Country Insight Snapshot Indonesia - June 2021 - Written 04 June 2021 - Dun & Bradstreet
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Country Insight Snapshot
Indonesia
June 2021
Written 04 June 2021
Country Insight Snapshot: Indonesia
June 2021
OVERVIEW
OVERALL COUNTRY RISK RATING: DB4b
Moderate risk: Significant uncertainty over expected returns. Risk-averse customers are
advised to protect against potential losses.
Rating Outlook: Stable
CORE OUTLOOK
+ Indonesia is one of the world’s most renowned markets for resource extraction.
+ The government is enacting significant reforms, and is actively supporting and incentivising
infrastructure development.
- The dimensions of the Covid-19 epidemic remain uncertain due to severe limitations on
testing capacity.
- Resource nationalism can be a concern, especially in the minerals sector.
- Though improving thanks to legislation, the business environment remains problematic for
enforcing contracts and for entrepreneurs.
KEY DEVELOPMENT
The overall rating outlook has been upgraded from 'deteriorating' to 'stable' due to the country's
economic recovery prospects, fuelled by strong exports and recovering domestic demand.
CREDIT ENVIRONMENT OUTLOOK
Trend: Improving
Key Development has had a positive impact on the outlook.
SUPPLY ENVIRONMENT OUTLOOK
Trend: Stable
Key Development has had a neutral impact on the outlook.
MARKET ENVIRONMENT OUTLOOK
Trend: Improving
Key Development has had a positive impact on the outlook.
POLITICAL ENVIRONMENT OUTLOOK
Trend: Stable
Key Development has had a positive impact on the outlook.
© Dun & Bradstreet 2
Country Insight Snapshot: Indonesia June 2021 KEY INDICATORS Rating History and Comparison Source: Dun & Bradstreet Note: 1 = Low Risk, 7 = High Risk Regional Comparisons Source: Haver Analytics/Dun & Bradstreet Industrial Production (Index) Source: Haver Analytics/Dun & Bradstreet © Dun & Bradstreet 3
Country Insight Snapshot: Indonesia June 2021 Economic Indicators Indicator 2018 2019 2020 2021f 2022f 2023f 2024f 2025f C/A balance % GDP -2.9 -2.7 -0.4 -1.0 -2.1 -2.7 -2.6 -2.7 Debt Service Ratio, % 25.1 27.1 25.0 26.0 26.5 27.5 28.2 29.0 Govt balance, % GDP -1.6 -2.0 -6.1 -4.4 -3.4 -2.0 -1.8 -1.9 Inflation, annual avge % 3.3 2.0 2.0 2.3 3.4 3.6 3.7 3.8 Real GDP Growth, % 5.2 5.0 -2.0 5.3 5.7 5.8 6.0 5.8 Source: Haver Analytics/Dun & Bradstreet TRADE AND COMMERCIAL ENVIRONMENT In an age of ever-increasing environmental awareness and sensitivity, an important matter not to be overlooked is supply chain and trade counterparty due diligence. This risk factor has particular relevance for Indonesia given its relatively high exposure to commodity extraction industries. Of note, recently in May 2021 BlackRock, the world's biggest asset management company, attracted criticism for having investment exposure to the Indonesian conglomerate Astra Group, whose palm oil subsidiary Astra Agro Lestari is accused by activists of environmental malpractices, including local farmer land seizures. BlackRock's case was particularly problematic because earlier in October 2020 it had joined an investor rebellion at Procter & Gamble, protesting against the US consumer goods giant's wood pulp and palm oil supply chain, which included Astra Agro Lestari. TRADE TERMS AND TRANSFER SITUATION Minimum Terms: LC The minimum form of documentation or trading method that Dun & Bradstreet advises its customers to consider when pursuing export trade with the stated country. Recommended Terms: LC Dun & Bradstreet's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms. Usual Terms: 30 days Normal period of credit associated with transactions with companies in the stated country. Local Delays: 0-1 month The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports. FX/Bank Delays: 0-2 months The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system. © Dun & Bradstreet 4
Country Insight Snapshot: Indonesia June 2021 Exchange Rate Source: International Monetary Fund/Dun & Bradstreet LCU (local currency unit) = Indonesian rupiah Bank Lending to the Private Sector Source: IMF, Central Banks, Haver Analytics © Dun & Bradstreet 5
Country Insight Snapshot: Indonesia June 2021 RISKS AND OPPORTUNITIES Short-Term Economic Outlook Overall outlook upgraded to 'stable' due to strong economic recovery prospects Dun & Bradstreet has upgraded the overall rating outlook from 'deteriorating' to 'stable' as, despite re-imposed social restrictions in Java and Bali for about a month between January and February, Indonesia's economic recovery continued in Q1, with real GDP contracting by a slower pace of -0.7% y/y, up from -2.2% in Q4 of 2020. With the rate of contraction in private consumption and fixed investment slowing significantly to -2.2%, and -0.2% y/y respectively, these were the biggest positive growth contributors in Q1. Of particular note was the strong recovery in exports, which in real terms expanded by 6.7% y/y in Q1, up from -7.2% in Q4, on the back of both recovering global demand and higher commodity prices. Furthermore nominal goods exports surged by 51.9% y/y in April 2021, which was the fastest monthly growth rate in 11 years. Key drivers of this are recovering global demand and strong commodity prices. Indeed prices for Indonesia’s two most important individual commodity export items - coal and palm oil - were 34% and 11% higher respectively on a year-to-date basis as of end May 2021, which was on top of price rises of 18% and 63% respectively in the second of 2020. Looking ahead, given based effects, we expect much faster Indonesian growth recovery in coming quarters, in y/y terms, fuelled by strong exports and recovering domestic demand. Due to these positive forecasts, we have also upgraded the credit outlook from 'deteriorating' to 'improving' and the supply outlook from 'deteriorating' to 'stable'. Market Potential Growing reputation for successful tech start-ups In the past decade, Indonesia has also been emerging as an important market for start-ups and investment in the technology/e-commerce space. An indicator of this is the existence of at least six so-called 'unicorn' companies - start-up enterprises estimated to be worth more than USD1bn. Of note, in May 2021 two of Indonesia's larger unicorns, Gojek and Tokopedia agreed a merger that would create an USD18bn food delivery, ride-hailing and e-commerce group, with extensive reach right across Asia. Going forward, we think that Indonesia's very large domestic market, improving regulatory backdrop and recent big success stories, suggests the growth trend of technology start- ups should be sustained in the coming years. It has also led us to upgrade the market environment outlook from 'deteriorating' to 'improving'. Political/Insecurity Risk Elevated risk of violence in Papua amid security action Following a period of relative calm, security conditions in Indonesia’s eastern-most province of Papua have again worsened in recent months. An important trigger for this was the killing of a regional intelligence chief by separatists in late April. This prompted President Widodo to send hundreds of additional troops to the region, including the elite 315/Garuda Battalion, as part of the strongest regional security crackdown in decades, aimed at tackling escalating separatist threats. Looking ahead, the risk of regional violence is likely to remain elevated while the security operation continues. An important challenge for the government will be avoiding such a heavy- handed response that it actually ends up bolstering support for separatist groups. They have long called for an independence vote for the former Dutch colony, which was incorporated into Indonesia following a highly controversial UN-backed referendum in 1969. © Dun & Bradstreet 6
Country Insight Snapshot: Indonesia June 2021 COUNTRY PROFILE AND STATISTICS Overview Indonesia is an archipelago of approximately 17,000 islands in Southeast Asia, partly traversed by the equator; it has three time zones. Java accounts for almost half of the population, while other major islands are Sumatra, Kalimantan (Borneo), Bali, Sulawesi and Maluku. Formerly the Dutch Indies, Indonesia declared independence in 1945 under Japanese occupation. When the Dutch failed to regain control by 1949, Indonesia gained international recognition, with US support. However, Indonesia became enmeshed in the heart of the Cold War. In 1965, the ‘New Order’ regime seized control of the state and within months had killed most Communist Party of Indonesia (PKI) cadres and hundreds of thousands of associated persons. The ethnic-Chinese business class was besieged by rioting mobs during the final weeks of President Suharto’s autocratic rule (1967-98). Since 2001, the army has accepted democracy. Administrative decentralisation has let local elites grow rich. Indonesia is the most populous Muslim-majority country; Protestantism, Catholicism, Buddhism and Hinduism also have state protection alongside Islam under the republic's founding doctrine of 'Pancasila'. Key Facts Key Fact Detail Head of state President Joko WIDODO Capital Jakarta Timezone GMT +08-00 (Central Indonesian Time) Official language Bahasa Indonesia Population (millions) 273.5 GDP (USD billions) 1,094.6 GDP per capita (USD) 4,002 Life expectancy (years) 71.4 Literacy (% of adult pop.) 95.7 Surface area (sq km) 1,904,570 Source: Various sources/Dun & Bradstreet Historical Data Metric 2016 2017 2018 2019 2020 Real GDP growth (%) 5.0 5.1 5.2 5.0 -2.0 Nominal GDP in USDbn 923 1,003 1,025 1,139 1,095 Nominal GDP in local currency (bn) 12,397,579 13,587,376 14,835,963 15,831,672 15,439,854 GDP per Capita in USD 3,528 3,790 3,828 4,208 4,002 Population (year-end, m) 261.6 264.7 267.7 270.6 273.5 Exchange rate (yr avge, USD-LCU) 13,436.0 13,548.0 14,481.0 13,901.0 14,105.0 Current Account in USDbn -16.9 -16.1 -30.6 -30.3 -4.4 Current Account (% of GDP) -1.8 -1.6 -2.9 -2.7 -0.4 FX reserves (year-end, USDbn) 110.3 123.6 114.2 122.1 127.7 Import Cover (months) 8.3 8.1 6.3 7.2 9.6 Inflation (annual avge, %) 3.5 3.8 3.3 2.0 2.0 Govt Balance (% GDP) -1.9 -2.2 -1.6 -2.0 -6.1 Source: Haver Analytics/Dun & Bradstreet © Dun & Bradstreet 7
Country Insight Snapshot: Indonesia June 2021 Forecasts Metric 2021f 2022f 2023f 2024f 2025f Real GDP growth (%) 5.3 5.7 5.8 6.0 5.8 Nominal GDP in USDbn 1,126 1,175 1,227 1,280 1,323 Nominal GDP in local currency (bn) 16,597,843 17,842,682 19,180,883 20,619,449 22,165,908 GDP per Capita in USD 4,075 4,210 4,352 4,520 4,643 Population (year-end, m) 276.4 279.1 281.8 283.2 285.0 Exchange rate (yr avge, USD-LCU) 14,740.0 15,182.0 15,637.0 16,107.0 16,751.0 Current Account in USDbn -10.3 -24.7 -33.1 -33.3 -35.7 Current Account (% of GDP) -1.0 -2.1 -2.7 -2.6 -2.7 FX reserves (year-end, USDbn) 143.0 150.2 154.7 160.9 168.9 Import Cover (months) 10.3 10.2 10.0 9.8 9.8 Inflation (annual avge, %) 2.3 3.4 3.6 3.7 3.8 Govt Balance (% GDP) -4.4 -3.4 -2.0 -1.8 -1.9 Source: Haver Analytics/Dun & Bradstreet Comparative Market Indicators Indicator Indonesia China India Malaysia Thailand Income per Capita (USD) 4,075 11,974 2,187 11,469 7,374 Country Population (m) 276.4 1,444.2 1,351.1 32.5 70.1 Internet users (% of population) 39.8 54.3 34.5 81.2 56.8 Real GDP Growth (% p.a., 2021 - 2030) 4.5 - 7.0 4.5 - 6.5 4.0 - 6.0 3.0 - 4.0 2.5 - 3.0 Source: Various sources/Dun & Bradstreet © Dun & Bradstreet 8
Country Insight Snapshot: Indonesia
June 2021
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