“Back in 2001 when tech weary investors first started noticing the allure of the emerging markets, Goldman Sachs analyst Jim O’Neill coined the acronym “BRIC” to collectively refer to Brazil, Russia, India and China, then considered the top tier of the emerging economies. The BRIC countries became a symbol of the shift in economic power from the G7 countries to the developing world. For much of the first decade of the 21st Century, the BRICs lived up to their billing. They largely led the world in GDP growth and delivered rock solid returns to those wise enough to invest early. See our current analysis of Latin American rail in our latest Global Investor Newsletter
Over the years, with investors continuously seeking the next wave in emerging markets, other clever acronyms came and went, but none caught on quite like the BRIC. In the investment world nothing is static, and at Euro Pacific Capital we feel it’s time for a change. But the BRICs don’t need to be abandoned, just expanded. In particular, it needs another “I” as in Indonesia. In other words, we think the “BRIC” bloc should now be the “BRIIC” bloc. For a variety of reasons, Indonesia has earned the right to be considered as a premiere destination for emerging market investment.
Most investors don’t realize that Indonesia is the 4th most populous country in the world, with more people than Brazil or Russia, two other charter nations in the BRIC club. They also may be unfamiliar with Indonesia’s enormous under developed natural resources, including oil/gas, coal, tin, gold, wood and rubber. Indonesia’s economy is well-balanced, with a large consumption component and limited reliance on exports to the developed world. Impressively, retail sales in Indonesia doubled from 2009 to 2012 (yes, doubled in three years) which we attribute to an improving labor market, favorable demographics, strong growth in wages and high consumer confidence. Meanwhile, developed markets struggle with high unemployment, an aging workforce, stagnant wages, and low consumer confidence. It’s no wonder retail sales in the US and Europe, struggling to grow 1% per year, create a stark contrast to Indonesia.
While Indonesia’s economy is still small relative to the other BRICs (roughly half the size of Brazil and Russia), it does have an economic growth rate that puts it well into the mix. According to the IMF, for the 17 year period between 1990 and 2007, Indonesia grew at an annual rate of 7.54%. While this is less than China (13.3%) and India (7.6%), it is more than Brazil (6.1%) or Russia (4.92%). The country is the largest economy in Southeast Asia and is a member of the G-20 group of the world’s major economies. ”