Geopolitics & Luxury: In Indonesia, the probable victory of Prabowo Subianto is worrying foreign investors.

Indonesia's presidential election took place on Wednesday, February 14. Two hundred five million Indonesians turned out to vote. After ten years in power, President Widodo is due to step down.   Former general Prabowo Subianto, supported by the outgoing head of state and widely ahead in the projections, is claiming victory in the first round of elections, although the official results will be known early in March.

Prabowo has been climbing in the opinion polls in recent weeks. Thanks to his highly effective use of social networks, particularly Instagram and TikTok, Prabowo is particularly adored by the younger generation. However, he nonetheless has a controversial reputation and has even been accused of war crimes by several NGOs. In the previous elections in which he took part, he was supported by the Islamo-conservatives.

What consequences could this election have on the luxury market in Indonesia?

This market is gaining more and more followers, especially among the youth. Slowly but surely, the luxury sector is carving out an ever-larger place in the Indonesian market. The proof? The exponential increase in the creation of luxury sector startups like Bobobobo, offering travel and high-end products aimed at the upper middle class living in the country's major metropolises. Indonesia's potential is huge with its 273 million inhabitants. About a decade ago, Ravi Thakran, head of LVMH for Southeast Asia, identified Indonesia as the market with the highest growth potential for luxury.

In recent years, certain fiscal and real estate rules have been relaxed, allowing residents and foreigners to invest, especially in the hotel sector. Indonesia has indeed become the sixth destination for foreign investors (behind Vietnam, Taiwan, India, South Korea, and of course China). In 2022, the Asian luxury market - excluding China - grew by 43% compared to the previous year, posting a turnover of 48 billion euros.

Several sectors are interested in developing in the luxury segment in Indonesia: firstly, beauty, a market estimated in Southeast Asia at 8 billion dollars, expected to reach 9.6 billion by 2025, thus marking the fastest growth in the region. Another critically important sector is hospitality, with the recent entry of major brands such as Ritz-Carlton, Okura, Four Seasons, or Park Hyatt. The government is indeed betting a lot on this sector: it has eliminated hotel and restaurant taxes in ten tourist destinations, including the Lake Toba region in Sumatra, Yogyakarta in Java, and the island of Bali. In 2020, institutions had drawn up a plan to protect the tourism industry from the effects of the health crisis, paying famous influencers up to 5.2 million USD to promote the country. The size of the Indonesian hotel real estate market is expected to grow from 1.64 billion USD in 2023 to 2.90 billion USD by 2028.

However, the country still needs infrastructure development, and several fears make investors cautious. The risk of religious radicalization, especially in certain areas of the state like Sumatra, is a concern. Major European groups, which count several of their suppliers in Indonesia (LVMH and Hermès have a network of reptile skin suppliers for their leather goods), are mainly attracted by the potential represented by a young and ultra-connected clientele.

If Prabowo's victory is confirmed, will his conservatism be able to put the brakes on foreign investment? That's the question on everyone's lips. Despite his "trendy" presence on the networks, Prabowo is forging links with religious fundamentalists, who are increasingly powerful in a country that has until now been renowned for its multiculturalism. Some fifteen years ago, he founded the movement for a greater Indonesia, which is strongly nationalist, a conservative vision that does not sit well with an openness to the outside world.