JAKARTA Feb 25 Indonesian consumers are
increasingly opening their wallets, sustaining the country's
solid economic growth, but some retailers worry the government
may dash the good fortune by imposing restrictions on them.
Last year, Indonesia's mining boom was ended, partly because
the government set new foreign-ownership rules, taxes and extra
layers of red tape for the industry. The changes, intended to
boost domestic investment in mineral refining, hurt small miners
Now, Indonesian policymakers are eyeing the lightly
regulated, burgeoning consumer and retail sectors - the mainstay
of Southeast Asia's largest economy - as they seek to lift tax
revenue as well as build up local investment and manufacturing.
The government has made rules that limit the number of
outlets that foreign franchised brands such as Starbucks
can control, and it has added red tape to imports of
handphones made overseas by the likes of Samsung Electronics
. Authorities want retailers to sell more local
The moves appear to be the latest salvo to promote
nationalistic policies ahead of elections in 2014. Earlier steps
have worsened terms for foreign resource firms and cut, to 40
percent from 99 percent, the maximum stake a foreign bank can
buy in an Indonesian one.
Restrictions on imported consumer goods may limit
opportunities for foreign investors in a promising sector and
raise prices for consumers.
"When the ideology and the drive to raise revenues come
together, it's a dangerous combination for the consumer," said
Douglas Ramage, Indonesia managing director for business
consultancy Bower Group Asia, which has consumer firms as
clients. "They are targeting the consumer sector, which is also
the fastest growing."
There has been some pushback. The United States has filed a
complaint at the World Trade Organisation, challenging Jakarta's
rules on plant and animal imports, while the OECD has called for
reform of its food import policy.
STILL A MAGNET
At this stage, Indonesia remains a magnet for foreign
retailers, thanks to its buoyant growth and expanding middle
class. Uniqlo, the clothing chain owned by Japan's Fast
Retailing Co Ltd, is opening in Jakarta by mid-year and
other retailers want in.
Their desire is understandable. Consultant McKinsey & Co has
said that if infrastructure and other obstacles to expansion are
overcome, consumer spending in the world's fourth most-populous
nation could rise about 8 percent a year to $1.1 trillion by
But the government wants to cap how widely retailers can
expand without giving ownership of some outlets to smaller local
"Retail, wholesale is an area where we would like to see
more involvement and empowerment of small and medium
enterprises," Trade Minister Gita Wirjawan said this month about
rules that will cap the number of branches a company with a
foreign restaurant franchise can own to 250 within five years.
Among those to be affected is PT Fast Food International
, an Indonesian company with more than 400 KFC outlets.
While not affecting sales, "the rule will slow down our
expansion," said Justinus Dalimin Juwono, a director, noting
that many outlets "will have to be sold to a partner or
Juwono said that if his company can't find a partner, it
will ask the Trade Ministry for a waiver.
Wirjawan doesn't see an adverse impact on foreign
investment from the cap, saying, "I think it gives more clarity
on where we're going."
A LID ON UPSIZING
The government has already gone the same way on convenience
store franchises, giving them until October 2017 to trim the
number of outlets they directly run to 150, with others needing
This will be a challenge for Indonesia's two big chains.
Indomaret, controlled by the wealthy Salim family, has more than
5,000 outlets, while Alfamart, owned by PT Sumber Alfaria
Trijaya, has more than 4,100 directly owned outlets
and about 1,700 franchises.
Ceilings on outlet numbers are a concern for retailer Mitra
Adiperkasa, trying to spread its franchised Starbucks,
Burger King and Zara brands across the country.
Starbucks, with 141 Indonesia outlets, accounts for 12
percent of Mitra Adiperkasa's profit, according to Deutsche Bank
research. The world's largest coffee chain does not allow
sub-franchising, which could later crimp Mitra Adiperkasa's
growth, though the company thinks its brand mix can still ensure
20 percent annual sales gains.
Fetty Kwartati, a company executive, said that after the
government revised mining policies, "this year there's a lot of
sexy stories on the consumer sector as a driver of the economy,
so that may be why they are touching the sector."
"They have a grand policy - later on local players must be
very competitive," she said. "They want to protect the local
partner and knowledge transfer."
Surging imports helped produce Indonesia's first annual
trade deficit in 2012, and the trade ministry is trying to
contain some imports.
IMPORTS NOT FAVOURED
It has ruled that franchised stores and restaurants need to
carry 80 percent "local content" - a team will supervise
compliance - and is considering extending the policy to all
retailers. That would help the economy's trade imbalance but
could be a problem for brands manufacturing overseas, unless
they can get exemptions.
The ministry has also revised rules on imports of handphones
and computers, from mid-March, for a country that is a major
market for BlackBerry, adding red tape and restricting
such imports to certain ports and airports. It hopes firms such
as Apple Inc supplier Hon Hai Precision Industry Co Ltd
will start making smartphones domestically.
"The cellular phone industry is yet to be developed in
Indonesia," ministry spokeswoman Arlinda Imbangjaya said, adding
that it expects industrialisation "will grow rapidly and in the
end drive and create a healthy business climate."
Alexander Rusli, CEO of Indosat, Indonesia's
second biggest telecoms provider, said local handset
manufacturing should have been in place before the import
regulations were revised. If the policy sequence isn't right,
"the black market will rise," he said.
As well as driving local content, the government is also
eyeing greater state revenue from the consumer sector. It has
hiked excise tax on cigarettes - one in three Indonesians smoke
- and is now considering a tax on soft drinks. Some lawmakers
want to ban or further restrict sales of alcohol, which is
already highly taxed.
If more products can be taxed, "that will be a bonus," said
Bambang Brodjonegoro, head of the finance ministry's think-tank.
(Additional reporting by Yayat Supriatna, Andjarsari
Paramaditha and Rieka Rahadiana; Editing by Richard Borsuk)