Tuesday, March 2, 2010

Indonesia's Kit Kat economy

If you want to understand what's wrong with the Indonesian economy - and why it's now perhaps moving in the right direction -  you need look no further than the tortuous journey that brings the humble Kit Kat to this country.

So says Gita Wirjawan, the smooth-talking former banker who heads up Indonesia's Investment Coordinating Board (BKPM).

Indonesia exported about $1.8bn worth of cocoa last year but most of this was in the form of dried, unfermented beans, that were processed abroad and then re-exported back to Indonesia in the shape of chocolate and other finished goods.

So Indonesian farmers make some money from growing the beans but the bulk of the profits are generated by the processors and chocolate manufacturers overseas.

But, an optimistic Gita told a gathering of the Jakarta Foreign Correspondents' Club earlier today, "the days of coca being taken from Indonesia and us buying Kit Kats from Switzerland should be finished".

The government has already announced plans to help develop a local chocolate industry and Gita believes Indonesia needs much more of this "value-added" manufacturing if it is to keep growing at more than a relatively unexciting 6 percent per annum.

The US-educated official was a convincing prophet of change, although you have to wonder how many members of the government, particularly the non-technocrats, share his enthusiasm for further liberalisation of what remains a very restrictive market.

Gita, who is a former head of JP Morgan Indonesia, did look slightly out of a place in a black safari suit that was more Bandung Conference 1955 than 21st century Indonesia.

But, ever silver-tongued, he had an adequate explanation: "I've started to wear really cheap clothes because I took a massive pay cut when I joined the government."

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