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ICN - February 2011

FOCUS: INDONESIA'S MACRO ECONOMY EXPANDING IN 2011

INDUSTRY PROFILE: DEVELOPMENT OF METAL MINING INDUSTRY IN INDONESIA


INDUSTRY : INVESTMENT IN METAL MINERAL SMELTER IN INDONESIA
INDONESIAN COMMERCIAL NEWSLETTER
February 2011

FOCUS


INDONESIA'S MACRO ECONOMY EXPANDING IN   2011


Indonesia posted strong economic growth of 6.1% in 2010 amid the global financial crisis. Major economies like Europe and the United States have been the hardest hit by the crisis the after effects of which still pose a stumbling block in the struggle for recovery.

The strength of  Indonesia's economic fundamentals as reflected by the macro economic indicators - growing exports, rising value of rupiah, the composite share price  index (IHSG) that  jumped from a peak level to a new record - have contributed  to improving  international confidence  in the country's economy. The improvement in confidence is reflected by the strong inflows of foreign capital to the country. Part of the funds is invested in the share market and as Foreign Direct Investment (FDI).

In 2009, when the world's economy was jolted by the financial crisis  that resulted in a contraction of 1.9%, (according to the WDI and GDF 2010, World Bank Statistics), Indonesia's exports shrank by almost 15%  to US$ 116 billion  from US$137 billion  in 2008.  However, in the last quarter of that year the country's exports began to scale up and in 2010, exports grew steadily to reach US$ 157.7 billion or an increase of 35.4 % from 2009. The export value in 2010 already exceeded the previous record of US$ 137 billion in 2008.

In the first quarter of 2011, the country's exports grew further to reach US$ 45.31 billion in the three months period. - Or an increase of 27.51 % on-year.

The increase in exports was followed by an increase in imports. In the first quarter of 2011, imports were recorded at US$ 38.78 billion   or an increase of 29.46 % on-year.

The increase in imports indicated the revival of the manufacturing industry as the imports were dominated by industrial basic materials and capital goods. The growing imports also indicated an increase in public consumption to follow improved purchasing power. Lower competitiveness of local products also contributed to increase in imports such as textile imports.  Other factors contributing the increase in imports is free trade agreement between Indonesia and China resulting in floods of imports from that country.

The strong inflows of foreign capital to Indonesia are an indication of improved international confidence in the country's economy. The inflows of foreign capital also contributed to pushing up the IHSG in 2010 to reach 3,684 points in December 2010 up from 2,534 points in 2009.

In the first quarter of 2011, the IHSG grew by lower rate because of a number of external factors. A number of countries are still suffering under the after effects of the global financial crisis such as Greece. The crisis in Greece is even feared to spread to other countries including Spain, Portugal, Ireland and Italy. 

In March 2011, the IHSG stood at the level of 3,678.

Meanwhile, the rupiah was quite stable in 2010. At the height of the crisis, the rupiah  plunged to the level of 12,000 per US dollar, but  later it regained some of its value to reach  the level of 8,900 per US$ by the end of December, 2010 - the level considered safe that would benefit both the consumers and exporters. In the first quarter of 2001, the rupiah continued to gain to hover around 8,774 per US$.

The inflows of foreign capital also contributed to increase in the country's foreign exchange reserves. In December, 2010, the country's foreign exchange reserves totaled US$ 96.2 billion, up from US$ 66.1 billion a year earlier.  By March 2011, the reserves already exceeded the psychological level of US$ 100 billion to reach US$ 105.7 billion. It is predicted the reserves will continue to scale up with the continued inflow of foreign capital and growing exports.

Increase was recorded in exports of commodities in almost all sectors in 2010. A significant increase was recorded in the exports of manufactured goods and mining products. The increase in the exports of manufactured goods followed the revival of some of the economies among   Indonesia's export destinations such as the United States and Europe in 2010. The increase in the exports of mining products followed the growing demand and rising prices of the mining commodities after the slump in 2009.

GDP in quarter I 2011 grew 6.5% (y-on-y)

The country's GDP in the first quarter of 2011 grew 6.5% on-year and increase was recorded in the GDP of almost all sectors. The highest growth of 13.8% was recorded in the transport and communications sector and the lowest growth of 3.4% was recorded in agricultural sector.  The mining sector grew in GDP by 4.6% in quarter I of 2011

Contribution of mining sector growing but decline recorded in the contribution of the manufacturing sector

The contribution of the manufacturing sector has declined over the past 10 years following the monetary crisis in 1998, but it remained the largest contributor to the countries GDP reaching 24.1%, followed by the agricultural and trade sectors. 

The manufacturing sector began to grow in the past three years, but it remained lagging behind compared to other sectors. . In 2008, the manufacturing sector contributed 27.8% to the country's GDP, down to 24.8% in 2010.

The country is even feared to undergo the process of de-industrialization with old factory machines needing immediate replacement. Investment in the manufacturing sector is not enough to make up for machines to be scrapped.

After the 1998 monetary crisis, the country's manufacturing sector has remained in the doldrums. Meanwhile banks remained reluctant to provide financial support modernization of the manufacturing sector.  Banks still see risk in investing in the sector.

Actually progress has been recorded since 2010 in the efforts to revive the manufacturing sector led by the food and beverage industry and automotive industry. The two sectors grew strongly in 2010 and the trend continued in 2011. Car sales in 2010 hit an all time record at 764,000 units.

The decline in the percentage of the contribution of the manufacturing sector to GDP in the last three years was partly attributable to faster growth of other sectors such as a result of the rising prices of farm and mining primary commodities such as palm oil, coal, etc.

The mining sector has continued to expand in the past three years increasing its contribution to the GDP from 10.6% in 2009 to 11.7% in 2010. Investment in the mining sector is relatively low but the export earning from the sector grew sharply in the past several years. 


With strong economic fundamentals, Indonesia is expected to continue to post fairly strong growth in 2011 despite the crisis still stalking the world's major economies

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