Miracle economic growth: The rise of the Indonesian middle class
Cyrillus Harinowo , Jakarta | Tue, 09/16/2008 10:23 AM
The Grand Indonesia Shopping Town is likely to be the latest addition to the string of Indonesian shopping malls. But this is not just an ordinary addition. The Grand Indonesia is currently the largest and most luxurious shopping mall in the country, if not in Southeast Asia.
The complex, which includes the BCA Tower, named after Indonesia's second largest bank, Kempinsky Hotel and high rise Kempinsky Residence occupies a total space of 650,000 square meters.
The mall itself boasts a leasable space of 250,000 square meters. By comparison, Mall of America, the largest shopping mall in the United States located in Minneapolis, occupies a gross space of 405,000 square meters and leasable space of 225,000 square meters.
Shortly before that, another luxurious shopping mall also opened. Pacific Place Mall sits strategically across from the Jakarta Stock Exchange and has also become another shopping destination as well as a place to stop for coffee or meet friends. Not very long ago, two luxurious shopping malls, Senayan City and Pondok Indah Mall II, were also added to the list of high-end malls.
This phenomenon takes place alongside the sharp increase in domestic automotive sales. By the first semester 2008, domestic car sales increased by about half to almost 300,000.
Motorcycle sales also jumped by 44 percents. In fact, Indonesia in the month of June and July already ranked number one in ASEAN for monthly domestic car sales, overtaking Thailand and Malaysia.
This news contrasts sharply with the media's continual barrage that Indonesia is still economically depressed due to crises, slow growth and other negative sentiments. What phenomenon can explain that?
We can see a phenomenon of a very dynamic growth. The Central Bureau of Statistics recently issued the second quarter's macro indicators which showed a real economic growth of 6.4 percent.
This is a slight increase from the previous quarter, in fact also the previous year, which posted a growth rate of 6.3 percent.
However, people seem to overlook that beside the number, there was also a sharp increase in the nominal GDP (GDP at the current value). The first quarter's nominal GDP growth reached 22.5 percent while the second quarter of 2008 reached a growth rate of 27.8 percent.
This performance was significantly higher than the previous years; in 2005 the nominal growth was 22.5 percent, 19.8 percent in 2006 and 18.5 percent in 2007.
In the first semester of 2008, Indonesia posted a nominal GDP of Rp. 2,357 trillion. This performance seems to ensure the achievement of around Rp. 4,800 trillion GDP for the whole of 2008.
At the current U.S. dollar rate to Rupiah (assumed to be Rp. 9,200 for each U.S. dollar), the Current U.S. dollar GDP translates to around US$520 billion for the whole year, compared to around $432 billion in 2007.
Therefore, this number will exceed the prediction of the Economist Magazine which forecasted Indonesian GDP would be around $460 billion for the whole of 2008.
The dynamic growth is a result of two active drivers of growth, which is a population-based economy and a resource-based economy. The first driver pushed forward the Javanese economy, while the second has mostly taken place outside of Java. Food crop agriculture, retail sector, manufacturing, transportation and telecommunication, hotels and restaurants as well as other services contribute largely to the population-based economy, while estate crop agriculture and mining represents the resource-based economy.
The fast growth of the economy in the past few years has driven the income of all segments of the population. The average income per capita rose to $1,946 in 2007 from less than $1,000 five years ago. This year, the income per capita may rise to around $2,300 -- $2,400.
How do we define the Indonesian middle class? A.C.Nielsen, the authority in the market survey industry, defines the middle class as that which belongs to groups A and B of their consumer segment. The A class consumers spend more than Rp. 3.45 million every month. That translates to around Rp. 41 million or around $4,450. The B class spends less than Rp. 3 million every month. To be conservative, I would only classify the A class as the appropriate Indonesian middle class. With this definition, how many people fall under the category of middle class?
In 2008, with the average income per capita between $2,300 and $2,400, the top 10 percent of the population, which is 22.5 million in all, will earn around $7,000 per capita. These people certainly fall under the category of middle class.
The second 10 percent will receive an income of around $3,500. For this second group, the average income is less than $4,450 as required by the definition of a middle class.
However, the distribution of income within this group will ensure that at least half of the population in this group will receive an income which falls under the middle class category. Thus, the whole population of the middle class will amount to around 35 million people. That number is significantly larger than the whole population of Malaysia.
What are the prospects for going forward? In 2010, just two years away, Indonesian average income per capita is predicted to reach over $3,000. If this prediction is correct, there will be more than 45 million people who can be called middle class. This is certainly a significant addition to the current legions of the middle class.
If we currently see the success penetration of Starbucks, Coffee Bean, Pizza Hut and McDonald's, we can predict that businesses which cater to the high-end earners will be populated even more in the coming years.
From a quiet place two or three years ago, now Starbucks counter in Puri Indah Mall is always packed especially on the week ends. This phenomenon will continue over time with the continued increase in the number of middle class people.
For those business people with a sharp nose, they struck gold in this market. Aside from the foreign "branded" chain restaurants, we can also witness the rise of local branded ones which include Solaria, Tamani Kafe, Satay House Senayan, Gado-gado Boplo, Bengawan Solo Cafi and others. We can also see the rise of fitness clubs, cosmetic medicine (RH Clinics, for examples), Jakarta Eye Centers and many others. The list will be endless.
The Indonesian middle class is really rising. And it will rise faster.
__________________
Cyrillus Harinowo , Jakarta | Tue, 09/16/2008 10:23 AM
The Grand Indonesia Shopping Town is likely to be the latest addition to the string of Indonesian shopping malls. But this is not just an ordinary addition. The Grand Indonesia is currently the largest and most luxurious shopping mall in the country, if not in Southeast Asia.
The complex, which includes the BCA Tower, named after Indonesia's second largest bank, Kempinsky Hotel and high rise Kempinsky Residence occupies a total space of 650,000 square meters.
The mall itself boasts a leasable space of 250,000 square meters. By comparison, Mall of America, the largest shopping mall in the United States located in Minneapolis, occupies a gross space of 405,000 square meters and leasable space of 225,000 square meters.
Shortly before that, another luxurious shopping mall also opened. Pacific Place Mall sits strategically across from the Jakarta Stock Exchange and has also become another shopping destination as well as a place to stop for coffee or meet friends. Not very long ago, two luxurious shopping malls, Senayan City and Pondok Indah Mall II, were also added to the list of high-end malls.
This phenomenon takes place alongside the sharp increase in domestic automotive sales. By the first semester 2008, domestic car sales increased by about half to almost 300,000.
Motorcycle sales also jumped by 44 percents. In fact, Indonesia in the month of June and July already ranked number one in ASEAN for monthly domestic car sales, overtaking Thailand and Malaysia.
This news contrasts sharply with the media's continual barrage that Indonesia is still economically depressed due to crises, slow growth and other negative sentiments. What phenomenon can explain that?
We can see a phenomenon of a very dynamic growth. The Central Bureau of Statistics recently issued the second quarter's macro indicators which showed a real economic growth of 6.4 percent.
This is a slight increase from the previous quarter, in fact also the previous year, which posted a growth rate of 6.3 percent.
However, people seem to overlook that beside the number, there was also a sharp increase in the nominal GDP (GDP at the current value). The first quarter's nominal GDP growth reached 22.5 percent while the second quarter of 2008 reached a growth rate of 27.8 percent.
This performance was significantly higher than the previous years; in 2005 the nominal growth was 22.5 percent, 19.8 percent in 2006 and 18.5 percent in 2007.
In the first semester of 2008, Indonesia posted a nominal GDP of Rp. 2,357 trillion. This performance seems to ensure the achievement of around Rp. 4,800 trillion GDP for the whole of 2008.
At the current U.S. dollar rate to Rupiah (assumed to be Rp. 9,200 for each U.S. dollar), the Current U.S. dollar GDP translates to around US$520 billion for the whole year, compared to around $432 billion in 2007.
Therefore, this number will exceed the prediction of the Economist Magazine which forecasted Indonesian GDP would be around $460 billion for the whole of 2008.
The dynamic growth is a result of two active drivers of growth, which is a population-based economy and a resource-based economy. The first driver pushed forward the Javanese economy, while the second has mostly taken place outside of Java. Food crop agriculture, retail sector, manufacturing, transportation and telecommunication, hotels and restaurants as well as other services contribute largely to the population-based economy, while estate crop agriculture and mining represents the resource-based economy.
The fast growth of the economy in the past few years has driven the income of all segments of the population. The average income per capita rose to $1,946 in 2007 from less than $1,000 five years ago. This year, the income per capita may rise to around $2,300 -- $2,400.
How do we define the Indonesian middle class? A.C.Nielsen, the authority in the market survey industry, defines the middle class as that which belongs to groups A and B of their consumer segment. The A class consumers spend more than Rp. 3.45 million every month. That translates to around Rp. 41 million or around $4,450. The B class spends less than Rp. 3 million every month. To be conservative, I would only classify the A class as the appropriate Indonesian middle class. With this definition, how many people fall under the category of middle class?
In 2008, with the average income per capita between $2,300 and $2,400, the top 10 percent of the population, which is 22.5 million in all, will earn around $7,000 per capita. These people certainly fall under the category of middle class.
The second 10 percent will receive an income of around $3,500. For this second group, the average income is less than $4,450 as required by the definition of a middle class.
However, the distribution of income within this group will ensure that at least half of the population in this group will receive an income which falls under the middle class category. Thus, the whole population of the middle class will amount to around 35 million people. That number is significantly larger than the whole population of Malaysia.
What are the prospects for going forward? In 2010, just two years away, Indonesian average income per capita is predicted to reach over $3,000. If this prediction is correct, there will be more than 45 million people who can be called middle class. This is certainly a significant addition to the current legions of the middle class.
If we currently see the success penetration of Starbucks, Coffee Bean, Pizza Hut and McDonald's, we can predict that businesses which cater to the high-end earners will be populated even more in the coming years.
From a quiet place two or three years ago, now Starbucks counter in Puri Indah Mall is always packed especially on the week ends. This phenomenon will continue over time with the continued increase in the number of middle class people.
For those business people with a sharp nose, they struck gold in this market. Aside from the foreign "branded" chain restaurants, we can also witness the rise of local branded ones which include Solaria, Tamani Kafe, Satay House Senayan, Gado-gado Boplo, Bengawan Solo Cafi and others. We can also see the rise of fitness clubs, cosmetic medicine (RH Clinics, for examples), Jakarta Eye Centers and many others. The list will be endless.
The Indonesian middle class is really rising. And it will rise faster.
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