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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Winners Behind the Smoke

The costs and opportunities of haze and drought

By Alexandra A. Seno


A S THE HAZE from Indonesian forest fires starts to lift, business begins to see the disaster's monetary cost. "Overall, it's going to be very hard to quantify," says Rob Subbaraman, an economist with Lehman Brothers in Hong Kong. "From a macro perspective, we expect the haze and drought situation alone to bring down GDP by 0.7% in Indonesia and in the Philippines by 1%."

Elvira Tjandrawinata, who covers the consumer sector for W.I. Carr Indonesia, expects the full effects on business to be evident in six to nine months. But Hong Goie Siau, research chief at Crosby Indonesia, already sees impact on day-to-day activity. In the country's motorcycle business, which depends on rural areas for 60% of its sales, financing defaults are up due to bad crop yields. Collection rates on motorcycle loans used to be 95%; they have fallen to 60% since the haze and the change in weather patterns due to the El Nio phenomenon. "This will affect companies like Astra International, which makes motorbikes," Hong says.

With most industrializing Southeast Asian economies still dependent on agriculture for up to 20% of economic output, the cost from the environmental problems is mounting. In other industries, the impact of the haze has been swift and painful. "Tourism was hardest hit," observes Hudson Teh, head of research with Kuala Lumpur brokerage Sarawak Securities. "It's been bad for them because of all the bad publicity."

CS First Boston's regional transport analyst Eisha Cheng reckons delayed or canceled flights and travel plans may cut profits at such listed carriers as Singapore Airlines and Malaysia Airlines by up to 5%. The East Malaysian city of Sarawak, whose air pollution reading hit 839 at one point (levels of 200 and above are deemed "unhealthy"), has reported that in the 10 days that the city shut down because of the haze, its industries lost about $300 million.

But is there a silver lining? In the short term. "A lot of people are now betting on the plantation sector," says W.I. Carr's Tjandrawinata. Some 85% of palm oil comes from two countries affected by haze and drought: 30% from Indonesia and 55% from Malaysia. (Plantation firms clearing land are also blamed for setting many of the fires causing the haze.) Concern about supply has driven up palm-oil prices by 10% to 12%. Combined with the devaluation in local currencies, higher export prices promise attractive income statements to come.

"One company to look at is London Sumatra Indonesia," says BZW Niaga Indonesia research head Jason Donville. Bakrie Sumatra Plantation is another. The two are among the few plantation stocks in Jakarta, though others are due to list. One analyst says: "The big plantation companies say: 'Thank you very much for the fires.' It's very good news for them because the land is cleared, the selling price goes up and they're not that affected." On the Kuala Lumpur exchange, the plantation sector is up about 20%. Teh of Sarawak Securities likes KL Kepong. "It is one of the most efficient plantations and it focuses on palm oil -- a pure plantation play," says the analyst.

The future may not be all sunshine and blue skies. "Though now it is good for the companies, later on we don't know," cautions Tjandrawinata. "You are probably going to see lower yield on oil palm plants," says Donville. How much is not yet clear. "What's happening in Indonesia is unprecedented. We still don't know what kind of effect the haze will have on the development of the plants. But I'm not too concerned right now. The effect of lower yields may be offset by firming prices." Maybe.

All money values in U.S. dollars except share prices, which are in Malaysian ringgit and Indonesian rupiah. Sources: Asiaweek Research, Datastream, The Estimate Directory


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