Update: 15 Mar 2013

Inclusive Business in Indonesia

As part of its Inclusive Business Initiative, the Asian Development Bank (ADB) has conducted in 2011 and 2012 - market scoping studies on Inclusive Business (IB) in 10 Asian countries. The Indonesia study was done in cooperation with the Netherlands development organization SNCV, and the Indonesian Business Council for Sustainable Development. The Ford Foundation provided funding for additional surveys of companies in Eastern Indonesia and in Bali.

Background
Indonesia has achieved high and sustainable economic growth rates in recent years. It has a vibrant private sector that produces a variety of goods and services with the involvement of poor people. Although the number of people living in extreme poverty is low, an estimated 7% of the population (based on national statistics), the percentage of people with low income below $3 a day per person and hence vulnerable to poverty and external shocks remains high at 78%. However, these people at the base of the (income) pyramid (BoP) have a huge purchasing power which has not been explored by the private sector. IB are for-profit enterprises that directly engage in innovative ways BoP populations in their value chain as consumers, suppliers, distributors or employees in order to achieve as part of their core business - systemic impact on poverty reduction and social inclusiveness.

The Indonesia study

Indonesia experienced in the last decade high and sustainable economic growth. In the mid of the global financial crisis in 2010 Indonesia was the fastest growing economy among the G20 nations. This GDP growth is expected to continue up to 2012 at 6.6% per year, as per recent OECD estimates. The good economic performance is mainly fueled by strong internal consumer demand from a rising lower middle class, while the export sector accounts for only 28% of the GDP despite of immense natural resources. The country was also very successful in reducing income poverty from 24% in 1998 to 12% in 2012; nevertheless still 48% of the population about 114 million women and men, are under the $2 vulnerability line, and 71% of the rural and 64% of the urban population formed in 2011 the BoP with a per-capita income of less than $3 a day. This huge BoP market can be served by a vibrant small-scale industry and some large scale companies effectively targeting the BoP, and their investments are supported by an increasingly efficient macro-economic environment and improving BoP context. The Indonesia IB study assessed about 60 companies and 30 financing institutions in Indonesia that are interested in inclusive production and supply. The study of IB companies and fund managers found that IB are mainly concentrated in the agriculture, light manufacturing, retail, renewable energy. Some further investment opportunities are also in the tourism and IT sectors. Companies typically look for medium-term debt investments in the range of $3-$15 million, and equity cum debt arrangements in the range of $1-$10 million. There is a strong interest of IB investors from both funds, as well as banks, and

other capital market institutions to target such IB companies as they promise high and relatively safe rate of returns of 15-30%. It was suggested to include Indonesia in the proposed Mekong Plus IB Fund and allocate initially $30-$35 million for investments (about 10 deals initially) in Indonesia.

Inclusive Business Forum

The preliminary results of the study were discussed in the Indonesia Inclusive Business Forum, held on 16 October 2012 in Jakarta. More than 70 experts attended the meeting. The Forum agenda, background papers and presentations can be accessed through Related Links (see box) Selected Indonesian companies also participated in the Asia Inclusive Business Forum in November 2012.

IB Investments
ADB is exploring investments in inclusive business companies in Indonesia. Some possible investment opportunities have been assessed in the above mentioned Indonesia IB study.

Related links
Indonesia IB Forum (http://www.scribd.com/doc/130495049/IB-InO-Forum-Background-Agendaand-Presentations) Market Scoping Study for Indonesia: (http://www.scribd.com/doc/125609412/IB-ADB-6thPreliminary-240912-1?secret_password=11b74yel1cc81cmw90pw ) Capital Market Study for Indonesia: (http://www.scribd.com/doc/130513930/Indonesia-andPhilippines-Due-Diligence-Report-January-2013) IB assessments in 10 Asian countries: (http://www.adb.org/themes/poverty/inclusive-businessbase-pyramid/country-work) IB country investment fora (http://www.adb.org/news/events/inclusive-business-forumindonesia ) Asian Inclusive Business Forum (Nov 2012) (http://www.adb.org/news/events/investinginclusive-business-asia-adb-regional-forum)