Young, affluent Indonesians to give shot in arm to service sector

Customers sitting inside a Starbucks cafe at a shopping mall in Jakarta.

Indonesia's youthful population and increasing affluence will fuel demand in its service sector, such as mobile banking and e-commerce, said Ms Selena Ling, head of treasury research and strategy at OCBC Bank.

The country could also move to upgrade its manufacturing sector after focusing for so long on its commodities exports, she said at the panel discussion titled Singapore-Indonesia Ties At 50: What Lies Ahead.

South-east Asia's biggest economy is slated to grow by around 5 per cent this year for the third year running. Surveys by the Singapore business and manufacturing federations found that Indonesia is a favoured destination to explore for new businesses.

The World Bank says that the country with a population of some 250 million people needs US$500 billion (S$676 billion) in the next five years to expand its infrastructure, if it is to continue its rapid expansion.

"E-commerce is one platform where you can reach across geographically dispersed regions... In terms of banking, instead of trying to set up branches all over Indonesia, mobile banking is the way to go," said Ms Ling, who added that education services is another area of expansion.

The Indonesian government has in the past ridden on the commodities boom, concentrating on exports such as natural gas, palm oil, copper and rubber, so there is scope for enhancing other sectors of the economy.

"In the last 10 to 20 years, because of the commodities boom, they haven't put that much attention on manufacturing.

"So actually there are huge efficiency gains to be made in modernising and expanding the manufacturing sector," Ms Ling said.

She cautioned, however, that Singapore will not be the only player in town as China is already making investment inroads in Indonesia, including via its Belt and Road Initiative.

Media reports last month said Chinese e-commerce giant Alibaba Group was in talks to make a big investment in one of Indonesia's largest online retailers, PT Tokopedia.

China is also building the 142.3km high-speed rail line linking Jakarta to the city of Bandung.

Reme Ahmad

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A version of this article appeared in the print edition of The Straits Times on August 30, 2017, with the headline Young, affluent Indonesians to give shot in arm to service sector. Subscribe