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Sustainable growth: Facing the future with confidence
To maintain Indonesia’s economic momentum, clearly infrastructure investment — with a clear and high multiplier effect for the broader economy — is going to remain a key economic driver.
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An oil pump seen at sunset in the desert oil fields of Sakhir, Bahrain, Sept. 30, 2015. The Indonesian government is preparing stimuli for the oil and gas industry for the 13th economic policy package to buttress investment in the industry in a sluggish market. (AP/Hasan Jamali)
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nternational commentators often focus too heavily on the past when talking about so-called “headwinds” confronting the future of many Asian economies, including Indonesia’s. There is no substitute for on-the-ground knowledge and day-to-day local experience to fully understand the dramatic pace of change that has taken place over time and the compelling economic growth opportunities that are now being generated in Indonesia.
AIA, one of Indonesia’s largest life insurance companies, has been doing business here for more than 20 years and in Asia over the past century.
We have a long-term commitment to Indonesia that is reflected in the way that we serve our customers, invest our capital locally, look after our employees and build relationships through sustainable business practices.
Life insurance provides financial reassurance and security to our policyholders that reinforces their confidence in the future as they work to support the economy and their families.
Like other insurance companies, we provide financial security. We are also able to invest people’s savings into long-term investment opportunities in support of the country’s economic growth; building new infrastructure to strengthen communities and promoting corporate development to create employment.
While we focus on longer-term economic drivers, we are also encouraged by the near-term progress that has been made and which is now being more widely recognized internationally.
In May, Moody’s Investors Service revised upwards its economic growth forecast for Indonesia for 2016 and noted the higher level of public investment, particularly in infrastructure projects. The OECD is even more optimistic about Indonesia in 2017, estimating GDP growth of 5.5 percent.
If the turnaround is underway, then much of the credit must go to President Joko “Jokowi” Widodo’s government, releasing a steady stream of fiscal stimulus packages since September 2015 to promote investment.
Ease of doing business in Indonesia has improved and this has been recognized by the World Bank Group in a report released on Oct. 26. The country has risen 15 places to 91 of 190 countries assessed in the World Bank’s “Doing Business 2017: Equal Opportunity for All” report.
The step up was attributed to government efforts to streamline unnecessary regulation. Not content with this improvement, Jokowi aims to rank 40th by the end of his term in 2019.
Other economic indicators are heading in the right direction. Indonesia’s inflation rate has eased to 3.3 percent year-on-year, and overall unemployment has reduced to 5.9 percent as of May 2016 from 6.2 percent in 2015.
There is more good news with Indonesia’s consumer confidence steadily improving over the year; the Nielsen consumer confidence index shows Indonesia as the third-most confident nation in the world in the third quarter, 2016.
To maintain Indonesia’s economic momentum, clearly infrastructure investment — with a clear and high multiplier effect for the broader economy — is going to remain a key economic driver.
Last February, Jokowi named 30 priority infrastructure projects for the 2016 to 2019 period, including toll roads and power plants. It has been estimated that such investments are likely to require several hundreds of billions of dollars.
All this comes as foreign direct investment in Indonesia rose 7.8 percent year-on-year to the highest amount on record of Rp 99.7 trillion (US$7.4 billion) in the third quarter of 2016, according to Indonesia’s Investment Coordinating Board (BKPM).
AIA has a strong track record of investment in infrastructure and will be actively seeking opportunities to employ capital in this important economic growth driver.
Yet, the challenge of regaining the growth rates of previous years remains very real. Indonesia’s third quarter growth came in at 4.7 percent, despite continued monetary easing over the first half of the year. This is below the 5.8 percent average for the last decade, and lower than expectations of 5 percent or more. Despite this, the government is boldly predicting economic growth to exceed 6 percent in 2018.
The gap between the life insurance cover people need to protect their families compared to the amount they currently have in place was recently estimated to be more than $41 trillion across Asia.
Indonesia would benefit from reducing its own protection gap, estimated to be close to $1.1 trillion alone.
Protecting families is critically important. If the levels of financial protection that Indonesians can provide for each other can be expanded, they can also help the country afford tomorrow’s economic development.
The investment of long-term insurance funds also contributes directly to the economic growth that Indonesia is seeking, enabling the government to reach the economic goals they have set, which brings us back to our confidence in Indonesia.
And those headwinds? Indonesians have never failed to rise to a challenge. We are confident that we shall soon be speaking of tailwinds powering the economy to its next stage of economic growth.
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