Great Expectations: CEOs in Indonesia Looking Forward to Improved Business Conditions

25 May 2017

Patrick Cooke, Managing Editor for the Middle East and Asia

Patrick Cooke
Managing Editor, Middle East and Asia
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South-east Asia’s largest consumer market and one of its most dynamic growth destinations is now turning a corner in terms of business confidence and expectations, the latest OBG Business Barometer: CEO Survey shows. While for some time, both foreign and domestic investors in Indonesia cited infrastructure,
political uncertainty and frequent changes in legislation as their top concern, many now have an altogether more positive outlook.

Indeed, the OBG Business Barometer: Indonesia CEO Survey, conducted over a period of three months in early 2017, reveals that 92% of local CEOs had either very positive or positive expectations of local business conditions in the coming 12 months.

In addition, some 40% of respondents said they are very likely to make a significant capital investment
within the next 12 months.

This shift in outlook is supported by improving foreign direct investment (FDI) data in 2017. Indonesia’s Investment Coordinating Board (BKPM) reported that FDI in Indonesia grew by 2.1% in Q4 2016. The latest FDI cycle is driven by investments in machinery and electronics, with paper and printing in second place. Pharmaceuticals, mining, and vehicles also showed improvements in investment volumes. Indonesia’s future economic growth will be driven by higher household consumption as well as a pick-up in private sector investment in sectors such as housing, infrastructure, energy, and manufacturing. The current official target of 5.1% growth for 2017 could be exceeded if the country manages to accelerate public works programme in infrastructure – still the main hurdle to faster expansion. External risk to the economic outlook comes from US monetary policy and a higher than expected inflation rate, which would trigger monetary tightening.

Meanwhile, there has been a strategic shift as far as growth priorities are concerned. The National Development Planning Minister Soemantri Brodjonegoro announced in April the country plans to focus on six sectors to achieve growth: processing industry, agriculture, trade, information and communication, construction and financial services. A partial recovery in commodity prices and an ongoing investment drive in the energy sector should help to fund long-term infrastructure projects.

However, the government’s role in this process remains relatively limited. Some 54% of respondents said less than 20% of business is spurred by government spending. The survey confirmed a widely held view that the most effective support the government can provide is to improve the bureaucratic process.

Indeed, nearly 50% of those surveyed by OBG said that bureaucracy was their top concern in terms of doing business. The challenge in securing human resources was the second-biggest concern, according to Indonesian CEOs. The highest demand for skills is in engineering, finance, health and IT.
 
 
The good news is the overall ease of doing business is improving, according to Indonesian executives. The level of transparency also appears to be improving, with just under half of respondents saying the level of transparency is very high. Enhanced transparency is helping to attract investors and lower the cost of borrowing as confidence is restored in corporate balance sheets.
 
 
The main challenge going forward remains a lack of infrastructure and relatively high cost of logistics compared to other ASEAN nations, but on balance the survey signals a shift in expectations amongst business leaders that will likely lead to higher investment flows in 2017.
 
OBG Business Barometer: Indonesia CEO Survey Copyright (c). All rights reserved.
This survey has been designed to assess business sentiment amongst business leaders (Chief Executives or equivalent) and their outlook for the next 12 months. Unlike many surveys, the OBG Business Barometer is conducted by OBG staff on a face-to-face basis, across the full range of industries, company sizes and functional specialties. The results are anonymous.
 
OBG Business Barometer is based on data from companies with revenue within the following parameters, among others:
• 38% of companies surveyed were international
• 51% of companies surveyed were local
• 89% of companies surveyed were private
The data generated allows for analysis of sentiment within an individual country, as well as regionally and globally.Additionally, comparisons can be drawn between both individual countries and regionally. The results are presented statistically within infographics and discussed in articles written by OBG Managing Editors.
OBG provides this survey, infographics and accompanying analysis from sources believed to be reliable, for information purposes only. OBG accepts no responsibility for any loss, financial or otherwise, sustained by any person or organisation using it.
For further information on the content of the survey, please contact: Paulius Kuncinas, Managing Editor for Asia, at pkuncinas@oxfordbusinessgroup.com
Should you wish to reproduce any element of this survey, infographics and accompanying analysis please contact mdeblois@oxfordbusinessgroup.com. Any unauthorised reproduction will be considered an infringement of the Copyright. For further details about OBG and how to subscribe to our widely acclaimed business intelligence publication please visit www.oxfordbusinessgroup.com
 
 

Tags:

Asia Indonesia Economy

Patrick Cooke, Managing Editor for the Middle East and Asia

Patrick Cooke
Managing Editor, Middle East and Asia
Follow Patrick on Twitter LinkedIn

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