Jakarta – Mitra Adiperkasa, the retail group that operates Burger King, Zara and a host of other international food and fashion brands in Indonesia, has ridden the wave of middle-class consumption that transformed Southeast Asia’s biggest economy into one of the world’s hottest emerging markets.
But the group is scaling back its expansion plans and capital expenditure next year, for the first time since 2009, as Indonesian companies contend with problems including rising inflation and slowing Chinese growth.
“The main challenge for us is rising costs,” says Fetty Kwartati, head of investor relations at Mitra Adiperkasa, with salary and rental expenses increasing more quickly than sales. The company plans to open 60,000-70,000 square metres of new space next year, down from 90,000 square metres this year. Rising consumer spending has been one of the two pillars of Indonesia’s exuberant growth in recent years, alongside burgeoning natural resource exports.
But the latter has been badly affected by the slowdown in China, a major buyer of Indonesia’s coal, palm oil and rubber. There are signs that the impact of this slump is damaging broader confidence in the economy and restricting growth in domestic consumption, which accounts for more than 60 per cent of gross domestic product.
Indonesia’s annual GDP growth fell to 5.8 per cent in the second quarter, according to government data released on Friday, the slowest pace for nearly three years.
Agus Martowardojo, governor of the central bank, told reporters that the government needed to “promote exports to new markets . . . as growth slows in China and India”.
Like other major natural resources exporters that have profited from China’s historic double-digit growth rates, such as Australia and Brazil, Indonesia is being forced to adapt to a new era, in which Beijing is targeting more sustainable GDP growth of 7-8 per cent. The IMF has estimated that each one percentage point fall in Chinese GDP growth could cut as much as 0.5 percentage points from the Indonesian figure.
“Many people thought that commodity prices had only fallen temporarily but it now looks like lower prices are here to stay,” says Chairul Tanjung, a banking, media and retail tycoon who is also chairman of the Indonesian president’s economic advisory committee. “That will be tough for many of our biggest companies, which are reliant on selling coal, palm oil and other commodities.”
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