Economy and Business

Lowest Inflation in Decades

Indonesia recorded inflation of 2.72 percent in 2019, the lowest level in around two decades, thanks to lower inflationary pressure from government-regulated prices, Statistics Indonesia (BPS) announced on Monday. The figure is far lower than the government’s 3.5 percent target as stated in the 2019 state budget and is within Bank Indonesia’s target of between 2.5 and 4.5 percent. The 2019 inflation is the lowest since 2012 when the agency began recording the movement of the consumer price index (CPI) using the current method of 82 cities, said BPS head Suhariyanto. On a longer time frame, last year’s inflation is the lowest since 1999 when the CPI increased by 2.13 percent. Core inflation reached 3.02 percent last year, slightly lower than 3.07 percent inflation booked in 2018. Administered prices recorded 0.51 percent inflation, drastically lower than 3.36 percent in 2018. Volatile food inflation stood at 4.3 percent, higher than 3.39 percent a year before. (Jakarta Post)

State of Indonesian Manufacturing

Two issues have been central to the Indonesian manufacturing industry throughout 2019; the sector’s growth continuing to stagnate and the digitalization of industries posing both new threats and opportunities. In particular, the term “deindustrialization” garnered more attention this year following claims made in April by presidential candidate Prabowo Subianto, who argued the country’s manufacturing sector was in decline and was being left behind by its peers. Former vice president Jusuf Kalla later sought to shed light on the situation, saying the declining percentage should not be prematurely perceived as a sign the country was experiencing deindustrialization. But the numbers don’t lie: while the manufacturing sector’s contribution to GDP remains large, its percentage contribution to GDP only amounted to 19.86 percent last year, struggling to remain at the 20 percent mark, Statistics Indonesia (BPS) data showed.
The figure climbed to 20.07 percent in this year’s first quarter but fell again to 19.52 percent in the second quarter and stagnated at 19.82 percent in the third quarter. Such numbers contrast the sector’s achievement in 2001 when its percentage contribution to GDP was close to 30 percent. Additionally, Indonesia’s Purchasing Managers’ Index (PMI) — a benchmark for measuring manufacturing industry performance — stood at an average of 49.2 points in the third quarter, the lowest since 2016. A PMI reading under 50 represents a contraction. In contrast, Bank Indonesia (BI) was more optimistic as it claimed that the central bank’s Prompt Manufacturing Index was at an “expansive” level of 52.65 percent in the first quarter of 2019. The figure stood at 52.66 percent in the second quarter and fell to 52.04 in the third quarter. One reason for the decline is that most manufacturing firms in Indonesia are micro and small firms (99.3 percent), making it difficult for them to grow to a size that makes an impact in terms of productivity, product upgrading, or research and development, a 2019 Asian Development Bank report noted. The report also argued that Indonesia’s industrial policy contributed much less to the country’s development because it was poorly designed and implemented. “There has been no consistent and cohesive industrial policy in Indonesia since 1966,” the January report reads.

Trade Deficit Remains a Concern for Policymakers

The government has taken a number of steps, including the issuance of fiscal incentives, to cope with the country’s widening trade deficit, but such measures have yet to bear fruit as the deficit remains. The year kicked off with a slow start, as Indonesia posted a US$1.16 billion trade deficit in January because of declining exports and low commodity prices, according to Statistics Indonesia (BPS). Exports decreased by 4.7 percent year-on-year (yoy) in January to $13.87 billion, while imports fell by 1.83 percent yoy to $15.03 billion. The trade balance continued the negative trend of 2018, when a decline in exports, partly due to the trade war between the United States and China, contributed to an $8.6 billion trade deficit, the largest in 44 years. “Fluctuating prices of commodities as well the general downturn in global [economic] growth have been affecting Indonesia’s trade balance,” BPS head Suhariyanto told a press briefing in January. “These factors will make 2019 a bigger challenge for Indonesia.”

Last year’s deficit has kept the government on its toes to seek trade deals to open new markets that could eventually boost export demand, authorities said in early 2019. The Trade Ministry said in January that it had set a target to sign or at least conclude negotiations on 12 trade agreements, including the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) and preferential trade agreements (PTA) with African nations. As of November, Indonesia has concluded at least 11 trade agreements. From January through November this year, Indonesia accumulated a $3.11 billion trade deficit, significantly lower than the $7.62 billion recorded over the same period last year, BPS data show. However, despite the decline in the deficit, it is unlikely for the country to record a trade surplus at the end of this year. Should Indonesia book a trade deficit for the full year, the country will witness its second back-to-back trade deficit since its three consecutive yearly deficit from 2012 to 2014, which were caused by the deficit in oil and gas trade.

860,000 New Investors in 2019

The number of domestic investors in the Indonesian capital market increased by a half to close to 2.5 million this year, reflecting growing interests among locals to invest in financial instruments like stocks, mutual funds and bonds. The Indonesia Stock Exchange (IDX) said the number of single investor identification (SID), the integrated registry number for financial investors in the country, has risen from 1.62 million at the end of last year to 2.48 million at the end of this year. (Jakarta Globe)

China Captures Indonesian Cellphone Market

Chinese producers have stamped their domination in the Indonesian smartphone market, with Oppo and Vivo dethroning South Korea’s Samsung in the third quarter of this year. Smartphone sales in Indonesia totaled 8.8 million in the period, with four major Chinese brands having a combined market share of 74 percent in the period, according to market consulting firm International Data Corporation (IDC) Indonesia. Oppo was the market leader with a market share of 26.2 percent, followed by Vivo (22.8 percent), Realme (12.6 percent) and Xiaomi (12.5 percent). Their combined market share had risen by 20.1 percent from the third quarter of last year. Samsung, who was the top dog last year with a 28 percent market share, has now dropped to third place with a market share of 19.4 percent.

Indonesia Receives $16b Foreign Capital in 2019

Capital flow to Indonesia totaled Rp 224,2 trillion, or $16 billion, throughout last year – likely to bring the country’s balance of payment into positive territory, the central bank announced on Friday. Bank Indonesia also confirmed the rupiah was stronger in 2019 and expected Indonesia’s foreign reserves would also increase when the final report is delivered later this month. Bank Indonesia Governor Perry Warjiyo said Indonesia’s foreign capital comprised Rp 168.6 trillion in state securities, Rp 50 trillion in stocks, Rp 3 trillion in corporate bonds and Rp 2.6 trillion in Bank Indonesia certificates.