Jakarta’s jumping: Exciting outlook for Indonesia

After a series of Covid-19 lockdowns, business in Jakarta is back to normal, with local shopping malls busy on weekdays.

Over three days in the capital, we met with banks, real estate developers and conglomerates, as well as some entrepreneurial founders of companies in the fintech and electric vehicle industries.

New president to be elected in 2024

Indonesia’s general election will take place on Valentine’s Day 2024. President Joko Widodo, the well-respected incumbent, is unable to run for a third term, and three candidates are clearly ahead in the latest polls.

The current front-runners are: Ganjar Pranowo, current governor of Central Java; Prabowo Subianto, minister of defence (contesting his third presidential election); and Anies Baswedan, ex-governor of DKI Jakarta.

Ganjar Pranowo is a member of the PDI-P, the party that Joko Widodo serves, and the continuity candidate that the market would welcome most.

Ahead of the election, many companies expect economic activity to slow in the second half of 2023, with certain business decisions potentially postponed until results are announced in early 2024.

Nickel-rich Indonesia eyes the electric vehicle market

Indonesia has one of the world’s largest nickel reserves and in 2022 cemented its position as the world’s largest producer of refined nickel.

The country has big ambitions to develop an end-to-end electric vehicle ecosystem, targeting fleets of two million electric cars and 13 million electric motorbikes by 2030, with the introduction of an incentive scheme to attract consumers and foreign direct investment.

The government is already exploring opportunities with international companies interested in building battery facilities and electric vehicle manufacturing sites in Indonesia.

Nickel downstreaming has been a notable success in recent years.

The government’s decision to ban nickel ore exports in 2019 encouraged local smelting and resulted in the nickel-related exports value ballooning ten times to over $20bn in 2022.

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We met with a local nickel mine operator, who has ambitious plans to build high-pressure acid leaching plants to enable the conversion of nickel ore into an intermediary product that is suitable for electric vehicle batteries.

The process itself is very carbon-intensive, and although investment is being made in solar and hydro plants, there are also issues with the waste material left after the extraction of the metal from the ore.

It is a common issue for all mining assets, not just nickel – so plenty to consider from an ESG perspective.

Near-term challenges to Indonesia’s digital ecosystem

Indonesia has one of the most vibrant digital ecosystems in Southeast Asia, with its largest internet companies having enjoyed meaningful growth in recent years.

Management teams have shifted focus from growth towards profitability, with higher monetisation rates, reduced subsidies and downscaling unprofitable businesses some of the ways for them to achieve this target.

Although this change of attitude is very welcome, there are some near-term challenges.

Firstly, e-commerce companies are likely to see a decline in gross merchandise value as free shipping and discount coupons are withdrawn.

There is also a risk that some internet companies may look to raise capital given the low levels of cash on their balance sheet.

Regardless of these challenges and the possible slowing of the economy in the second half of 2023, ahead of the elections, our visit left us confident on Indonesia’s long-term prospects supported by the vibrancy of the economy and the reforms of Joko Widodo’s administration.

Fiona Yang is co-head of Invesco Asia trust (IAT)

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