McKinsey sees Indonesia GDP may overtake germany by 2030

Singapore: Indonesia may surpass Germany and the UK by 2030 to be the world’s seventh-largest economy, generating $1.8 trillion in annual sales for agriculture, consumer and energy companies by that year, McKinsey & Co. said.

The country may add 90 million people to its “consuming class” in that period, the most after China and India, the consulting company said in a report on Tuesday. Energy demand may triple from current levels, convenience stores will lead a “revolution” in retail, and the largest business opportunities will be for financial-service providers, it said.

President Susilo Bambang Yudhoyono is increasing spending on roads, seaports and airports as he woos investment to spur Southeast Asia’s largest economy. More than a decade after the Asian financial crisis forced the nation to seek an International Monetary Fund bailout, Fitch Ratings and Moody’s Investors Service have raised Indonesia to investment grade and the country’s growth is among the fastest in the Group of 20.

“Indonesia is in the throes of a rapid transformation,” McKinsey said. “The Indonesian economy is larger, more stable, and more advanced than many companies and investors around the world realise.”

Only China, the US, India, Japan, Brazil and Russia will be bigger than Indonesia by 2030, McKinsey said.

Indonesia’s growth potential has spurred companies including Toyota Motor Corp. to boost investments in the country and prompted Standard Chartered Plc to predict the nation will join China and India as the engine of the third global “super-cycle.”

The country may be among the top six of the world’s largest economies by 2030, Standard Chartered said in an October 2011 report. The bank defines a super-cycle as a period of historically high global growth lasting a generation or more, driven in part by increasing trade, high rates of investment, urbanisation and technological innovation.

Investors are now demanding lower premiums to hold Indonesian debt. The country will offer its lowest-ever coupon for dollar-denominated bonds when it sells global sukuk as soon as next month, according to PT Manulife Asset Management Indonesia and PT BNI Asset Management. The cost to protect Indonesian bonds from default dropped to the least since May 2011 on Sept. 14, and it’s now more expensive to insure Israeli and South African debt, both ranked at least three levels higher than Indonesia by Moody’s.

Annual growth of 5 per cent to 6 per cent in Indonesia will add 90 million people to the “consuming class,” which is defined as those with yearly net incomes of more than $3,600 at 2005 purchasing power parity, McKinsey said. An expansion of 7 per cent a year, as targeted by the Indonesian government, would increase those ranks to 170 million people from 45 million in 2010, it said.

“This growth in Indonesia’s consuming class is stronger than in any economy of the world apart from China and India, a signal to international businesses and investors of considerable new opportunities,” McKinsey said. “But surging demand for a range of products and services will inevitably strain Indonesia’s natural and capital resources.”

The country’s challenges include boosting productivity to achieve a 7 per cent rate of expansion, uneven distribution of growth across the archipelago, and infrastructure and resources that cannot keep pace with rising domestic consumption, according to the McKinsey report.

About 71 per cent of the population, estimated to rise to 280 million by 2030 from 240 million now, will live in urban areas, from 53 percent currently, McKinsey said.

It estimates consumer spending in Indonesia’s urban areas will rise 7.7 per cent a year to become a $1.1 trillion “business opportunity” by 2030. Revenue from agricultural and fisheries industries may rise 6 per cent annually to reach $450 billion, while the energy market may be worth $270 billion in that period, it said.