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What the #@!!*&# am I Doing Out Here in Indonesia?

Economics / Asian Economies Nov 07, 2009 - 07:46 PM GMT

By: Tony_Sagami

Economics

Best Financial Markets Analysis ArticleBefore I arrived in Jakarta, my pre-trip research unearthed a little known Indonesian construction supply company. Everything looked good on paper — but then a lot of companies look good on paper … such as Enron … so I made arrangements to do some of my unorthodox-but-enriching, boots-on-the-ground research.


Like the Starship Enterprise, I was headed to a place where no man — at least not any Gucci loafer, Armani suit, Wall Street portfolio managers — has gone before.

Indonesia: Filthy Rich in Natural Resources

Jakarta is the largest city on Java, the largest of Indonesia’s 17,000 islands, and straddles the equator.

Jakarta is a virtual melting pot of different cultures: Bataks from Sumatra, Ambonese from Maluku, Balinese, Madurese and Timorese, as well as people from around the world. This mixture of languages and cultures makes Indonesia one of the most diverse cities of the world.

The most influential foreign impact came from the Dutch, who arrived in 1596 taking advantage of Indonesia’s strategic location between the Indian and Pacific oceans and turning Jakarta into an important Southeast Asian trading hub.

The Dutch built a new city, Batavia, which remained the center of power for them in South East Asia for the next 350 years. Indonesia became known to the rest of the world as the Dutch East Indies.

Indonesia’s Annual GDP Growth Rate

2007: 5.5%

2008: 6.3%

2009: 6.1%

Indonesia has a market-based economy in which the government plays a significant role. There are 139 state-owned enterprises, and the government administers prices on several basic goods, including fuel, rice, and electricity.

Its GDP grew by 4% in the second quarter and that makes Indonesia the third fastest growing economy in Asia behind China and India. Most of that growth in Indonesia came from its own domestic consumption, which accounted for about 60% of total GDP.

You probably think of Saudi Arabia, Iran, Kuwait and other oil-rich Middle Eastern countries when you think of OPEC, but many people don’t realize that Indonesia was a member of OPEC, the Organization of Petroleum Exporting Countries.

Well … at least it was until 2008 when it voluntarily withdrew from OPEC. The reason was because Indonesia was growing so rapidly that it needed all the oil it produced and actually became a net petroleum importer in 2004. That little factoid should tell you volumes about the opportunity in Indonesia.

Besides oil, Indonesia has a wide range of mineral deposits and production, including bauxite, silver, tin, copper, nickel, gold, coal, and the minerals used to make cement. Speaking of cement …

Concrete: The World’s Most Widely Used Material

Let me tell you about my day last Thursday.

First, I rode in a taxi that needed a new pair of shocks and an air conditioning recharge five years ago. My 90-minute destination was the Batavia Marina, a seldom-visited, secondary shipping port far on the outskirts of Jakarta.

The fleet moored at the Batavia Marina had seen its better days. Some of the ships listed so badly to one side that I thought they were going to tip over and the entire fleet may have been launched during Grover Cleveland’s administration.

After shaking my hand, my eager guide handed me an axe handle. “Just for safety from wild dogs,” he said as he tapped his against his calloused palm.

“Great,” I thought to myself. My University of Washington professors never told me about snarly, wild Indonesian dogs during my finance classes.

It only took 60 seconds to get drenched in perspiration. The island of Java lies on top of the equator so it was a horribly hot 94 degrees in the shade and somewhere close to 100% humidity. I was sweating my butt off.

So here I am, watching out for wild dogs, enduring the suspicious stares from dock workers, weathered and stooped from years of back-breaking manual labor in the hot equatorial sun.

My target was a large group of aging freighters hired to ship bags of cement mix from Jakarta to Borneo and then on to China and India. The company executive I spoke with on the phone told me that China and India were buying every single bag of cement they could get their hands on so they were hiring extra freelance ships to handle the overflow of business.

Aging freighters at Batavia Marina have been hired to ship cement mix to China and India via Borneo.
Aging freighters at Batavia Marina have been hired to ship cement mix to China and India via Borneo.

I’ve learned over the years, however, not to believe everything I’m told so this was something I wanted to see for myself, and that is how I ended up at the Batavia Marina.

There was an ant-like line of men marching from a flatbed truck over a narrow plank to the ship. One slip and it would be a quick dunk in the harbor, which had a few too many floaties that looked like Baby Ruth candy bars (if you know what I mean).

From 7:00 in the morning until 5:00 at night, these men were hefting 50 kilogram (110 lbs) bags of cement mix for 2 million rupiah a month — a paltry $200 a month in U.S. dollars — and doing so in the blazing heat and humidity of equatorial Indonesia.

My father grew potatoes on our western Washington farm and I’ve done my share of heavy, manual labor in my youth, so when one of the dock workers challenged me with sign language to lift a bag … I idiotically accepted the challenge.

Tony Sagami hauls cement in Indonesia.
Tony Sagami hauls cement in Indonesia.

I gave up after four bags and walked away with even more respect for these hard-working men. It was indeed back-breaking manual labor, but these men were grateful for the work and I found yet another example of the work ethic that can be found all over Asia.

I asked my guide how many other Wall Street types had visited this marina. He belly-laughed and made a big O with his two hands and said “zee-row.” Yeah, I’m pretty sure the closest any of my competitors had come to this cement company was a meeting at the plush and air-conditioned concierge lounge at the Jakarta Ritz Carlton hotel.

On the other hand, I hope my competitors NEVER find the guts to go where I do. These undiscovered gems are the little wealth-building secrets that you’ll never hear anywhere else.

And next Friday, I am going to tell my Asia Stock Alert about the absolute, single-best, #1 stock that I found during my trip to Indonesia. Subscriptions to the newsletter are only $199 a year, probably the best investment value you’ll find. Join me!

Regards,

Tony

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


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