Indonesian economy accelerates

Southeast Asia's largest economy is projected to record strong performance in 2011 at 6.2%, according to the World Bank (WB). While this is less than the 6.4% estimate released by the government (down from an earlier projection of 8%), nonetheless this is better than those in the region.
 The WB sees inflation this year to hit 6% reflecting droughtrelated increases in food prices. Even while Indonesia is facing domestic-related supply constraints and the impact of natural calamities that damaged harvests and ultimately affected food prices, Asia's largest economy with over 230 million people, is heading towards sustained recovery. Retail sales has been up, and businesses are picking up with factories now recording high capacity utilisation. 

 Exports are on the rebound on the back of growing demand from emerging markets. Exports, which account for nearly 30% of gross domestic product (GDP) amounted to $14.218 billion as of October 2010 with major exports such as gas, plywood, textiles, rubber, tin and mineral products accounting for bulk of the shipments. 

With a total 2010 population of 230 million people, Indonesia's average per capita GDP has breached the $3,000 level, a level that is expected to result in “accelerated development” as has been experienced by developed economies in the past. With such per capita income, a number of industries are predicted to experience stronger demand and these include the automobile industry, durable goods, property, retail, tourism – thus signifying rapid growth and development in the industrial sector. Investments into these industries is also seen to continue its upward trend.

Rubber industry boosts output

Indonesia is the second biggest producer and exporter of rubber in the world, next to Thailand. Production this year is expected to rise by 8% to 3.08 million tonnes from about 2.85 million tonnes in 2010. As global rubber prices hit historical highs due to the heavy rainfall in leading natural rubber producing areas as a result of the La Nina phenomenon visà- vis strong demand from the global tyre industry, the Indonesian rubber industry is certainly seeing better days. About 84% of the 3.08 million tonnes of output is expected to be shipped to international markets, such as the United States, Japan, China, Singapore, South Korea, Germany and Canada. 

Majority of Indonesia's rubber plantations – or about 86% - are smallholder plantations, while 14% are private and state-owned plantations. These plantations are mostly located in Sumatra, Java and Kal imantan. According to Indonesian Rubber Association (Gapkindo) executive director Suharto Honggokusumo, production would be boosted by replanting at a number of revitalised plantations, and tree cloning to sustain production. 

The recovery in the automot ive industry, which consumed about 70% of the world's rubber supply, is pushing demand for rubber. The International Rubber Study Group (IRSG) expects that this year's global demand for rubber would reach 11.15 million tonnes, while a deficit of 180,000 tonnes is being anticipated.

Investment into the rubber industry is also on the rise. For instance, Chandra Asri, Indonesia's largest petrochemical company, is spending $100 million for the construction of the country's first butadiene factory through its subsidiary, Petrokimia Butadiene Indonesia (PBI). The plant will be built on a 40,000 sq.m. of land in Cilegon, Banten, with capacity of 100,000 tonnes annually. Construction of the factory is expected to begin in June with completion targeted in the second quarter of 2013.