JAKARTA (Reuters) - Fitria Yusuf is a bag lady, but you won’t find her sleeping rough in Jakarta.
Her bag of choice is Hermes, a French brand so coveted in the Indonesian capital it can cost as much as a luxury car. Yusuf owns five of them, having cut down from the early days of her infatuation with the products.
“Back in 2006, seeing a Hermes bag was like seeing Halley’s comet,” said Yusuf, the 29-year-old co-author of “Hermes Temptation,” which chronicles how the bag made by French luxury group Hermes International SCA has become “a must-have item” for Jakarta’s burgeoning high society.
The Hermes obsession is one sign of how Indonesia’s economic revival is set to produce the fastest-growing ranks of millionaires in Asia as the country enjoys a sweet spot of political stability, strong demand for its plentiful commodities and renewed investor interest.
That is also adding to economic tensions in a country with a history of social upheaval and where tens of millions still live a hand-to-mouth existence despite hefty recent falls in poverty and a rising middle class.
With presidential elections looming in 2014, workers have held a series of strikes in recent months, driven by high commodities prices and a growing sense that the fruits of the economic boom have not been widely shared.
As Southeast Asia’s largest economy leaves its basket-case reputation behind with annual growth of about 6 percent and basks in its newly won investment grade credit status, it is minting dollar millionaires at a rate of 16 a day, consulting firm Capgemini says.
The number of millionaires will triple to 99,000 by 2015, according to wealth management firm Julius Baer, the quickest pace of any Asian country.
That is making Indonesia — a country with ambitions to join Brazil, Russia, India and China in the BRIC group of big emerging economies — a must-have market for luxury firms such as Hermes and for a rapidly growing wealth management industry.
“The middle class is gaining wealth and becoming extremely rich. I would say that’s the growth market now, a million dollars (in assets) and up,” said Jan Richards, managing director and market manager for Southeast Asia at J.P. Morgan Private Bank, which manages more than $700 billion globally.
The profile of Indonesia’s new rich has been heavily shaped by the surge in demand from China and India for the country’s commodities. The world price for a tonne of palm oil, of which Indonesia is the largest producer, has more than doubled since 2006, for example. Gold, of which Indonesia is a major producer, has tripled in the same period.
Eight of the 10 wealthiest Indonesians in Forbes’ annual rich list have substantial holdings in the commodities sector, including palm-oil magnate Eka Tjipta Widjaja and coal billionaire Low Tuck Kwong.
DBS Private Bank said its wealth management business in Indonesia is growing at an “exceptional” annual pace of 40 percent, much of it fuelled by the mining industry in resources such as coal, gold, iron, nickel and bauxite.
“We believe there are more than 20 billionaires with interests in coal and mineral mines, as well as oil palm plantations in the country,” said Chan Kwee Him, Indonesia country head for the bank.
The surging ranks of millionaires and the concentration of wealth in the commodities sector highlights how the benefits of Indonesia’s revival are far from being evenly spread among classes and regions in the huge archipelago.
While Hermes bags change hands for up to $50,000 and buyers face a six-month wait for a $1 million Lamborghini super car, far-flung regions like Papua and Maluku struggle to provide basic public services.
About 100 million Indonesians — about 40 percent of the population — live on less than $2 a day, the World Bank says. Average wages at $113 are a third of China’s.
About 60 million of Indonesia’s 133 million-strong “middle class” spend between $2-4 a day, the World Bank says. A 1,500 rupiah ($0.17) per liter cut in fuel subsidies being considered by the government would push 2.4 million people below the poverty line, a study by the University of Indonesia found.
“I don’t feel middle class, I feel poor,” said 21-year-old Siti Aisah, who runs a shack selling snacks to construction workers that is almost in the shadow of Yusuf’s sprawling house in a Jakarta suburb. She said her family can afford to spend about $10 on good days - middle class by some measures.
Since the 1998 fall of President Suharto following widespread rioting in Jakarta, broad inequality measured by the Gini index has risen to 0.38 from 0.32. That is still below many regional neighbors, but some economists question the accuracy of the surveys it is based on. A paper by Harvard’s Kennedy School of Government estimated Indonesia’s real Gini score at 0.45, putting it on a par with the Philippines and Cambodia.
Corruption-prone governance, poor infrastructure, low spending on social welfare and health and the business dominance of a relatively few families contribute to entrench inequality.
“Indonesia’s tiny stratum of ultra-wealthy citizens continues to be plumped up by a process of wealth extraction from natural resources rather than by wealth creation through industry and production,” said Jeffrey Winters, an associate professor at Yale University.
Consultancy firm McKinsey sees the number of households earning $7,000 a month rising to 25 million by 2020 from around 17 million now as Indonesia’s broad middle class continues its expansion.
But sustained growth in the middle class depends on how well Indonesia improves its low productivity and poor infrastructure to help bridge huge regional differences. Just six of Indonesia’s 350 cities account for about 30 percent of GDP, said Arief Budiman, a partner with McKinsey in Jakarta.
There are some signs that the wealth is spreading, said Chan of DBS.
“While many of these billionaires are from old wealth, some are newcomers who are small planters or mine owners who benefited from the commodity boom. This segment of new wealth is also the fastest growing,” Chan said.
While the luxury market is small compared to China or Japan, companies like France’s LVMH and Britain’s Rolls Royce Holding PLC are jockeying to be in place for the country’s coming of age.
Sales of “premium” cars soared 27 percent last year, despite clogged roads in Jakarta and other big cities that reduce speeds to a crawl on week days. At a Jaguar and Bentley showroom nestled between Louis Vuitton and Bulgari stores at one of Jakarta’s swankiest malls, a sales manager said he had sold about 10 of the cars priced up to $300,000 in February.
At the only Jakarta store of French luxury shoe and bag maker Christian Louboutin, sales of the precariously high-heeled stilettos priced up to $7,800 are up 25 percent over the past year. Compared to women in Singapore or Hong Kong who are more likely to use public transport, Indonesia’s upper crust prefer higher heels because they get around in chauffeur-driven cars, said store manager Budi Santoso.
“The ones who can afford these don’t really walk.”
His best customers buy 20 pairs a season and he has steady mail-order demand from areas such as the resource-rich Kalimantan region on Borneo island.
Sales are surging despite a sales tax of up to 200 percent on luxury goods that adds to the usual headaches of doing business in Indonesia. French group PPR’s luxury division, whose brands include Gucci and Alexander McQueen, said such concerns were preventing it from having a direct presence despite “double-digit” sales growth at its franchise stores.
If Yusuf’s tales from the front lines of Hermes bag obsession are any guide, luxury firms have a bright future in Indonesia.
There is the general’s wife desperate to get her hands on a limited edition sky-blue “Birkin” bag. The women who book a table for six at Jakarta restaurants — three for them and three for their bags. And the attempt by Yusuf’s co-author to sweeten a Hermes saleswoman in Paris with a diamond necklace.
Spotting a gap in the market caused by long waiting lists for some Hermes bags in Jakarta, Yusuf and her partner set up a thriving black market for the products through message groups on Blackberry cell phones.
They made about $40,000 in the first six months, according to their breathlessly written book, profiting from womens’ willingness to pay well over the retail price to avoid a long wait for their dream bag. “Birkin” bags start at around $5,000 and go up to $50,000 for some crocodile-skin models.
The immaculately groomed Yusuf, who is also a commissioner for transport and energy firm PT Mitra Rajasa Tbk and is married to a chief executive, said the Jakarta market for Hermes bags was showing signs of saturation.
“Everyone has one.”
But she saw growing demand from lower-income groups and from other regions for the status symbol.
“If you own a bag with a price tag of 100 million (rupiah) you probably have a home and a nice car. It’s triggered by peer pressure,” she said.
Additional reporting by Saeed Azhar in Singapore and Astrid Wendlandt in Paris; Editing by Neil Fullick