STILL EXPECTANT OF THE CONSUMPTION SECTOR

In line with growing middle class population, index of consumer’s confidence in Indonesia kept increasing. Based on data released by Nielsen Survey Agency, Indonesia was till in top position in the world in terms consumers confidence index in quarter II/2013 i.e. 124 points or 30% above global average index of 94 points.

The figure was an increase of two points compared to quarter I/2013 which reached 122 points at the same time strengthening Indonesia’s position as achiever of highest index for two consecutive quarters.

The survey released by Nielsen was exercised by on-line on 29,000 respondents having internet access in 58 countries including 500 Indonesia respondents on May 13-31 May last. According to Nielsen Indonesia, the significant increase of wages early this year helped to build public confidence about their future and their financial condition. It was projected that the condition would continue all year through, but the Government’s policy to increase oil price had the potential to lower people’s consumption level and confidence.

With the increase wealth, people; desires to shop or fulfill needs heightened. Sixty percent of the consumers believed that the next 12 months was the prefect time to shop or but the goods and the things needed. Indonesia was in the top position in terms of passion to shop, excelling Hong Kong [55%] India [53%] and the Philippines [51%].

For consumers in Southeast Asia including Indonesia, vacation, tourism and new technology were two sectors which consumed most expenses. Indonesia [42%] was in third place in terms of expenditure for recreation after Singapore [47%] and Malaysia [43%].

The same was expenditure for buying new technology, Indonesia was in third place [31%] after Thailand [34%] and Vietnam [32%]. While having great passion for shopping, Indonesia consumers were also able to manage their money better now even being in top position with 7 out of every 10 consumers [71%] saving their extra fund. The figure was 24 points above global figure of 47%. Investment in Indonesia had always been positive, 33% of Indonesia consumers were always were using reserve fund for investment, while global consumers only 19%.

An interesting discovery of Nielsen’s survey confirmed consumers anxiety over oil price increase which was sizable; it made Indonesian consumers tend to save money. Indonesia was the highest saving nation with index of 71 followed by Hong Kong and the Philippines at 70. By saving, consumers had reserve money which could be used for pressing need.

Indonesian consumers were zealous about the future and expenditure would remain strong in line with increased purchasing power, and their updated needs. Furthermore investment was always positive in Indonesia where one third [33%] of on-line consumers claimed they used their extra fund for investing in shares and insurance, compared to global online consumers which was only 19%.

Other indications showed that consumers in Southeast Asia had good planning for the future as shown by Malaysia [30%] and Singapore and Thailand 24% respectively. Beside saving, Indonesian on-line consumers also cared about expenditure for vacation [42%] and new technology products 31%. Only 3% claimed they did not have reserve fund, while in Asia Pacific there were 6% and global 14%.

Survey of AC Nielsen disclosed that the consumers sector would still be the backbone of Indonesia’s economy, however, economic growth could still be stepped up if supported by investment. So far Indonesia was able to book record in FDI in quarter II this year. However, FDI growth slowed down due to low commodity price in the mining sector.

The Coordinating Board of Investment [BKPM] disclosed FDI was posted at Rp 77.7 trillion in April through June. This figure continued quarterly record breaking of FDI which last for 6 months. The record signaled investors’ interest in the mining sector and high purchasing power of Indonesia’s middle class.

But FDI growth in quarter II had been slowest in 2 years, i.e. 18.9% annually. The slowdown trend of commodity prices burdened the mining sector, and yet the mining sector was the biggest receiver of FDI. Nevertheless the projection for mining sector remained dim. So far in 2013 price of copper dropped by 12%.

The price downturn was due to growth slowdown in China and possible easing of stimulus by central banks of the developed countries. Price of nickel dropped by 17%. Import of capital goods to the mining sector was also slowing down since last year.

Meanwhile Indonesia’s economic growth had been posted at above 6% in four of the past five years. However the recent signal showed growth was slowing down. Indonesia imported some capital goods two support growth. On the other hand export weakened due to weakening of global commodity prices all through last year.

The impact was that Indonesia booked deficit of current transaction for six consecutive quarters. BI had revised economic growth projection 2013 from 6.2% to 5.8%. This was the second revision since the previous revision from 6.6% to 6.2%.

In spite of slowdown in investment growth, the number of FDI was still strong. Just as before, Singapore was till the biggest source of FDI. The mining sector was still capable of drawing FDI up to USD 1.2 billion in quarter II, followed by transportation.

At home, tight money policy by BI through of BI Rate and Fasbi Rate could slowdown investment process, moreover today amidst BI’s effort to tame inflation since oil price increase last June. BI had increased benchmark rate by 75 basic points in the past two months, hopefully increase of BI Rate and Fasbi rate would not hindrance industrial activities.

As known, the government was striving to enhance performance of 4 industry sector to maintain economic growth at above 6% in July 2013. The industrial sectors were: iron and steel, food & beverages, petro-chemicals, and electronics. The four industrial sectors must keep growing amidst the trend of economic industry were important because they accommodate labor, while the iron & steel and petro-chemical sectors were important because they generated multiplier effect on other industrial.

To support the four industrial sectors the Government prepared some policies. Besides extending tax holiday, the Government also offered special incentives for certain industrial sectors. However, it was not specially mentioned what were the incentives being considered by the Government.

One thing was sure the Government would maintain labor intensive industry to make sure that unemployment would not increase and national economic growth could be ascertained. Such was also the agreement between the Government and BI during discussion sessions over the latest macro economy condition.

The labor intensive sector such as textile and footwear were the premium sectors to promote national industry growth which had been corrected to 6.5% this year of the initial target of around 7%. Beside the labor intensive sector, the Government also relied on capital intensive sector which would bring multiplier effect on newly established industries.

The Government was optimistic that industry growth could reach 6.5% by end of year. Such could only be attained if other ministries supported the investment plans in industry which were expected to be realized this year. Admittedly the correction of economic growth target was in line with revised national economic growth not less than 6%.

For the matter the Government v together with BI were constantly controlling inflation to keep it at not more than 7.3% and keep Rupiah value below Rp 10.200 per USD by way simplifying bureaucracy, and revising ineffective regulations.

Business New - July 31, 2013