Corporate Indonesia gears up for consumer demand revival

By Cindy Silviana and Eveline Danubrata

JAKARTA (Reuters) – Indonesian firms ranging from restaurant chains to snack-makers are stepping up investment and launching new products as improving economic conditions and easier access to credit drive a spurt in consumer demand in the country of 250 million people.

A woman holds a package of food during shopping at a Foodmart Fresh supermarket in Jakarta

A woman holds a package of food during shopping at a Foodmart Fresh supermarket in Jakarta, Indonesia June 8, 2016. REUTERS/Beawiharta

Consumption, which typically makes up more than half of Indonesia’s gross domestic product, is often seen as a key indicator for the health of the overall economy.

A consumer confidence index from the country’s central bank released on Monday posted its highest reading since March 2015.

“There is a revival in the purchasing power of Indonesians,” Prijono Sugiarto, president director of Indonesian conglomerate PT Astra International Tbk, told reporters last week. “Slowly but surely, it’s improving.”

Astra, which derives most of its revenue from auto distribution, posted a 12% fall in net profit for the six months ended June 30 from a year earlier due to weaknesses at its financial services and mining equipment businesses.

The company expects the launch of its new line of cars and motorcycles to support its performance in the second half of this year, Sugiarto said.

Helping support consumer activity are signs economic growth is gaining momentum and a relaxation in the central bank’s rules for property loans, which take effect this month.

Data last week showed Southeast Asia’s largest economy grew a stronger-than-expected 5.18% in the second quarter, its fastest pace in 2-1/2 years. This marks a pickup from 2015, when the economy posted its weakest growth in six years as consumers reined in spending.

Companies are now starting to turn bullish on the outlook for this year: A survey of 25 “relatively large” Indonesian companies published by Nomura last week shows that 89.5% of respondents expect more favourable business conditions in the next 12 months.

“There seems to be widespread recognition that the government’s reform efforts are on the right track,” Nomura said.

PT Mayora Indah Tbk, one of Indonesia’s biggest confectionary makers, has raised its revenue target by 20% to 17.5 trillion rupiah ($1.3 billion) for 2016, company commissioner Hermawan Lesmana told Reuters.

The company, which is known for its Kopiko candies and Beng Beng wafers, is benefiting from lower raw material costs as imports have become cheaper due to the stabilisation of the Indonesian currency, Lesmana said.

So far this year, the rupiah has strengthened nearly 5% against the dollar as investors turned more confident about key government programs such as infrastructure building and a tax amnesty scheme.

Indonesia’s PT Indofood CBP Sukses Makmur Tbk (ICBP), the consumer brands unit of PT Indofood Sukses Makmur Tbk, is running out of milk production capacity due to “tremendous sales growth in the first half”, said Indofood Sukses corporate secretary Werianty Setiawan.

The company plans to add manufacturing lines and roll out new brands for potato chips and instant noodles.

(Reporting by Cindy Silviana and Eveline Danubrata; Additional reporting by Fransiska Nangoy; Editing by Sam Holmes)



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