A worker walks over stockpiles of coal at the PT Exploitasi Energi Indonesia… (Dadang Tri/DADANG TRI/BLOOMBERG )
Malaysian airline entrepreneur Tony Fernandes says he has two adopted homes. There’s London, where he owns the Queens Park Rangers soccer club and the Caterham Formula One auto racing team based in nearby Oxfordshire. And there’s Jakarta, a thriving, congested Southeast Asian mega-city in the world’s fourth-most-populous nation.
Last year, Fernandes, founder and group chief executive of Asia’s biggest budget airline, Kuala Lumpur-based AirAsia, moved his office to Indonesia’s capital, beating traffic gridlock by living in an apartment that’s walking distance from work.
Although AirAsia’s official headquarters remains in Malaysia, Fernandes, 49, says his relocation with a team of executives will help him focus on a market that’s eight times the size of his homeland.
“Indonesia is the jewel in our crown,” says Fernandes, whose airline connects some 20 other countries, including Australia, China, India and Japan. “It’s a booming, vibrant, young economy. The opportunities are enormous.”
Just how enormous is evident from the wealth being created in this nation of 249 million people, where a newly enriched middle class is taking to the skies.
After contracting 13 percent during the late-1990s Asian financial crash, Indonesia’s consumption-driven, resource-rich economy has enjoyed 13 years of uninterrupted growth — even during the global banking crisis — surging an average of 6.3 percent annually since 2010. The country’s stock market has performed even more spectacularly.
As of June 12, the benchmark Jakarta Composite Index had leapt almost 350 percent from its October 2008 nadir, making it the second-best performer during that period out of 94 markets tracked by Bloomberg.
In 2011, Indonesia overtook its former colonial master, the Netherlands, to become the world’s 16th-largest economy. In 2012, output rose another 6.23 percent to almost $900 billion and foreign direct investment jumped 26 percent to a record $23 billion.
And if it maintains a growth rate of about 6 percent, by 2030 it will have leapfrogged Germany and Britain to rank seventh, the consulting firm McKinsey predicts. Much sooner than that, by 2020, the number of middle-class and affluent Indonesians may double to more than 141 million, Boston Consulting Group said in a March report.
Betting on that growth isn’t for the fainthearted. Foreign investors are spooked by a combination of falling commodities prices and an outpouring of nationalist sentiment in the run-up to next year’s presidential election.
Indonesia is the world’s biggest exporter of power-station coal, nickel, tin and palm oil. It ranks No. 3 in liquefied natural gas and boasts the world’s largest gold mine and single biggest recoverable copper reserve.
Lower earnings from those exports resulted in a $1.6 billion trade deficit in April, which in turn helped drag the currency, the rupiah, to a three-year low.
Inflation rose 5.5 percent in May from a year earlier, putting pressure on the central bank to raise the benchmark interest rate, which it has held steady for 15 months.
Although the trade balance returned to surplus in March, gross domestic product growth of 6.02 percent in the first quarter of 2013 was the slowest in more than two years.
President Susilo Bambang Yudhoyono is also facing resistance to his efforts to reduce fuel price subsidies that could cost the nation $21.5 billion this year.
In April, Standard & Poor’s cited failure to tackle the subsidies as one reason it hasn’t followed the example of Moody’s Investors Service and Fitch Ratings, which in the space of five weeks in December 2011 and January 2012 lifted Indonesia’s credit rating to an investment-grade level.
Investor Mark Mobius says he’s treading carefully in Indonesia, even though the Jakarta Composite Index surged 6.79 percent this year through June 11.
He’s enthusiastic enough about the consumer story to stake almost 6 percent of his $18.45 billion Templeton Asian Growth Fund on shares of PT Astra International, the country’s biggest automotive retailer, which sells Toyota cars and Honda motorbikes. Still, he says that many Indonesian consumer stocks are no longer cheap and that others aren’t transparent enough.
“It’s not easy pickings,” Mobius says. “And you have corporate governance and corruption problems.”
Indonesia has long been plagued by graft. Suharto, the dictator who was overthrown in 1998 after 31 years in power and died in 2008, may have embezzled as much as $35 billion, according to Berlin-based Transparency International.
Four officials in Yudhoyono’s Democrat Party have resigned in the past two years after being linked to bribery allegations; two were convicted and sent to prison, while the other two, who deny wrongdoing, have been named as suspects.
Indonesia ranked 118th out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index, a fall of 18 places from the year before.