Surging Disposable Incomes Make Indonesia a Consumer “Shangri-La”
In a recent article in the Wall Street Journal, V. P. Sharma, CEO of Indonesian retailer Mitra Adiperkasa, called Indonesia a “Shangri-La” for the multitude of retailers who have rushed to meet surging demand for a wide range of new consumer products and services. Indeed, with annual disposable incomes growing by more than 18% (in real terms) between 2008 and 2012, members of the growing and increasingly sophisticated Indonesian middle class have revelled in a consumer wonderland, snapping up nearly every product in sight in showrooms and on store shelves. Standard Chartered Bank’s Fauzi Ichsan recently told the Jakarta Globe “From consumer gadgets to cars to cement, anyone who bets on the rising middle class and domestic spending stands to gain”.
Growth in Consumer Expenditure and Annual Disposable Income in Indonesia 2000-2020
Source: Euromonitor International
Somewhat uniquely, the growth of Indonesia’s middle class and, in turn, the spectacular growth in consumer spending and demand, are not springing solely from the country’s large urban areas like Jakarta. Instead, significant growth is occurring in the country’s second-tier cities outside of Java and on islands such as Sumatera and Borneo where Chinese demand for palm oil, coal and iron has resulted in the creation of numerous jobs and relatively high wages. As a result, these outlying areas are now home to a large bloc of first-time buyers of such products as cars, white goods and other big-ticket items whose increasing sophistication will soon allow them to graduate into fully-fledged Western-style consumers.
It appears that the rise of the Indonesian consumer will not be slowed, at least not in the medium term. Recent forecasts by McKinsey and Co project Indonesia’s middle class will grow by 90 million consumers by 2030. At the same time, projections of levels of disposable income and consumer spending are, to say the least, promising. Between 2013 and 2020, disposable income in Indonesia is expected to increase by a whopping 54% (in real terms) while consumer spending is expected to increase in tandem by 53%.