Investors confident in Indonesian manufacturing sector

Indonesian policymakers have high hopes for factories, like clothing manufacturers, to emerge as a new export engine. The government has implemented measures this year, including tax breaks, to companies in garment and textile industries that export at least 30% of the country’s production. Automakers, too, received a tax break. Yet, as 2014 elections approach, only few expect further significant measures from the incumbent government; consensus is that there is too much politics and not enough economics.

Finance Minister Chatrib Basri commented at a recent regional summit, “It is very hard for Indonesia to compete for cheap garments with countries like Bangladesh, but we can move to the next stage of development by introducing design and fashion.”

Regardless of all the obstacles faced by manufacturing, investors see scope for growth. Shares of Indonesia’s publicly listed manufacturers rose 19.7% on the Jakarta Stock Exchange from a year ago, outperforming the 2.8% average in the broader index. An analysis of broker recommendations on 29 Indonesian manufacturers shows that half are a “buy” or “strong buy,” one-third a “hold,” and the remainder a “sell,” according to data from Thomson Reuters StarMine.

“Investors still believe that there is much room for mature manufacturing companies to grow in Indonesia, since the consumption per capita is much lower compared to other Asian markets,” said Jemmy Paul Wawointana, Head of Investment at Sucorinvest Asset Management.