Indonesian market offers rewards

12 Oct, 2012 03:00 AM
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Terry Davis, CCA, says there are plenty of barriers and challenges to overcome when doing business with Indonesia, but the rewards are
Terry Davis, CCA, says there are plenty of barriers and challenges to overcome when doing business with Indonesia, but the rewards are "definitely there".

A RUN of troubled experiences in the live cattle trade to Indonesia have unfairly clouded the outlook for farm export opportunities and business partnerships with our nearest neighbour says food company boss Terry Davis.

"Indonesia is a market that can be far more comprehensively tapped by Australia - particularly our rural industry," said the group managing director of Coca-Cola Amatil (CCA).

By the end of this decade Indonesia's surging economy would worth more than our own, its population of 240 million was already equivalent to that of the US and it's wealthy middle class was about as big as Australia's total population.

"I am very bullish about Indonesia. Next year it's expected to be close to a trillion dollar economy," said Mr Davis.

"By way of comparison, Australia has a $1.4 trillion economy - and sits in 13th place on the World Bank's GDP global scale.

"Indonesia is just three places under us, at 16th place."

"It's one of the fastest growing G20 economies and they are catching up to us."

Contrary to widespread perceptions of Indonesia as a struggling third world nation with little in common with Australia, Mr Davis said 60 per cent of its population was aged under 39 and its 35 million Facebook users were the world's second highest supporters of the social media network.

While Australian exporters and import-affected businesses were being caned by our own high dollar's impact on economic growth, many in Australia had failed to grasp Indonesia's growth potential and the positive changes promoted by its government.

Indonesian GDP growth was into its sixth year at 6pc or stronger.

A decade of conservative fiscal management and lower tax rates had cut government debt from more than 100pc of GDP to 25pc.

"The pace of social, political and economic reform undertaken by President Yudhoyono and his ministers has been encouraging, and in my mind they have a very clear view of where Indonesia can get to," Mr Davis said.

His own company's success in Indonesia highlighted the potential open to food sector investors.

CCA's beverage business in Indonesia posted 19pc earnings growth in the first half of this year and total revenue was set to exceed $1 billion within five years.

CCA, with operations in Australia, Papua New Guinea, New Zealand and Indonesia, is the name behind an array of beverages from Kirks, Sprite and Coca-Cola carbonated drinks to Goulburn Valley fruit juice and milk products.

It also sells coffee, is the Australian distributor of alcohol brands such as Jim Beam and Canadian Club and owns the SPC, IXL and Weight Watchers food labels.

"We've operated in Indonesia for more than 20 years and have more than 8000 employees - with just 15 expats," Mr Davis said.

"In the past five years we've reaped the rewards of our longer-term investment and as a mark of our confidence in Indonesia we'll further increase our investments there by nearly $500m in the next three to four years."

Indonesia was "a good story of growth" offering relatively unlimited potential for Australian business, yet surprisingly, was still untapped.

"I'm surprised by the lack of understanding - and hence investment - by Australian companies in our nearest neighbour which within 10 years is likely to have a bigger economy than our own," Mr Davis said.

He conceded there were significant infrastructure and bureaucracy frustrations associated with doing business in Indonesia, but

it's a rapidly growing wealthy middle class wanted to take advantage of their fast modernising economy and improve their lifestyle.

"I believe Australia's primary producers are in a great position to fill this demand."

"Yes, electricity supply is way below what is needed to support the nation's growth, the road infrastructure is terrible, bureaucracy can be inefficient, low-level corruption is still difficult, and inflation is persistently high.

"However Indonesian experts say if infrastructure investment continues at current rates, Indonesia will maintain its position as one of the fastest-growing G20 economies for quite some time."

Mr Davis said those involved in the cattle exporting trade with Indonesia also had first-hand perspective on the country's problems and the way politics continued to play havoc with the industry.

"There are plenty of barriers and challenges to overcome when doing business with Indonesia, but I believe the rewards are definitely there."

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Qlander, I am very well aware of where Angus is and runs his place and also aware of those