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The other “I” in BRIC

November 22, 2010
Nusa Dua, Bali, Indonesia

It was a spur of the moment decision, but I felt like a bit of a break. Friday’s trip to Brunei didn’t exactly go as planned, and I opted instead to spend a few days on the beach in Bali. Good choice: it was -very- relaxing and gave me the opportunity to put my boots on the ground once again in this growing country.

It seems that Indonesia is a very happening place these days. Wall Street types are pronouncing it the other ‘I’ in BRIC, and even Barack Obama recently paid a visit to the country hoping to boost trade ties and counter China’s influence.

It’s a familiar story: Indonesia has a large population (roughly 250 million), a high savings rate, resource wealth, and thorough productivity.  Its enviable economic growth is a direct result of diversified exports: both resources as well as manufactured goods.

One thing that’s important to note, Indonesia is a -former- OPEC member; the government owns 100% of the oil revenues and, as governments tend to do, blew most of the money on social programs instead of reinvesting in infrastructure.

As such, Indonesia is now a net oil importer… though it is still one of the world’s top natural gas exporters.

The country also thrives on the production of cheap manufactured goods– the sort of stuff that China used to be able to produce before wage growth and inflation made the country uncompetitive against some of its neighbors.

Consequently, China is in the process of transitioning its economy away from being the world’s leading producer of useless trinkets and exported knick-knacks– Chinese labor is simply becoming too expensive, especially compared to Vietnam, Burma, Bangladesh, and Indonesia.

Indonesia is fortunate to have a young population, extremely favorable demographics, and a culture that values savings and productivity. As China continues its transition to a high-tech economy, Indonesia’s cheaper workforce will pick up the manufacturing slack; this should be a boon for the economy.

There are a few challenges affecting Indonesia’s economy worth noting, however:

First, the population is spread out across an insane number of islands. The largest that contain the preponderance of the population include Borneo, Java, Celebes, Sumatra, and New Guinea… but there are hundreds, thousands of others that are also populated.

Modernizing these smaller islands and bringing products and services to them will be no small task… in a way, it’s a bit similar to the challenges that Russia is experiencing– having to develop its tier-2 and tier-3 cities outside of St. Petersburg and Moscow.

Furthermore, there are domestic challenges in Indonesia (similar to India’s) from various separatist movements which have both a political status and paramilitary strength. As such, Indonesia has a high culture of security.

At airports, for instance, passengers typically undergo at least four security checks, which include a screening of carry-on hand luggage, as well as bomb detection for checked baggage.

Even at the finest resorts here in Bali, guests are subjected to metal detectors and bomb sniffing dogs. Admittedly, western tourists receive a superficial glance at best, but the setup doesn’t exactly jive with the island’s intended atmosphere of peace and tranquility.

Despite these potential issues, I would still bet heavily on Indonesia, as well as a long-term appreciation of its currency (IDR, the rupiah, not to be confused with INR, the Indian rupee).

As for Bali’s tourist appeal… I definitely recommend visiting the island if you’re already living in the region or going to be traveling to the region for other business.

If you’re coming from North America or Europe, though, I wouldn’t recommend making a deliberate trip out here just to visit Bali– there are a lot of beautiful places in the world that are far more accessible.

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About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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  • Caroline

    I agree, I have lived in Spain for 6 years now as an estate agent and you can tell different cultures, the British dont go the beach any more because they hate sand and are frightened of having their children kidnapped if there are too many people. The Irish are frightened of dogs and stairs and high roof tops because the kids might jump off. The Spanish however, appear not to care, they let fireworks off in the street, they hold rockets in their hands they still throw sweets to the crowd on processions, they have hard tiled floors and the kids all swim in the sea. They also over pack their suitcases and argue so much with the attendants at check in they get let on. It might take a while to make the Spanish bow to the new regime, they are just getting over the last one.

  • http://www.ReferencePointTherapy.com Simon R

    Simon… You can’t talk about business in Indonesia without talking about the “C word”: Corruption.

    This is a country which scored 111th on last month’s Transparency International corruption index. (http://thejakartaglobe.com/home/indonesias-global-corruption-perception-ranking-lifts-to-111th/342155)

    I have personal experience doing business in Indonesia and would think twice before investing there again. Even though I went into it with eyes wide open and plenty of warnings, I was still surprised at just how corrupt things were. I couldn’t even get really basic things down without “facilitation payments.”

    The worst bit wasn’t the bribes though it was the cultural difference. I wont go into deal, just to say that I’ve seen deals fall through because the Indonesians and the foreign investors couldn’t agree on what was (to me) a win-win deal. Ego, “saving face” and other things I can’t pin down destroyed good projects which would be a no-brainer in any Western country.

    I’m not saying to avoid Indonesia. I’m merely questioning the advice to bet heavily on a country that has done little if anything to combat it’s significant cultural hurdles to success.

    Simon R

  • Veritabletruth

    Depends on what you are looking for…
    For a culture with a built in spirituality [no words for religion or art in balinese, for ex.], and for true artistry and aesthetic in life…you would be hard pressed to find a better environment than Bali. If you are an artist, it’s a fantastic place to be for awhile….

    Howeve,r if you want beaches and resorts, I agree, there are plenty of other places that are more accessible to europeans and north americans. The aussies head to bali for their surf zone, much like americans party in mexico. so the beach areas have that vibe-some might say seedy element [i would]. The Balinese, though, are not a sea faring people, and traditionally did not live along the coast. In fact,t he north coast of bali is populated with javanese who migrated over.

    Bali has a very unique form of hinduism-that is both old and pristine in expression. It is well worth a trip from north america, if you can spend a few weeks and want to experience the traditional culture. The food is amazing [balinese foods, but also including many expats having set up restaurants-you will find sushi happy hour, road side satay, and everything in between, including raw and vegan foods—but all in a tropical aesthetic. It’s lovely and pretty cheap….] In my opinion, for those of us who are really not into thailand’s sex scene, etc. Bali is a good alternative and I prefer the balinese culture over thai. Not that Bali is perfect, but it’s very easy to travel in; and the local handicrafts/jewelers/artisans, etc are world-class. Even with it’s modernization, I’d go back again in a heartbeat. Again, not for beaches. Bali is a dream in motion [dreamlike], but far easier to navigate than India. Their tourism is very established, and services are never lacking in Bali, either. cheers!

  • http://twitter.com/MichaelPorfirio Michael Mason

    Which do you think has more economic potential, Vietnam or Indo?

  • Tonyweir

    Sorry, don’t think so. I’ve spent 10 years living in Asia and Indonesia is, and will be for the foreseeable future, a basket-case. It is too willing to bend over and give foreigner rapists (they call themselves ‘investors’, of course) whatever they want. Land? Forests? People? Come and get it. It’s yours for the taking, and you only have to give peanuts in return. It’s very much like the Philippines – coasting along on a raft of easily-extracted commodities with a corrupt ruling class stuffing all the proceeds into their pockets.

    Giving away natural resources is hardly a growth strategy, because pretty soon it’ll be all gone, and that’s when the excrement hits the rotating impeller. This is pretty much the situation China is now finding itself in: having pillaged its natural resources and given them away to foreigners in exchange for little bits of green paper, they’re now realising that a country is in deep trouble without breathable air, clean water, and productive land: a recent article in the (state-controlled) press actually admitted that China does not have nearly enough land under cultivation to be self-sufficient in food, something it has long strived to attain, and that water pollution is causing disease and economic hardship.

    All of which is a real pity, because Indonesia DOES have enormous potential (as does the Philippines). They just choose to remain poor.

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