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What Is The True Potential Of Indonesia?

President Joko Widodo, who was inaugurated as Indonesia’s president less than a month ago on 20 October 2014, is certainly not wasting any time. He has already started promoting Indonesia as a prime investment destination for foreign investors. In his first presentation as leader of the country, Mr. Widodo opened up about his plans for Indonesia in the future.

With Singapore’s close economic and geographical ties with the country and with more than 20 Indonesia-based companies listed here, it might be worth the time for Singapore investors to think about the firms which might benefit from Indonesia’s potential growth in the future.

Indonesia charging ahead

In his presentation, Mr. Widodo discussed his plan to cut down on fuel subsidies for Indonesians. It’s a big deal for Indonesia’s government as the cuts might potentially save the government US$27 billion annually. With these savings, Indonesia is planning to utilise it to build up the country’s infrastructure.

The presence of new and high quality infrastructure will be able to help Indonesia foster a better environment for its people and businesses to prosper. If this sounds a little familiar, its because Indonesia’s plan is akin to how China had focused on building its infrastructure for many years to help drive growth in its economy. If Indonesia is able to replicate China’s success (keeping in mind that China’s gross domestic product growth has not fallen below 7% since 1992), then there really is sizeable potential for the world’s fourth most populous country.

As Indonesia progresses and its population becomes wealthier, demand for vehicles and consumer goods would very likely rise and this bodes well for companies like Jardine Cycle & Carriage Limited (SGX: C07) and Petra Foods Limited (SGX: P34). The former currently holds the largest market share in Indonesia’s automotive market while the latter sees Indonesia as its largest market for its main products, chocolates and confectionaries.

Also, as  the Indonesian population gradually attains a higher level of education, stronger demand for higher-quality healthcare and better entertainment venues would likely surface as well. If that happens, real estate investment trusts such as Lippo Malls Indonesia Retail Trust (SGX: D5IU) and First Real Estate Investment Trust (SGX: AW9U) might be well positioned for these trends. Lippo Malls Indonesia Retail Trust is an Indonesia-focused REIT which owns “eight high-quality retail malls and seven retail spaces” with a combined value of S$1.06 billion. Meanwhile, First REIT owns 10 healthcare-related properties in Indonesia.

What are the risks?

But while the picture of Indonesia’s future I’ve painted seems rosy, this road to prosperity would come with its fair share of speed bumps. Corruption and political stability would always be a risk for investors.

Indonesia has a reputation for corruption and the presence of such leakages might prevent investors in the country from benefitting from their investments. And as with all democracies, politicians’ promises might only last till the next election. If Mr. Widodo is unable to retain power long enough, there is a risk that new leadership in Indonesia might just choose to reverse his policies.

Foolish Summary

Indonesia is beginning to embark on an epic journey. The future is bright for the nation. However, there will be challenges ahead. If the president and the government is able to overcome these challenges, the outlook for Indonesia will be very interesting. But, if the problems overwhelm them, then Indonesia might just see all that potential go to waste.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.