Sunday, November 30, 2014

Now We're Cooking with Gas...New Jakarta Governor is Indonesian Chinese

In my research and investing I stress three things: people, structure and value.  I look for companies that are controlled and managed by quality people, have corporate structures that align minority and majority shareholder interests and trade at valuations that are below intrinsic levels if not outright cheap.

This article is about people.  More specifically it is a wee bit about Basuki Tjahaja Purnama who is better known by his nickname, “Ahok”.  But it is mostly about Indonesian Chinese and how they are becoming more integrated into Indonesian politics if not all of mainstream Indonesian society.

To be honest I don’t know much about Ahok.  His importance is due to him being the first ethnic Chinese Governor of Jakarta.  Jakarta is important, as it is the largest city in the world’s fourth largest country.  With an estimated population of 10.2m it is one of the largest cities in the world and bigger than New York, London, Paris, Munich... (props to "M"[1]).

Ahok was the running mate of Joko Widodo (better known as “Jokowi”) in the 2012 Jakarta gubernatorial election.  They won and Ahok became Lieutenant Governor in 2012 and acting Governor in June 2014 when Jokowi took leave to run for President.  Ahok was sworn in as Jakarta’s 17th governor a few weeks ago.

Although he filled his predecessor’s post rather than being appointed, his acceptance and support by some of the country’s largest Muslim organizations is very significant and worth taking note (article here).  Perhaps even more important was that it wasn’t made into such a big thing, which indicates to me that old racial divides have fallen and will continue to fall (like many Indonesian Chinese Ahok is Christian).

And its not just Ahok.  Other Indonesian Chinese are also getting involved in Indonesia’s politics. 

Perhaps the most high profile is Hary Tanoesoedibjo, an Indonesian Chinese tycoon who founded and heads the MNC group, Indonesia’s largest media conglomerate.  He’s on the opposite side of Indonesia’s political spectrum and closer to the ex-Suharto military men.  In this year’s election he threw money and media behind ex-Suharto general and son-in-law Probowo Subianto.  Earlier in the election season Hary Tanoesoedibjo was a vice-presidential candidate with ex-Suharto era general Wiranto.  He has even bolder ambitions and wants to establish a political party of his own according to a recent interview (article here)

Ahok and Hary Tanoesoedibjo think very differently about how Indonesia should be governed.  They are both ethnic Chinese but are diametrically opposed to each other’s ideology.

Compare this to Malaysia where political parties have a history of being based on race.  “UMNO” stands for United Malays National Organization, “MCA” stands for Malaysian Chinese Association.  In contrast to present day Indonesia, it seems like Malaysia’s political structure wastes too much time thinking about race rather than thinking about how to move the country ahead.  

Accepting Chinese into Indonesian society has been evolving rapidly since Jakarta's 1998 riots. Mandarin can now be taught, public displays of Chinese culture are allowed, and all people born in Indonesia – regardless of their ancestry – can run for President. None of these things were legally allowed just 15 years ago.

During my first trip to Jakarta, back in 1989, I was struck when I heard about the racial policies and customs that effectively banned ethic Chinese from many fields, mostly notably politics.

In my first or second trip I met a bright, U.S. educated Indonesian Chinese stockbroker who was clearly not into his job. Instead he was doing it because his dream job as a government policy wonk, or better yet diplomat, was essentially unavailable to Indonesian Chinese.  Despite his Ivy League education, intelligence and ability to talk-your-socks-off-about-everything-under-the-sun he would not be allowed to help his country, which he clearly loved.  His dream career had to be given up.  It simply was not available to him because of his race.  Instead he focused on helping people buy and sell blips-on-a-screen (Actually it was ink-on-white-boards as the Jakarta Stock Exchange did not have electronic trading at the time).  

In this instance Indonesia also lost out on who might very likely have been a star bureaucrat[2].  I suspect this story has been repeated many times across the country.

Having grown up in the USA, I see similarities with the American Jewish experience.  Two to four generations ago American Jews were all but excluded from politics, faced university quota restrictions, and many times outright bans at country clubs and other organizations.

Despite this, many excelled as academics, business people, and - when attitudes and regulations changed - as politicians.  Despite being 1.7 to 2.6% of the US population, some 6% of America’s upcoming congress is American Jewish.

Like American Jews, Indonesian Chinese tend to punch above their small percent of the population.  They control a large proportion of Indonesia’s monetary wealth despite being about 1.2% of its population. Just as they succeeded in business I suspect they will do well in politics and government.  And I suspect that Indonesia will be better off.

As an investor I like companies that hire across racial and ethnic backgrounds. To me this shows a desire to hire the best person for the job, rather than one who fits.

The company that stands out the most is Astra International, which I wrote about in a previous post (link here).  In the early 1990s Astra International was one of the few conglomerates that was known to hire and promote based on ability rather than ethnic background.   Although Indonesian Chinese owned it, many of its senior executives were ethnic Indonesian.  This was in contrast to most other businesses that were owned by ethnic Chinese and mostly hired Chinese from the same linguistic group as the founding family. Astra International was and remains one of the best managed companies in Indonesia.

I suspect that what is good at the corporate level is also good at the national level.  Why not get the best person for the job whether it’s for a government bureaucrat or a corporate executive position?

Indonesia has changed a lot since 1989 when I first went there. It is now far more developed, open and progressive. Ahok’s swearing in as Jakarta’s governor and the support he’s getting is an important symbol of the tremendous progress the country has made since the dark days of 1998. 

Indonesia has many hurdles to overcome if it is to continue to develop.  Many of its problems are directly related to the government - endemic corruption, inadequate infrastructure, and inefficient state-owned companies.  It needs good leaders from all walks of life that can solve these problems.

[1] Apologies.  Couldn't resist
[2] Assuming that “star bureaucrat” is not an oxymoron

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