By 2050, Indonesia is predicted to be the world’s fourth-largest economy. How will it achieve this? Jenny Southan reports from Jakarta.
Jet-lagged in Jakarta, I open the curtains and look oaut on the sleeping metropolis. The roads, chock-full of crawling traffic during the day, are empty at this time. And even through the double-glazed windows of the 56th floor of the Westin (the tallest hotel in the country), I can hear the 4am call to prayer rising up among the darkened tower blocks.
Indonesia has the world’s biggest Muslim population (87 per cent of 252 million people), and there are hundreds of mosques all over the capital where devotees go to pray up to five times a day. The National Mosque is the largest in South East Asia, with space for 200,000 people, but Jakarta has also been experimenting with “mosque-mobiles”, to make worship during busy times, such as Ramadan, easier.
For many, attending mosques is as much a part of life as visiting the city’s 250 or so glitzy marble shopping malls, new Meccas to consumerism built for the burgeoning middle class. There are now around 88 million Indonesians that fit into this demographic – greater than the entire population of the UK. That’s a lot of spending power.
Chris Wren, chief executive officer of the British Chamber of Commerce (britcham.or.id), says: “Twenty years ago, there were only a few Indonesians that could afford to have a glass of wine in an international restaurant. Now the middle classes are wining and dining. The wealth is filtering down.” The presence of many familiar international brands – from M&S, Tesco, Debenhams, H&M and the Body Shop to Armani, Bose, Ralph Lauren, Nike and Tag Heuer – attest to investor confidence in consumer demand.
Joel Derbyshire, director of trade and investment for the UK Department for International Trade (UKDIT) in Jakarta, says: “There are more malls in Jakarta than any other city in the world. People love shopping. Whereas in the UK we might go to parks, the mindset here is that you go to a mall – they are air conditioned and have all kinds of things in them – I went to one with a huge waterpark, and some have cinemas with beds in them and huge karaoke centres.”
I take an Uber to the Central Park mall in West Jakarta, 11km north of my hotel. It’s a slow crawl through rush-hour, which my driver tells me lasts from 7am to 9am, and from 4pm to as late as 9pm. One of the largest shopping complexes, not only does it have a glowing, elevated tunnel linking it to the Neo Soho mall across the road, but a Pullman hotel, and an urban garden with water fountains, lawns and trees lit up in pink and purple fairy lights. I sit on the terrace of a restaurant and watch as a violent rainstorm forces everyone inside.
Although the malls are busy, disposable income is not what it was. Indonesia’s economy relies heavily on domestic consumption (60 per cent) but demand for exports such as coal and palm oil has slumped, triggering a fall in the value of its currency, the rupiah, and higher prices.
Richard van der Schaar, owner and director of consultancy Indonesia Investments, says: “There has been a big property boom but we are a little worried as it has really slowed down now. I live in a new apartment complex and it’s almost empty. They built too much a few years ago so there is excess supply.”
The same goes for commercial buildings. Arun Kumar, general manager of the Westin, says: “There is a lot of vacant Grade A office space. People are moving to new offices and the old ones are left vacant. They are actually giving it away much cheaper.”
Situated on the top 20 floors of the 69-storey mixed-use Gama Tower, the 272-room hotel opened last August. You only have to spend a little time in the panoramic lobby or decadent Seasonal Tastes restaurant, which has seven live cooking stations, to see how popular it is among locals.
However, overnight occupancy is only 40 per cent. “It is growing but not as fast as I would like because everyone is fishing from the same pond,” Kumar says. “The five-star segment is very tough.” Do a quick Expedia search and you will see almost every international hotel brand represented – Kempinski, Fairmont, Shangri-La, Raffles, Intercontinental, Grand Hyatt, JW Marriott, Ritz-Carlton, Mandarin Oriental… the list goes on.
And there are still more coming (although delays are expected) from Park Hyatt, Langham, Waldorf Astoria, St Regis and W. Which one will get your business, though, given the traffic, should be the one closest to your meetings. Wren says: “It’s a foolish traveller who books a hotel in Jakarta in the wrong area to save £15 a night.”
Why keep opening luxury hotels if there aren’t enough people to fill them? First, because there is potential – there are currently ten million visitors to Indonesia a year, but the government aims to double this to 20 million by 2020. Second, it’s about status. Kumar says: “Indonesians pride themselves on the brands they associate themselves with – it’s not primarily about making money.” While this doesn’t seem like savvy business thinking, there has been such a wave of optimism and energy rippling through the country that you can hardly cast blame.
In 2014, Joko “Jokowi” Widodo was elected the seventh president of Indonesia after promising to boost GDP growth to 7 per cent. While he hasn’t yet achieved the economic growth hoped, he has introduced reforms to make foreign investment easier. Last year, the country’s GDP grew by just over 5 per cent, compared with the UK’s 2 per cent.
Indonesia has the 16th-largest economy in the world, but by 2030 it is predicted to be the seventh-largest. More impressive still, a report from PwC claims that it will be the fourth most powerful economy on the planet by 2050, behind China in first place, the US in second and India in third.
Flying in over the sea towards the north-west shores of Java, it’s clear from the huge container ships littering the bay that Jakarta’s Tanjung Priok Port plays a vital role in its trading capabilities. A vast new terminal (Kalibaru) was unveiled last autumn to allow for the faster turnaround of ever-bigger vessels, with additional expansion to be complete by 2024.
Logistics costs equate to 26 per cent of Indonesia’s US$861 billion GDP, so improving infrastructure across the capital is a priority. By 2020, the country hopes to have reduced this overhead to 19 per cent. To take pressure off the city’s congested roads, a US$1.7 billion mass rapid transit system is being built. The first in the country (part overground, part underground), it is hoped that it will be ready in time for the 2018 Asian Games, which are taking place in Jakarta.
Airlift is also critical – last summer, the new US$560 million Terminal 3 opened at Jakarta Soekarno-Hatta airport. It is initially being used for domestic flights, but once running smoothly, international services will move over. Kumar says: “Not a lot of leisure travel comes into the city. It has little to offer – at the weekends locals are in Singapore. On Friday evenings, flights are full.”
An express rail link to downtown is coming this year and a third runway is being developed. By next year, the hub will be able to handle 62 million passengers annually. (See page 20 for a review of flag carrier Garuda Indonesia’s business class service from London.)
With a population of 12 million people, Jakarta is a sprawling mega city with no discernable boundary, and little in the way of pedestrian-friendly zones. There is Chinatown, with its dank alleyways, market stalls selling nets of live frogs and crabs, and the charred, smoky Dharma Bhakti Temple (it caught fire last year but still has a forest of man-height candles burning inside). And there are car-free Sundays on Sudirman and Thamrin roads.
The old Dutch Colonial area of Kota Tua, once the heart of Batavia, was the capital city of the Dutch East Indies. Up until 1942, when the Japanese took control, it formed a key trading centre with Asia, which saw spices, tobacco, sugar, opium, coffee and tea flow in and out with the help of a network of canals.
Today, the focus is the SCBD (Sudirman Central Business District), and new planned satellites such as Bumi Serpong Damai (BSD) Smart City in Tangerang. A private development from Sinar Mas Land, the blossoming urban stronghold has been designed as a self-sustained tech innovation hub, with housing, restaurants, offices, shops, a cutting-edge exhibition centre, and a co-working space called EV Hive (evhive.co). Unilever recently opened its new country HQ here.
Indonesia has fiercely embraced digital – smartphone penetration is around 50 per cent and, by 2019 it is estimated that 92 million people will have one. Social media has exploded, too. Indonesia is the fourth-biggest Facebook market on the planet, while Jakarta has been dubbed the Earth’s “Twitter capital”. With 60 per cent of the population under the age of 30, you can understand why. At luxury hotels such as the Westin and Four Seasons, groups of women in colour-coordinated hijabs can be spotted posing for Instagram shots with their own professional photographers.
E-commerce is also taking off. “Five years ago, Indonesians would have been scared to buy things online,” Wren says. That has all changed. In Jakarta there are bikers wearing green GoJek crash helmets everywhere. In 2015, the company launched a ride-hailing app for motorcycle taxis, which can weave in and around cars, making them the fastest way to get about. Since then, it has branched out into everything from food deliveries to on-demand massages. If you want to get ahead in a city like Jakarta, you have to be nimble. Even Uber is doing two wheels.
PLAYING THE LONG GAME
How easy is it for a foreigner to do business here? The UKDIT’s Derbyshire says: “We tell British companies looking at Indonesia that to succeed you need patience, perseverance and persistence. This requires an investment in relationships, which takes time – it is not a transactional market. If you want to get off a plane and sign a deal, you can’t.”
Wren says: “Visitors look at the headline stats and get really excited but then they see the legal uncertainty, awkward regulatory environment, bribery and corruption, and ask: ‘How can we get at the opportunities?’ We give them the streetwise version of what they need to know. The British Chamber of Commerce helps them to appreciate that the risks can be managed.”
INDONESIA IN NUMBERS
- 18,307 Number of islands that the country comprises (about 6,000 inhabited)
- 742 Approximate number of local languages spoken
- 2004 First-ever presidential elections
- 3 World ranking in terms of size of democracy
- 1 World ranking in terms of Muslim population (87% of 252 million people)
- 60 Percentage of people under the age of 30
- 88 million Approximate number of middle class people
- 141 million Number of middle class people predicted in 2020
- 102 million Number of internet users in 2016
- 55 million Skilled workers today
- 130 million Projected number of skilled workers by 2025
- 16 World ranking for Indonesia’s economy today
- 4 Projected world ranking for Indonesia’s economy in 2050
- 5.8 Percentage the economy has grown year-on-year over the past decade
- 91 World ranking for ease of doing business
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