Airbus deal signals Indonesia’s investment potential

4/13/2012

When British Prime Minister David Cameron arrived in Jakarta Wednesday for a two-day visit to size up Southeast Asia's largest economy ( IDX , quote ) during a trade tour of the region, he announced a £326 million ($522 million) deal to sell 11 Airbus A330 aircraft to Garuda Indonesia, the state-owned national carrier.

As European economies cope with depressed demand at home, Indonesia, with its 232 million people, is looking like an increasingly attractive investment option that could spur growth.

"I hope (the deal) will offer other British companies involved in the £1.5 billion supply chain the opportunity to secure more contracts," Cameron said as he arrived at Halim Perdanakusuma Airport. "I said I wanted to link Britain up to the fastest growing parts of the world, because we need to trade and export our way out of our economic difficulties.

"Indonesia is one of those countries. One of the most populated countries in the world, one of the fastest growing countries in the world. It will be a top 10 economy and these are huge opportunities for British business and British investment, both in Indonesia and Indonesian investment back into Britain," Cameron added.

Indeed, a survey of Southeast Asian businesspeople by the ASEAN Business Advisory Council ranked Indonesia the top investment destination of the 10-member Association of Southeast Asian Nations, ahead of Singapore, Thailand and Malaysia.

The deal comes just four months after Fitch upgraded Indonesia to investment grade status, which it lost during the Asian financial crisis of 1997.

Last month, Nissan chief executive Carlos Ghosn announced during a trip to Jakarta that Nissan ( NSANY , quote ) would revive Datsun as a budget auto brand starting in 2014, with its vehicles sold in Indonesia among other emerging markets including Russia and India.

Cameron and his delegation of representatives of 30 British companies, however, also understand the challenges of investing in Indonesia, a relatively recent democracy that is also home of the world's largest Muslim population.

Among the top concerns is endemic corruption. According to the Indonesian Chamber of Commerce and Industry (Kadin), businesses in Indonesia need to allocate 17.4% of their investments to pay bribes. Last fall, the World Economic Forum Global Competitiveness Report ranked Indonesia 103rd for illegal payments and bribes.

Cameron however, is optimistic about Indonesia's investment potential.

"In its successful transition to democracy, Indonesia represents a powerful example for the world of how political progress can fuel economic success," the prime minister said.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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