Indonesia has retained its top ten ranking in A.T. Kearney’s 2017 Global Retail Development Index (GRDI), released today. Indonesia was ranked 8th in this year’s Index, highlighting the country’s resilient retail sector amidst fierce competition from other emerging economies.

The GRDI, now in its 16th edition, ranks the top 30 developing countries for retail investment worldwide. The Index analyses 25 macroeconomic and retail-specific variables. The study is unique in that it not only identifies the markets that are most attractive today, but also those that offer future potential.

Indonesia, Southeast Asia’s most populous country, has long been an elusive target for foreign retailers. However, President Joko Widodo has announced major reforms that allow foreign investors to own majority stakes in department stores and permit full ownership of e-commerce firms.

International firms including LC Waikiki from Turkey, Central Group from Thailand, Lotte Group from South Korea and Aeon from Japan have all shown an interest in entering the Indonesian market, or expand their presence further.

“Lack of proper infrastructure has long been a concern for foreign investors eyeing the Indonesian market. However, the country has been investing in infrastructure, particularly sea and land transport options to spur growth and offer access to less populated areas of the country. The continued commitment on this front, coupled with the other factors such as a large population base, growing middle class and rising internet and smartphone penetration will see the retail industry continue to grow steadily in the coming years,” said Soon Ghee Chua, Partner and Head of Southeast Asia at A.T. Kearney.

Global e-commerce companies are also gearing up to enter the market that has been traditionally dominated by domestic players. Alibaba’s US$1 billion acquisition of Lazada has signaled the Chinese e-commerce giant’s intentions to strengthen its presence in the country. Meanwhile, eBay has also opened its first office in the country.

“While the future looks strong for the retail sector in Indonesia, foreign investors should be wary of the potential economic headwinds. Inflation is expected to rise this year, which could potentially hurt discretionary spending. At the same time, current account and fiscal deficits make the Indonesia Rupiah vulnerable to negative shocks in the global capital markets, which may weaken purchasing power,” Soon Ghee added.

Asia Pacific is the most dynamic region in the Index accounting for five of the top ten countries in the Index. India leads the way with a rapidly expanding economy and a consumption boom. China, long the Index leader, drops to second place as the market matures, but the country still leads the pack in other areas, most notably e-commerce. Elsewhere in the region, there has been steady growth in modern retail, despite economic headwinds like Malaysia’s depreciating currency and Indonesia’s rising inflation.

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