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Indonesia consumer market in general


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One country, 18,000 islands and 260m baskets: What will Pak, Ibu, Kakak, Adik spend on, in a US$1.2trn market?

INDONESIA,21 November 2019 -

Indonesia’s household consumption ranks ahead of its regional neighbours, with its total household expenditure amounting to US$0.6trn as of 2018E. This attributes to an estimated 42% of the total household expenditure of ASEAN6. Looking into 2030F, we expect this figure to grow to 44%, with total expenditure doubling to US$1.2trn – representing an immense opportunities for companies.
 
Delving deeper on a country basis, Indonesia’s personal consumption per capital stands  at c.US$2.4k in 2018 (2010 constant), and is projected to reach around US$4k by 2030F,  registering a CAGR of over 4%.
 
Food consumption accounted for 51.4% of Indonesia’s total household consumption  expenditure in 2010. With income growth, that has dropped to 49.5% in 2018. Going forward, we project food to account for a lower c. 46.7% of the total consumption basket in 2030F – similar to trends exhibited by Malaysia and Thailand. Proportion of total household consumption expenditure allocated to food tend to decline as income grows as consumption patterns shift towards non-food baskets, such as Housing and Household Facilities, as well as Goods and Services. In addition, we foresee consumption basket to skew towards more discretionary staples with lesser weightage on basic necessities such as food and clothing. 
 
Rural-to-urban consumer spending ratio is 1-to-1.6x
 
There are differences in spending patterns between rural and urban dwellers. For one, average expenditure is lower for rural dwellers. For every dollar a rural dweller spends, an urban dweller spends about $1.60. In 2010, average monthly expenditure of an urban consumer was about Rp627k, or equivalent to 1.69x average monthly expenditure of a rural consumer. The ratio, however, narrowed to 1-to-1.58x, compared to that in 2010. Secondly, urban consumption baskets are skewed towards non-food items (54% of total expenditure), while 56.3% of total expenditure in rural consumption baskets are spent on food.
 
East Kalimantan, as new capital, to benefit from higher rate of consumption growth
 
East Kalimantan’s consumption growth is projected to be slower than that of Indonesia’s average as its provincial GDP growth is currently dependent on mining and excavation, as well as oil and gas. However, we expect growth to be accelerated – driven mainly by investments and expected internal migration, as Indonesia relocates its capital city to East Kalimantan. Based on our economist’s estimates, this could add between 0.5% to 1.3% to the province’s GDP growth from 2020. We further estimate for East Kalimantan’s total household consumption to be c. 44% higher than our base case, and reach c. US$18bn. This is an increase from our original US$12bn estimate, which was driven by higher incremental GDP and population growth by 2030F.
 
Spending patterns similar, but market sizes are different across provinces
 
While consumption baskets are generally similar, percentage spent within the basket and market sizes are not totally homogenous across the country. Although provinces within Java accounts for, and are projected to be a large part of Indonesia’s consumption, we also expect provinces such as Sulawesi and Sumatra to register robust growth.
 
Analysis of five product categories across 15 provinces
 
In our current study, we analyse the growth and market sizes of five products within the household consumption basket as a proxy to determine growth opportunities across 15 providences. These give products are (i) Cereals; (ii) Packaged F&B; (iii) Animal Protein (seafood, poultry, eggs, milk, etc), (iv) Tobacco & Cigarettes; and, (v) Clothing & Apparel.
 
While we expect Java to continue accounting for the larger proportion of market, we recognize that growth opportunities could also exist in other provinces, such as Sulawesi,  Sumatra, on the back of projected income and population growth.
 
Specifically within the product categories, we are most optimistic on the outlook for Packaged F&B. We project consumption spending to more than double to US$232bn  by 2030F, from US$107bn, at a CAGR of 6.7% from 2018, driven by income growth, urbanisation and substitution effects, from other staple products, such as Cereal.
 
On a per capita basis, Jakarta has the highest spend across the country. That said, we noted other smaller provincial markets (such as North & South Sumatra, South Sulawesi, Lampung) has shown robust growth since 2010, and is projected to continue doing so.

Indonesia - The Largest Consumer Market in Asean
  • >18,000 island, 34 provinces
  • >260mn people
  • 68% in productive age (15-64 years old)
  • GDP: US$1.16tn (2010 constant)
  • GDP/capita: US$4,326 (2010 constant)
  • Household (HH) expenditure/capita: US$2,411 (2010 constant)
 
Indonesia is the largest consumer market in ASEAN; total household expenditure is projected to double to US$1.2 trillion by 2030F
 
Indonesia is the world’s fourth most populous country and home to more than 260m people with a GDP of US$1.16tn (based on 2010 US$ price) in 2018. Since 2008, Indonesia’s GDP per capita grew at a CAGR (2008-2018) of 4.1% to reach US$4,326 (based on 2010 US$ constant), higher than the 3.3% CAGR registered over the previous 10-year period (1998- 2008), in part due to the Asian Financial Crisis in the late 1990s.
 
We project Indonesia’s economy to register a GDP per capita at c.4.5% CAGR (2018- 2030F), reaching c.US$7,310 (in 2010 US$ constant terms) in 2030F. With an estimated population growth of 0.9%, Indonesia’s economy is projected to reach c.US$2.15tn (2010 US$ constant) by 2030F.
 
At present, Indonesia’s household consumption ranks ahead of its neighbours in the region, with its total household expenditure amounting to US$0.6 trn as of 2018E, or an estimated 42% of the total household expenditure of ASEAN61 ’s. By 2030F, we estimate that Indonesia’s total household expenditure could double to US$1.2trn, or c.44% of ASEAN6.

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