Indonesia heat

Local GPs and advisors report a “deluge” of cold calls, and even impromptu fly-in visits, within the past six months or so, both from deal-hungry regional firms looking to deploy their capital, and from institutional investors, including even US pension funds, seeking to sound out this suddenly attractive market. Sources imply that investors are looking for an alternative Asian growth story to offset over-concentration on China and India, and have been impressed by Indonesia’s stand-out post-GFC performance among ASEAN economies.

On the ground, that translates into a booming consumer economy of 230 million people or more – the world’s fourth most populous – growing at around 4.5% annually in 2009 and on track to return to 6%, below India and China but still putting it on track to become one of the world’s largest economies. Politically, too, the Indonesian system, though anything but perfect, appears safe from any threats greater than the normal functional ills of a developing democracy. Cross-border tension with fellow ASEAN member Malaysia is currently running high, but that is a more real political risk than any Pakistan-style Islamic insurgency. Indeed, domestic security, with security guards and screenings on entry at all major buildings and malls, feels like overkill. You are in more danger of dying of boredom or frustration in Jakarta’s interminable traffic jams than you are of falling victim to any kind of terrorist incident.

And Indonesia seems palpably on the up. Its proliferating shopping malls are bustling with the rising middle class and their children – even on Friday during Ramadan, in possibly the world’s most open and diverse Muslim society, as well as its largest. Though there is poverty, Jakarta’s sprawling suburbs are dotted with Carrefours and Sogos rather than shanty towns – a reservoir of homegrown growth buttressed against the woes of the broader international economy. And even its chaotic roads bear witness to the substantial opportunity for domestic infrastructure investment, as well as the growing numbers of private car and motorcycle owners.

Of course, no one is saying that the Indonesia story is nothing but upside. Private equity is still underdeveloped in the country – even more so than in most already underpenetrated Asian economies – partly because many leading GPs stayed away throughout the asset class’s recent growth spurt in Asia, deterred by recollections of the fallout from the 1997 financial crisis. And the institutional difficulties and residual corruption left from that era are still factors in the market – though players insist, manageable and increasingly less significant ones.

Still, similar concerns have not driven investors away from China and India, where many are now placing sizeable portions of their regional macro bets. And the prospect of a third major Asian growth economy coming to the fore is leading some commentators to coin the epithet “Chindonesia” for the region’s three new target growth venues. For, as sources have revealed, some leading LPs now have a shortlist of three prime destinations for their capital in Asia: China, India, and Indonesia.

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• Topics
• Southeast Asia
• Performance