This is the first post in a four-part series on Indonesia's growing middle class.
It's 6:15am on a Sunday morning, and waves of people are breaking over the Sudirman traffic artery in central Jakarta. Hundreds of thousands of cars traverse Sudirman through the week, slowing almost to standstill during peak hours. But every Sunday morning, designated Car Free Day, Sudirman is given over to thousands of cyclists, runners and strollers.
It's a pageant of lycra-clad executives on expensive road bikes, young people on fixies in bright colours, and the occasional swarm of kids from nearby neighbourhoods on creaky old bikes too big for them. Runners wear Skins and smartphones. In an urban culture where being seen on the street used to be a sure and stigmatising marker of poverty, investment banks now sponsor fun rides and social running clubs organise over Twitter ('#marilari', or 'let's run').
Meet Indonesia's growing, aspirational middle class. Indonesia has always been big, but it's Indonesia's growing economy that has caught Australia's attention in recent years. Indonesia is the world's 16th largest economy (Australia is 12th), and the transition of millions of Indonesians out of poverty into a 'consuming class' is a big part of that continuing growth story.
But, some perspective. Much of the hype is about the emergence of a middle class that is actually still very poor. [fold]
Boston Consulting Group estimates that Indonesia is home to 74 million 'middle class and affluent' consumers, with that number set to rise to 141 million by 2030. McKinsey counts 45 million members of a 'consuming class', which it estimates will increase to 135 million by 2020. But both are setting the bar very low. McKinsey, for example, is counting households with earnings of just US$7500 per year at purchasing power parity rates — hardly a fortune.
Market analysts get very excited about this group because they are just beginning to purchase beyond subsistence level. Catherine Eddy, Marketing Director for Nielsen in Indonesia, explains, 'Whereas previously you might have washed your dishes and your clothes with the same soap, now you will buy separate soap products.' But soap alone does not a middle class make.
Indonesians themselves often use the term 'middle class' to describe people who are, by local standards, very rich. Matthew Wai-Poi, a World Bank analyst, estimates that about 82% of Indonesia's population, or approximately 200 million people, live on less than approximately US$4 per day (all figures cited are in US dollars using purchasing power parity, unless otherwise stated). Just under half of those subsist on less than $2 per day, still abjectly poor by any standard.
Just 18% of Indonesians (44 million odd people), living on between about $4 and $20 per day, are starting to acquire some of the trappings we might recognise as middle class. In this bracket, people are starting to be able to air condition their homes (16%); in cities, 25% will own cars. The middle class is an urban phenomenon: 26% of city populations are middle class, compared to 9% in rural areas. Globally, the International Labour Office has estimated the global 'developing middle class' at 1.4 billion people, and finds its members are living more healthy and productive lives than previous generations.
Kasno, a 33 year old 'office boy' and general handyman working in east Jakarta, is illustrative of this group. His parents were poor farmers but Kasno finished high school and moved to Jakarta fifteen years ago. For several years he bought and sold second-hand motorbikes on the side to supplement his income. Five years ago, he gave away the motorbike business and went into house construction and renovation. With the proceeds and a bank loan, he bought a very modest two bedroom house in the satellite city of Bekasi. His commute is an hour each day by motorcycle.
Falling costs and rising incomes mean those middle class trappings are more accessible than ever. Last year, Indonesians took 63 million domestic flights, mostly on low cost airlines. Just about everyone in Indonesia has a mobile phone, and cheap Chinese brands are making smartphones affordable.
A person living on $20 per day is not going to spend four of those dollars on a Frappacino at Starbucks, but the proliferation of instant coffee blends in supermarkets (not to mention the proliferation of supermarkets themselves) indicates the appetite for small luxuries. Catherine Eddy again: 'Indonesians think, "I'm reading all the time that I deserve to be able to try new products, go to the mall, experience this lifestyle. The country is moving ahead, and were all making more money". And that confidence is self-perpetuating'.
In fact, Indonesians are consistently found to be some of the most confident consumers in the world. They believe their families will be better off next year, and that their children will have better lives than their own. Education is a key aspect of this, and the more affluent classes are investing more in education at all levels. Kasno is adding a second floor to his small home. It will include a study for his two boys, the oldest of whom is in primary school. 'My parents told me to do my homework, but they didn't help me with it. We don't want to educate our children in the same way that our parents educated us. For example, we want to provide space to study. We also give them space to play. We have a computer at home.' he says.
According to government sources, just a tiny sliver of Indonesian families — less than half of 1% — enjoy incomes that even start to approach those in Australia. Those fortunate families live (very roughly) on the equivalent of about AU$45,000 per year or more. To put that into perspective, the median household of two adults and two kids in Australia in 2012 had a net disposable income of AU$90,500. Official Indonesian data very likely underestimates this group, probably by a couple of million people at least, in part because the wealthy don't respond to household surveys.
Still, in a huge country like Indonesia even small fractions translate into big numbers in population terms. And suddenly there you are, dodging swarms of lycra-clad cycling enthusiasts on Sudirman on Sunday morning.
Photo by Flickr user Latitudes.nu