As a fellow democracy with the world’s largest Islamic population, with 253 million people spread across an archipelago of 17,000-18,000 islands, and an economy growing 6 per cent a year, Indonesia is the waking giant only 800 kilometres beyond Australia’s northern border.

With burgeoning cities in clear need of greater infrastructure development, the time is right for Australian institutional investors to establish a foothold in this market through vehicles such as superannuation. A growing middle class presents tremendous opportunity for established Australian businesses and ambitious entrepreneurs who want to expand their operations beyond our borders into exciting frontiers.

With a GDP per capita of $US4,271 and a middle class expected to double to 140m by 2020, it is no surprise our key competitors have awoken to the potential of this market which is expected to overtake Australia’s GDP by 2022, on a steady path to becoming the world’s fourth biggest economy by 2040. However some Australian investors appear asleep at the wheel, with sections of our business and investment community seemingly indifferent to the need for an enduring two-way relationship.

Following his election victory on September 7 it is no surprise Tony Abbott made his first overseas trip to Jakarta, where accompanied by a delegation of 20 prominent business leaders he held bilateral talks with Indonesian President Susilo Bambang Yudhoyono. Pushing a message that “Australia is open for business”, the Prime Minister was keen revive momentum toward two-way trade and investment between both nations.

Indonesia is only our 21th largest trading partner (2.4 per cent of our total trade, or $14.6 billion in 2012), despite being our closest neighbour and despite other nations — Japan, China, United Kingdom, United States, Singapore and Korea — all having established stronger economic relationships. Foreign direct investment might as well have been another topic on Mr. Abbott’s  agenda during his discussions with Mr. Yudhoyono, with a recent DFAT report revealing Australian businesses invested only $6.8bn into the rapidly developing Indonesian economy in 2012 (1.33 per cent of our total outward FDI), compared to $55.9bn with the United States in 2011.

Paul Keating made clear that Indonesia is Australia’s most important relationship. John Howard demonstrated our credentials as a neighbour with Australia’s tsunami assistance and aid. While the Abbott government and our political leaders are very aware of the strategic importance of the Australia-Indonesia relationship, the question remains: Why don’t Australian investors see Indonesia in the same strategic way as our political leaders? Where are our super funds and institutional investors? Despite notable exceptions such as banks like ANZ and CBA, why are Australian businesses and investors still reluctant to invest in this waking giant in our midst?

A young country like Australia, Indonesia gained independence from the Netherlands in 1949 following a four-year struggle. Being a neighbour, what happens in Indonesian politics is noticed by Australia’s business leaders and investors. It is an election year in Indonesia and political events in Indonesia have helped shape Australian investment thinking. Attitudes and perceptions have built up over decades and the two neighbours have very different histories.

Perhaps it is time for investors to rethink these perceptions. Australians followed Indonesian independence and watched founding President Sukarno deposed in a 1967 military coup led by General Suharto who ruled over a time of rapid yet uneven economic growth. Popular dissent led to Suharto’s downfall and the birth of Indonesian democracy in May 1998. Stories of corruption and geopolitical crises in West Papua in 1970 and East Timor in 1975 entrenched some negative views towards Indonesia.

That’s a long time ago. Knowing the importance of Indonesia and against the prevailing trends of the time, Paul Keating actively courted Suharto towards the end of his reign, laying the groundwork for APEC and the East Asia Summit, which endure to this day.





253,609,643 (4th)

272,911,000 (5th)

Middle Class Consumers


140,000,000 (2020)


$894,000,000,000 (16th)

$2,568,000,000,000 (10th)

GDP Per Capita (PPP)

USD $4,271

USD $15,500 (2025 Goal)

GDP Growth (Per Annum)

5.78% (2013)

6.3% (2015-19)

Foreign Direct Investment

$6,800,000,000 (2012)

AUS-Indo Bilateral Trade

$14,600,000,000 (2012)

A consumer driven destiny: Why Indonesia’s growing middle class means business for Australian investors

The immense opportunities the rapid economic rise this nation of 253 million presents for Australian business and investors are significant.

Our competitors are already beating us in the FDI game. Firstly, with demographics being destiny, Indonesia has the vast population it requires to sustain a growing economy and build a formidable consumer class. While the capital city Jakarta (population 10.1m) is the centre of economic activity, the nation’s second cities such as Surabaya (population 2.8m) have been growing at an even faster rate — with a McKinsey report predicting an additional 72m Indonesians will be urbanised by 2030. This presents a tremendous opportunity for institutional infrastructure investment, especially for Australia’s $1.5 trillion Superannuation sector.  It presents opportunities to invest in leading companies on the Jakarta Stock Exchange.

Secondly, Indonesia now has in place the framework of democratic institutions and the public policy required for sustained growth to flourish. Flourishing it is, having risen by an average 6 per cent per annum over the past decade, despite the Global Financial Crisis. The world’s sixteenth largest economy today (GDP $894bn), it is expected to leap-frog into tenth place by 2022 (GDP $2,568 trillion) and fourth place by 2040 when its GDP will be 3 to 4 times larger than Australia’s.

Thirdly, and perhaps most promisingly, Indonesia’s rapid economic growth has given rise to a large consumer class whose incomes are rising steadily from an average per capita figure of $US4,000 today. Numbering 74m as of July 2012, and expected to double to 120m by 2020, Indonesia’s consumer class are responsible for a staggering 65 per cent of all GDP growth, compared to Thailand’s 29 per cent and Malaysia’s 6 per cent.

This middle-income population is rising by an average 7m a year.

With an awakening giant on our doorstep, Indonesia our neighbor is also undoubtedly our greatest opportunity. What are we waiting for?

By John Donovan –