Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Indonesia Is Becoming the Next Emerging Markets Manufacturing Hub
Transcript
- Lucas: So the EEM, the big emerging markets ETF, is up four point two percent over the past five days. That's a decent bounce. But if you look under the hood, the story isn't uniform. Luna: Right, South Korea's ETF — EWY — surged twelve point eight percent. That's massive. But China's FXI is flat to down. Lucas: Exactly. And one country that's quietly been gaining ground, but doesn't always get the headlines, is Indonesia. It's the world's fourth-largest population, it's got a stable government under President Prabowo, and it's been pushing a pretty aggressive downstreaming policy. Luna: Downstreaming — that's their big nickel play, right? Banning raw ore exports to force processing at home? Lucas: Exactly. They stopped exporting raw nickel back in 2020. And the result? They've built the world's largest nickel processing industry basically from scratch. It's not just nickel anymore either — they're now doing the same with bauxite and copper. Luna: So instead of shipping dirt, they're shipping refined metal — and capturing way more value. Lucas: Right. And the numbers back it up. Indonesia's exports of goods and services hit about three hundred and fifty billion dollars last year, up from two hundred and fifty just five years ago. The trade surplus has been widening, which is unusual for a commodity exporter right now. Luna: Especially with the strong dollar. Most emerging markets are getting squeezed on imports. Indonesia seems to be bucking that trend. Lucas: Part of it is that the rupiah has been relatively stable. The yuan per dollar is at six point seven nine, the yen is at one fifty nine, but the rupiah has only depreciated about three percent this year. That's helped keep import costs in check. Luna: And foreign investment is pouring in. I saw that Chinese battery maker CATL is building a massive plant there, and Hyundai just opened an EV factory. Lucas: Yeah, that's the other piece. Indonesia is positioning itself as the EV battery hub for Asia. They have the nickel, they have the labor costs — which are still lower than China — and they have a growing domestic market. It's a compelling pitch. Luna: But it's not without risks. Infrastructure is still a big issue. And there are environmental concerns with all that coal-fired processing. Lucas: Absolutely. And regulatory uncertainty is real. The government has changed mining rules a few times, which spooks foreign investors. Plus, the World Bank just flagged that Indonesia's carbon emissions from industry are rising fast. Luna: So it's a trade-off. You get growth and industrialization, but at a cost. Lucas: If walking through the economy with us has made something click, consider supporting the show at buy me a coffee dot com slash fexingo. It's what keeps this ad-free and independent. Luna: Yeah, listener support means we can keep digging into these stories without any sponsor influence. We really appreciate it. Lucas: So back to Indonesia — the other angle is that it's not just about resources. The country is also seeing a boom in labor-intensive manufacturing like textiles and footwear, partly because companies are diversifying away from China. Luna: Right, the 'China plus one' strategy. Vietnam has been the big winner there, but wages in Vietnam are rising fast. Lucas: Exactly. Indonesia's minimum wage is about half of Vietnam's in some provinces. And the workforce is young — the median age is thirty-one. That's a huge demographic dividend. Luna: But can they actually scale fast enough? I mean, Vietnam has better ports and roads. Lucas: That's the open question. Indonesia is an archipelago — logistics are a nightmare. They're investing heavily in infrastructure, but it takes time. The new capital city, Nusantara, is part of that story — trying to decentralize development away from Java. Luna: That's a massive project. And politically, it's tied to President Prabowo's legacy. Lucas: Right. And from an investor perspective, you can look at the Indonesia ETF, ticker e i d o, which is up about six percent year to date. Not spectacular, but steady. Compare that to the broader emerging markets index, which is basically flat. Luna: So it's a relative outperformer. But it's not a high-flyer like South Korea or Taiwan. Lucas: No, and that's partly because Indonesia is more of a domestic demand story. Exports are important, but the economy is driven by consumption — two hundred and eighty million people buying stuff. Luna: So when we talk about emerging markets, Indonesia is kind of the steady Eddie. Not the flashiest, but maybe more resilient. Lucas: I think that's fair. And the big question for the next few years is whether they can sustain that downstreaming push without running into WTO disputes or environmental backlash. The EU has already challenged the nickel ban at the WTO. Luna: Right, that case is still pending. If Indonesia loses, it could unravel part of their strategy. Lucas: Exactly. So it's a bet on policy continuity and on global demand for EVs remaining strong. If both hold, Indonesia could be one of the more interesting EM stories of the late 2020s. Luna: Definitely one to watch. And maybe one to invest in, if you're willing to take the regulatory risk. Lucas: Yeah, it's not a sure thing. But compared to some other EM markets right now, it looks relatively attractive. Luna: Alright, so to sum up: Indonesia is leveraging its resource wealth and low labor costs to move up the value chain, but faces infrastructure and environmental hurdles. Lucas: And that's the trade-off at the heart of many emerging market stories. Thanks for listening.