As the Indonesian government continues to battle the Covid-19 health crisis, it is also facing another battle front with the economy now most likely to face a recession. Across all industries and sectors, the outlook is gloomy at best with business leaders grappling to find solutions to keep their companies afloat. In the latest round of ever growing list of negative news, Moody’s Investors Service downgraded Indonesia’s banking industry outlook, together with 11 other countries in the Asia Pacific region, from stable to negative over concerns of rising credit costs and declining profitability.
“The coronavirus outbreak has weakened global demand and is increasingly disrupting domestic economic activity,” Moody’s wrote in a report published on April 2, 2020.
To gauge business confidence and possible economic outlook for the rest of the year, the Indonesia Economic Forum conducted a Business Leaders Confidence Index survey by asking 10 business leaders about their views on business activities over the next 3 months (April –June). The survey measured business confidence on a scale of 1 to 100, in which 1 to 25 indicates worry; 26 to 50 indicates concern; 51 to 75 indicates pessimism;76 to 100 indicates optimistic.
The business leaders scored and average of 62, indicating that they were pessimistic about their business over the next three months.
President Director SumberAlfariaTrijaya (Alfamart), Hans Prawira who gave score of 70 said that since a lot of business is slowing down, of coursepurchasing power would be affected. Although the government’s stimulus package has not directly targetedthe retail sector, but retail industry is committed to keeping open stores to ensure that Indonesians can still by staple food items. But in return they also hope the government will secure staple food stock and ease distribution bottlenecks. For instance there should be an exception for logistic trucks that carry staple foods in the current large scale social distancing (PSBB).
“For retailers, the most important thing is the government’s commitment to secure 11 staple food commodities including its logistic supervision. During a pandemic, we often faces challenge in securing staple food stock due to logistic issues. Several weeks ago there was no sugar stock but we sawsellers in the traditional markets selling sugar for 20,000 rupiah per kilogram versus our ceiling (HET) 12,500 rupiah per kilogram. We are even committed to replace food items consumed during the fasting month such as syrup and biscuits as the sale of these items usually increase three fold ahead of the fasting month.
Bayu Utomo, President Director of Taspen Properti who also gavea score 70 sees that economy and business activity will only recover in October, at the earliest, with one condition: the government must be able to handle the spread of COVID-19 well and recover from it. For the property industry, demand from upper and middle class segment started to slow down since 2017 but Covid-19 has sharpened the downturn.
The sector needs some boosters such as lower property tax (PBB), NJOP, and so forth. And currently the global lockdown and rising US dollar has forced contractorsto delay their materials delivery and stop construction activities. Thus, developers should reschedule their projects timeline.
“I think stimulus policies such as the discount rate for corporate income tax to 22 percent will not give significant impact in the near term. Last year, we complete one new project near Soekarno Hatta Airport, Apena Residence and due tothe current situation, our sale performance isn’t quite good and we need to reformulate our marketing strategy. It’s hard to perform well since property is a secondary need, and when the macro-economydoesnot perform well, customers hold back on their purchases. We need to survive because I heard government project our GDP might contract to 0.4 percent,” he said.
No Sector Comes Out Ahead
Even sectors that are projected to be a winning sectors in the near term during this pandemic, such as textiles, pharmaceuticals, F&B, electronics, telecommunications and logistic also showed more pessimistic views on business activity. On Monday, April, 6, Finance Minister Sri Mulyani during an e-meeting with House of Representatives Commission XI said that those sectors can potentially become winning sectors during this pandemic. During the largescale social distancing implementation as well as WFH or SFW, the need forpersonal protection equipment, food, vitamins, entertainment, delivery of goods, data & cellular package will increase.
President Director of Niramas Utama (Inaco) who also Chairman of the Indonesian Food and Beverages Association (GAPMMI), Adhi S Lukma gave a score of 50 in the IEF Business Leader Confident Index. According to him, at the moment there is no single sector that will benefit from the pandemic including F&B. Although there rise in demand in big cities such as Jakarta and Surabaya for certain categories such as cooking oil, seasoning, biscuits, instant noodles and so on, overall demand has decreased, both in traditional and modern markets. Among 410 GAPMMI members, 73 percent are operating in traditional markets and the rest in modern market.
“We held a survey on April2 among our members, where 60 percent of them said their sales dropped by around 30 percent, the others dropped by 15 percent. It’s due to the shutdown of hotels and restaurants regarding PSBB with the shutdown also affecting traditional markets. This time it is different from previous crisis where there some sectors that benefited while others suffered. This time around, all sector are affected, whether it’s deeply affected or lightly affected. But compared to hotels, restaurants and other tourism related businesses, we are still in a better situation,” he said.
President Director TIKI Jalur Nugraha Ekakurir (JNE), Muhammad Feriadi who gave a score 65 said that logistics services didn’t really enjoy any benefit from pandemic situation since it is a supporting business for other sectors. For example for e-commerce, the shifting consumer purchasing behavior due to big scale social distancing from offline to online, logistic services were still needed to deliver physical products.
Benny Soetrisno, Commissioner of Asia Pacific Investamaas well as Chairperson of the Indonesia Textile Association gave a score 50. He didn’t agree with the Finance Minister’s projection of slower GDP growth. According to him, textile producers are being pushed into a corner to continue production activity to prevent layoffs.
“Since the textile or garment industry already faces ‘vacuum’ conditions in the domestic market, given the shutdown of the Tanah Abang market, we are reorienting production to masks and personal protection equipment for medical crew. This is to maintain cashflow, ahead of Ramadhan where companies are obligated to pay THR to employees,” he said.
Chris Kanter, Commissioner at Indosat Ooredoo, who gave a score 70 said that although at the moment telecommunication industry is still in the black, operators are cautious and keeping a close eye on developments given the uncertainty. “There will be massive layoffs and drop in purchasing power which will have an impact on the industry and revenue projections,” he noted.
Michael Wanandi, President Director Combiphar who gave a score 65 said that there is clearly a fall in the purchasing amongst the middle class while the upper class are also holding back on consumption. This combination has lead to a drop in household aggregate consumption.
Herbert Ang, President Director Acer Indonesia, gave a score 70. He believes as the government introduced WFH and SFH, there is increasing demand of computation devices both for student and workers. He believesthe electronic sector can help workers and students stay productive while at home.
“There are several phases that the industry will go through: during pandemic, during recovery and after economy activity is back to normal. We have prepared business scenarios, solutions and optimism based on those phases,” he said.