Progression Towards a Middle Income then a High Income Society

This time I want to talk about Southeast Asian countries and in particular, Indonesia.

It was not that long ago, only about 2 decades ago that the region was only recovering from the Asian Financial Crisis which wreaked havoc to many lives, livelihood of the people.

The GDP per capita was very low, back to around USD 1,000 or even lower at that time.

Most of the wealth and economic activities were too concentrated in the major cities.

People from rural areas were simply very poor. Many sought better lives by going to big cities like the capital Jakarta or the second largest city, Surabaya.

Over the decades and especially over the past few years, I witness first hand the creation of new wealth in regional areas especially during the previous cycle of the mining boom, which also translated all the way to the property boom in the major cities.

There is more to come, I believe.

The government re-positioned the country differently from before.

It used to be that the regional areas were poor because they simply exported raw materials with no or little value adding.

Now they are forcing the creation of local manufacturing activities via several export bans such as nickel, which may broaden to other commodities.

What implications can this have?

The facilities outside Indonesia which relied on Indonesian resources could be starved of those raw materials. They might have other sources. But then, other countries might gradually follow suit too.

For countries like Indonesia, the forced creation of manufacturing facilities means that jobs, economic activities become available locally in the regional areas.

There becomes less need for workers to have to go to major cities to find better paying jobs.

Export values go up because they no longer only export raw materials but export processed products. They do not only increase in value. They multiply.

Income levels go up too.

The GDP per capita now is around USD 4,500.

With the new export bans, local manufacturing being forced to be done locally, this may help lift up GDP per capita to above USD 10,000 as the next major milestone.

Regional asset values may rise over time as the locally circulating money pushes it up.

And so do real estate values in the major cities as the new wealthy people from regional areas also seek to own good assets in major cities.

Some of the more seriously wealthy ones, for example mining and processing plant bosses may even seek to diversify their wealth overseas.

In a way it can be a new explosion of wealth creation which can flow internationally which those who can foresee can do something about as well.

I observe that the mainland Chinese businesses understand this.

They have seen what China asset prices are like now in their major cities such as Beijing, Shanghai, Guangzhou.

Similar trajectory may be seen in Jakarta, Ho Chi Minh over the coming decades. Hence they have positioned themselves very strategically in these cities with their large investments, projects.

What do you think?

If you seek investment opportunities to work together in the region, do feel free to reach out to me.

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