Known as the world’s largest archipelago, Indonesia is made of 17,000 islands—eight major ones—between the Indian and Pacific Oceans with the most volcanoes in the world. Almost half of the country’s population lives in an urban environment. Jakarta, the capital and largest city, is home to more than 9 million people. Literacy in Indonesia is high: 90 percent of the population aged 15 and over can read and write.
Yet this highly literate country lags nearby southeastern Asian countries when it comes to infrastructure, according to a recent report by Morgan Stanley.
- Less than 10 percent of the population has access to the Internet compared to 25 percent of people in nearby countries of Thailand and Vietnam.
- About 40 percent of the roads are unpaved in Indonesia, whereas Singapore and Thailand have nearly 100 percent of the country’s roads paved.
- A third of Indonesia’s population has no electricity, while Malaysia, the Philippines, Thailand and Vietnam all have electrification rates close to 100 percent.
This should improve soon. As I often say, government policy is a precursor to change and recent major policy reforms, along with an attractive cost of capital and access to funding, are now paving the way for Indonesia to commit dollars to their sorely needed roads, railways, airports, electricity and telecom projects.
By Morgan Stanley’s estimation, Indonesia will spend approximately $250 billion over the next five years on infrastructure alone.One third of this amount – $85 billion – is estimated to be spent on electricity, 27 percent will go toward roads, and 21 percent on telecom. This investment in infrastructure should help to push the southeastern Asia country’s GDP growth to more than 7 percent a year by 2015.
Multiple resource companies should be benefactors from this infrastructure spending – 50 percent of all the projects are cement-intensive, to give one example – and that’s why we plan on keeping an eye out for opportunities for the China Region Fund (MUTF:USCOX).
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Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.