbrella brand of “Sequis” from all of its business units and subsidiaries.

Tatang said the company is now “over capitalized,” thanks to the fresh cash from its new Japanese partner.

Sequis — which has a network of about 12,000 licensed agents and manages more than 250,000 policies — booked a 41.24 percent rise in net income last year to Rp 532 billion. Its assets rose by 66.4 percent to
Rp 15.19 trillion.

The company’s equity capital increased 343.52 percent to Rp 6.01 trillion.

GlobeAsia

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Jakarta. Indonesia told participants at the 24th World Economic Forum on East Asia that the government is sticking to its 5.7 percent economic growth target for this year despite the country facing external challenges, chief economics minister Sofyan Djalil said on Monday.

“It’s still 5.7 percent [the growth target]. We haven’t revised it. We need to work hard,” said the minister on the sideline of the WEF on East Asia at the Shangri-la hotel in Jakarta.

Some analysts and banks aren’t as optimistic. The World Bank on April 13 slashed its forecast for 2015, saying that it expects Indonesia’s gross domestic product to grow “modestly” at 5.2 percent this year — lower than the 5.6 percent estimate it had projected in October last year. The economy grew 5 percent in 2014, which was the slowest pace in five years. The World Bank said exports were expected to remain weak, while the domestic market was still coping with a high interest rate environment.

Djalil said the WEF is a good forum to explain the government’s policy to investors, including tax incentives and the one-stop integrated service for investment permits.

”With many chief executives coming to this event. We would know more [about Indonesia] from the forum and discussions. All this time, we [had a] lack of communication [for policies],” said Djalil.

The three-day forum, which ends on Tuesday, invited more than 700 attendees, including representatives from multinational companies.

President Joko Widodo also made a remark at the forum on Monday night. He said he was pleased to see investors’ strong interests in participating in the forum, which coincidences with Indonesia hosting the 60th anniversary of the Asian-African Conference in Bandung and Jakarta.

“We are here this week to talk. To talk, but more importantly, to listen,” he said.

“I have asked my ministers to be very honest about our challenges,” Joko added. “I have asked my ministers to listen. But I hope that after spending this week in Jakarta, you will also see our amazing opportunities,” said the president. Joko added “where we see challenges, I see opportunity,” he said.

GlobeAsia and the Jakarta Globe are media partners of the WEF event in Jakarta.

GlobeAsia

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A worker holds part of a pair of trousers at Trisula Garmindo Manufacturing in Bandung, West Java province on Sept. 17, 2013. (Reuters Photo/Beawiharta)

Jakarta. Indonesian companies need to reduce reliance on labor costs as their main competitive advantage, and instead should develop human resource capabilities and embrace global partners to beat the competition and weather some external challenges, executives at the Boston Consulting Group say.

Companies operating in Indonesia — which has biggest economy in Southeast Asia — have enjoyed the nation’s competitive advantage of cheap labor costs in the past few years after China became too costly for investors operating factories from the country’s most successful special economic zones including Shenzhen and Shanghai, the biggest city by population.

“In the past we relied on labor costs as one of our competitive advantages. But that should no longer be our source of advantage,” said Edwin Utama, a partner and managing director at BCG in Jakarta, told GlobeAsia in an interview earlier this month.

“Over time labor costs are rising, and it’s one of the primary concerns of investors in Indonesia,” he said.

Labor wages and their increases in 2015 differ by province. Data from the government, as compiled by Investor Daily, show wage costs have gone up from as small as 0.58 percent to 28 percent in Indonesia’s 34 provinces this year.

Monthly labor wages in Jakarta, a special administrative region and the nation’s capital, are the highest (Rp 2.7 million, or $211) among the provinces but remain relatively low to China’s Shenzhen ($292) and Shanghai ($294).

But that’s not the only case for competitive advantage any longer.

Regional rivals like Vietnam, which offers high-technology parks, and the Philippines, also a nation with a relatively young population that offers better English-language skills, have already surpassed Indonesia in relation to labor costs with average monthly wages at $146 and $200, respectively.

While neighboring rival nations face pretty much the same problems in which setting labor policy has often been plagued by political interests, recent news reports about strikes at major industrial areas in Indonesia suggested that workers are demanding better pay.

The root of the problem may remain the same over time: inequalities in the standard of decent living by province and the wages that hardly catch up with the rising cost of living.

Beyond labor costs

Still, Indonesia’s appeal goes beyond its labor costs, according to Rich Lesser, BCG’s president and chief executive officer.

The country — with a population of about 250 million people — is not just one of the biggest single-currency markets in the world by population after China, India, the United States and the euro zone. It is also a resource-rich nation, and its relatively young demographic offers a significant rise for its middle class and affluent consumers (MAC).

The Boston-based consultancy firm has made a forecast that in 2020, Indonesia will have 140 million MAC, which translates into 9 million to 10 million new MAC per year. BCG estimates that about half of MAC’s growth for the 10 member-countries that make up the Association of Southeast Asian Nations will come from Indonesia.

Aside from that, the $850 billion economy, which is the 16th biggest in the world, offers huge opportunities for investors to grow their businesses here due to under-penetrated services in various sectors — from banking and insurance to automotive.

“I do believe that, provided that the government creates a climate that encourages investment, build infrastructure, focuses heavily on talent, supports small, medium enterprises, there’s a whole range of things that need to happen,” said Lesser, who has served as BCG’s president and CEO since January 2013.

“I believe the underlying potential is very high. I think most businesses in the world see Indonesia that way, too,” he said.

Lesser speaks frequently on emerging markets, digital strategy and the global economy at international executive gatherings, including the World Economic Forum’s Annual Meeting in Davos, Switzerland. Lesser and Edwin spoke in an interview on April 1 at BCG’s office at Sampoerna Strategic Square in Jakarta.

Rich Lesser, left, BCG’s president and chief executive officer and Edwin Utama, a partner and managing director at BCG Jakarta, right, were speaking to GlobeAsia in an interview on April 1, 2015. (GA Photo/Suhadi)

External challenges

With regard to its economic growth outlook, Lesser said that Indonesia, like many other emerging nation peers, would have to cope with slower export growth on the back of the global economic slowdown.

A slowdown in China, a giant consumer that is a major market for Indonesia’s key export commodities, can have a big impact lower demand and declining prices for commodities lower exports, and ultimately have a drag on Indonesia’s economic growth. Indonesia is among the world’s largest producers of palm oil, rubber, coal and nickel.

“The ripple effect of that obviously would be growth will be lower than Indonesia used to [have] in recent years,” said Lesser, who is also a member of the World Economic Forum’s International Business Council and the Wall Street Journal CEO Council.

In indicating Indonesia’s outlook, the World Bank on April 13 slashed its forecast for economic growth in 2015 as exports are expected to remain weak, while the domestic market is still coping with a high interest rate environment.

The Washington-based lender, in a recent report, said it expects Indonesia’s gross domestic product to grow “modestly” at 5.2 percent this year — lower than the 5.6 percent estimate it had projected in October last year.

That would be weaker than Indonesia’s government forecast of 5.7 percent this year. The economy grew 5 percent inn 2014, which was the slowest pace in five years.

Adding to the challenge, Indonesia is coping with a weakened currency, partly as a result of investors’ anxiety over the timing of interest rate increases in the United States.

A weaker currency could eventually make its way to hurt domestic spending, the backbone of Indonesia’s economy, as imported goods become more expensive.

At a time when China’s economy is slowing, Europe is still struggling with its high debt problems and unemployment, and the US is busy dealing with pressures from the dollar’s rapid appreciation, Indonesia needs to rely on its own strength for growth and “not expect for any insurgent of high growth from external” factors like higher commodity prices, Lesser said.

“I don’t think the world is going into the wrong direction now, but it’s going slowly in the right direction [...] Indonesia needs to take control of its own destiny in order to thrive,” he said.

While the country has to deal with low economic growth, executives at Indonesian companies have been anxious about the impact of the implementation of the Asean Economic Community, which starts at the end of this year.

While the integration — with combined GDP of about $2.3 trillion and total population of more than 600 million — offers some opportunities like promoting trade and investment within the bloc, it also pose big challenges.

Based on a recent BCG survey, only 45 percent of Indonesian executives described AEC as an opportunity, while 42 percent regarded it as a threat.

Indonesian company executives have long voiced concerns that due to the country’s poor infrastructure, less competitive investment climate and lack of incentives for manufacturing sector, Southeast Asia’s biggest economy will become merely a market for products or services from neighboring nations.

Winning the market competition

Both Lesser and Edwin suggested that Indonesian companies embrace the digital world and make it a core value proposition, instead of a mere ancillary service.

Edwin said digital value proposition will increase cost competitiveness, and at the same time attract future consumers among the youth and from less-penetrated areas in Indonesia.

“Indonesian consumers are ready digitally […] but not Indonesian companies,” said Edwin, citing some facts about Indonesia, such as Jakarta being the number one city for Twitter users.

Edwin noted that efforts to move into the digital sphere were noticeable, with the proliferation of branchless banking services started to grow in the country.

With regards to human resources development, BCG suggests that companies should start to see their competitiveness beyond the compensation level.

“Companies must move from recruiting to employer value proposition to talent management to find the next generation of leaders and fuel the next stage of growth,” Edwin said.

“In Indonesia, a number of family-run conglomerates, for example, are now aware of the value of a professionally run organization, and they now look to instill performance management and succession planning in their organization,” Edwin said.

BCG also suggests that Indonesian companies must realize that there are significant benefits in opportunities in cooperation and partnership with regional or global partners.

“In the short term, regional or global partners can bring expertise and lessons from other markets, while Indonesian companies can provide market knowledge,” said Edwin.

He gave examples of collaboration such as the case of Indofood CBP Sukses Makmur — the Indonesian consumer giant that formed a joint venture with Asahi Group of Japan. Asahi manages manufacturing while Indofood manages marketing and distribution.

GlobeAsia

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