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.