The Economics of FMCG Indonesia

It was the expectation of the many of us that the global economy would soon recover from the devastating effects of the COVID-19 pandemic, the lifting of lockdowns and reopening of borders in most part of the world has released a wave of pent-up demand indeed did push up the price of commodities and durable goods around the world. Our dependence on the whims, and vagary on a few Western powers lead by the United States, which are now experiencing some of the worst inflation cause by their earlier easy economic policies, unhampered global adventurism, and bloc-oriented politics have that brought most of the world economies to a more even precious position than before the pandemic.?With inflation stubbornly staying sky high in the US and Northern Europe their central banks are raising interest rates without much concern for the rest of the world who are mostly holders of USD dominated debt.?Thus far, we in emerging Asia is still nowhere near the worst of the last East Asian economic crisis of the 1990s, but countries running current account deficits have historically been more exposed to external shocks and currency volatility when the Federal Reserve tightens monetary policy.

The current account measures the net flow of goods, services, and income into and out of a country. Each category is measured separately, but if their cumulative outflow is more than what is coming in, that country will run a deficit. In ASEAN, most countries prefer to run surpluses, which means they typically seek to maximize exports of goods and services while reducing imports. As the global economy lurches back to life, it’s now possible to assess where several major countries in Southeast Asia stand in terms of these balances.

Our own Indonesia as a long-term commodity exporter, has seen perhaps the?most unprecedented reversal?in its current account during the course of the pandemic. Indonesia’s current account went from some $31 billion deficit in 2019 to $3.3 billion surplus in 2021 powered mainly by global demand for things that Indonesia has in abundance, such as coal and palm oil. Exports of coal increased from $21.7 billion in 2019 to $31.5 billion in 2021, while palm oil exports jumped from $14.7 billion to $26.5 over the same time period. In March 2022 alone, Indonesia?netted $4.5 billion?in surplus exports.

This gives our Indonesian economy some resilience as the Fed starts raising rates this year and by most accounts through to mid-2023, which otherwise might have put pressure on the rupiah had they continued to run large current account deficits as was the norm before the pandemic. It has also probably emboldened the government to be more aggressive in the recent use of export bans intended to stabilize the domestic price of cooking oil and electricity. Without a comfortable surplus in the current account, banning export of any kind would be a tougher sell.

“Recovery prospects in Southeast Asia are encouraging, but not without persistent risks, including heightened uncertainty from the Russian invasion of Ukraine and the evolving conflict, the emergence of coronavirus variants and the scarring effects of the pandemic through large employment and education losses, production disruptions and fragile business confidence, and declining productivity growth,” said ADB Director General for Southeast Asia Ramesh Subramaniam. Supporting home grown industries with the competitive advantage to propel a resilient, and inclusive recovery will not only require sector-specific interventions by governments, but should include measures that reflect a more business-friendly policies and savvier bureaucrats that enable our business environment to would help businesses to navigate around the challenges of the most volatile, uncertain, complex world in this post pandemic era. improved infrastructure, and the supporting human resources capacities and capabilities. ?Indonesia requires efficient and transparent supply chains, the use of technology and improved processes to raise product quality, streamlined regulations, and effective partnerships between businesses and government.

To encourage an economic growth of 5-7% percent in 2023, Indonesia must target to achieve a range of between Rp1.200 – Rp n1500 trillion in investment realization. By most accounts, in order to obtain it, both local and foreign investment realization has to be increased up to 22 – 25 percent. The Ministry of Investment/BKPM seems committed to facilitate investors by promoting Indonesia as a climate-friendly investment destination, provide assistant with licensing services through Online Single Submission-Risk Based Assessment (OSS-RBA), assist the financial closing, deliver end-to-end services, and help investors reach the production stage.

There are challenges ahead. However, with solidarity, vigilance and resilience, Southeast Asia’s largest economy can expect a good year ahead. Geopolitical instability remains the top-cited threat to the global economy, as it was in the March 2022 survey, and inflation has overtaken volatile energy prices to become the second-most-cited concern. Supply chain disruptions round out the top three global risks, followed by volatile energy prices and rising interest rates.

The FMCG market landscape in Indonesia

FMCG products are numerous and easily found in the market, such as food and beverage products, toiletries, soap, shampoo, toothpaste, cosmetics, razors, detergents and medicines. The high demand for FMCG goods makes the FMCG industry market in Indonesia very promising. This is marked by the presence of large companies such as Nestle, Unilever, Orang Tua, Mayora, Sasa, KC Softex and others

As one of the faster-growing FMCG markets in Southeast Asia, the FMCG market in Indonesia has advanced along with the increase in demands and changing lifestyle of its population. Since 2018, Indonesian households have allocated almost 20 percent of their total household expenditure for FMCG products. In the third quarter of 2020 every FMCG segment in the country saw an increase in the average consumer spending per trip, with the food segment having the highest change.?Last month 20 % petrol’s prices increase has no doubt – temporarily- dampened FMCG demand and consumption with purchasing power and consumer confidence across SES took a dip. Precedence, however. shows that within 3-6 month a level of equilibrium will form and consumers enthusiasm will return stronger.

Moreover, considering Indonesian consumers' behaviour towards branded FMCG products during the COVID-19 pandemic, the outlook of the FMCG market in the country will stay robust. Going forward, I am confident, all FMCG segments will continue to record positive changes in the average consumer purchase volume per trip with a higher change in foods and beverages, home care, dairy, and personal care segments. The resilience of the FMCG industry has mostly remained unperturbed throughout the pandemic. Now that the circumstances are evolving, the growth can be more expansive. It's essential for brands to leverage opportunity in accelerating growth throughout 2023.

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