Indonesia may surpass Germany and the UK by 2030 to be the world’s seventh-largest economy, generating $1.8 trillion in annual sales for investors in consumer and energy industries by that year, McKinsey & Co. said.
The country may add 90 million people to its “consuming class” in that period, the most after China and India, the consulting company said in a report today. Energy demand may triple from current levels, convenience stores will lead a “revolution” in retail, and the largest business opportunities will be for financial-service providers, it said.
President Susilo Bambang Yudhoyono is increasing spending on roads, seaports and airports as he woos investment to spur Southeast Asia’s largest economy. More than a decade after the Asian financial crisis forced the nation to seek an International Monetary Fund bailout, Fitch Ratings and Moody’s Investors Service have raised Indonesia to investment grade and the country’s growth is among the fastest in the Group of 20.
“Indonesia is in the throes of a rapid transformation,” McKinsey said. “The Indonesian economy is larger, more stable, and more advanced than many companies and investors around the world realize.”
Indonesia is currently the world’s 16th-largest economy, with gross domestic product of about $846 billion last year, according to IMF data. That may rise to $1.8 trillion in 2017, compared with Germany’s $3.9 trillion economy and UK GDP of $3.2 trillion in the same period, IMF data shows. The McKinsey report did not give GDP projections for 2030.
Only China, the US, India, Japan, Brazil and Russia will be bigger than Indonesia by 2030, the report said.
Indonesia isn’t “a typical Asian manufacturing exporter driven by its growing workforce or a commodity exporter driven by its rich endowments of natural resources,” the report said. “The reality is that, to a large extent, it is domestic consumption rather than exports, and services rather than manufacturing or resources, which are propelling growth.”
Investors are now demanding lower premiums to hold Indonesian debt. The country will offer its lowest-ever coupon for dollar-denominated bonds when it sells global sukuk as soon as next month, according to Manulife Asset Management Indonesia and BNI Asset Management. The cost to protect Indonesian bonds from default dropped to the least since May 2011 on Sept. 14, and it’s now more expensive to insure Israeli and South African debt, both ranked at least three levels higher than Indonesia by Moody’s.