Fast Forward 50 Years: Will Indonesia Live Up to Expectations?

Indonesia's path to becoming the fourth-largest world economy by 2075 faces challenges related to population dynamics, economic growth, and human capital development. This article shows how Indonesia can unlock its potential through critical reforms, greater foreign investment, and a shift to a knowledge-based economy, while also addressing climate change concerns.

By Maria Monica Wihardja, Visiting Fellow at ISEAS Yusof Ishak Institute

Indonesia is poised to become the fourth-largest economy in the world by 2075, if not sooner. This will add significant global economic weight to the Indo-Pacific region, as China and India are poised to take the first and second place. But will Indonesia actually live up to this expectation?

Indonesia is on a population growth trajectory that will potentially boost its economic productivity. The number of working-aged people is set to only peak in 2050. But by 2075, the bulk of the population will be in their 60s-70s, meaning this economic productivity will begin to drag. So the question in policymakers’ minds is: will it get rich before it gets old?

The country faces a big challenge. It needs to grow by six to seven percent annually for the next 15-20 years to reach this goal. But, with a current economic growth rate of five percent a year, Indonesia will not get where it wants to be unless it finds a new source of economic growth.

To reach its economic potential, it must prioritise its people first by boosting education and healthcare. Strong human capital is the foundation of high productivity, yet research indicates that Indonesians are significantly behind in development. Furthermore, Indonesian children are projected to achieve only about half of their full productivity potential, in contrast to 88 percent of Singaporean children.

Indonesia also needs to make big reforms if it wants to empower its people to actually create a more economically productive population. The key to achieving this will be allowing more foreign investment in the education and health industries.

In the present, Indonesia has already begun moving in the right direction. Its Omnibus Law now permits increased foreign investment in hospitals, and the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) includes provisions aimed at enhancing Indonesian health professional standards, vocational education and training, as well as higher education.

Next, Indonesia needs to shift its economic priorities to move from a resource-based to a knowledge-based economy. Indonesian President Joko Widodo’s economic strategy of boosting Indonesia’s critical minerals processing capabilities through ‘downstreaming’ will make it more, not less, reliant on the resources industry.

Indonesia’s broader economic strategy of ‘industrialisation’ can also be put in question as countries aren’t looking for offshore manufacturing like they used to, and automation means there’s less of a demand for labour. So, Indonesia’s new source of growth will need to increasingly come from its knowledge economy, especially the high-end services sector, including the ICT sector.

In addition, Indonesia has massive potential to become an Indo-Pacific digital hub. It has a thriving start-up ecosystem, driven by its highly entrepreneurial and creative people. Indonesians also love going online. In fact, the country ranks eighth in the world in screen time which is close to nine hours a day. This screen time, combined with the talents and digital inclination of the Indonesian people, could be channelled into more economically productive uses by offering digitally delivered services such as graphic design, data entry, marketing, or other professional services to international customers. The government can support this shift with improved education, skill development, and regulatory frameworks.

Of course, all of these outcomes will depend on Indonesia’s ability to mitigate climate change. As the world’s largest archipelagic country, Indonesia will be one of the countries hardest hit, and there is already a rising incidence of climate-related disasters and elevated temperatures in Indonesia. Climate adaptation is key and as the world’s fifth largest greenhouse gas emitter, Indonesia can do its part now by cutting emissions.

“Prediction is difficult, especially if it is about the future,” the Nobel Laureate in physics, Niels Bohr, warned us.But it seems like the writing is already on the wall: if the Indonesian government does not double down on necessary reforms now to improve human capital and capitalize on emerging opportunities, it risks missing out on the economic status it’s been waiting for.

 

About the writer

Maria Monica Wihardja is a Visiting Fellow at ISEAS Yusof Ishak Institute.

 

This article was first published in the Perth USAsia Centre on September 19, 2023.

Download Agenda

Download Report

Latest Updates

Latest Updates​

Keep pace with the digital pulse of Southeast Asia!

Never miss an update or event!

Mouna Aouri

Programme Fellow

Mouna Aouri is an Institute Fellow at the Tech For Good Institute. As a social entrepreneur, impact investor, and engineer, her experience spans over two decades in the MENA region, South East Asia, and Japan. She is founder of Woomentum, a Singapore-based platform dedicated to supporting women entrepreneurs in APAC through skill development and access to growth capital through strategic collaborations with corporate entities, investors and government partners.

Dr Ming Tan

Founding Executive Director

Dr Ming Tan is founding Executive Director for the Tech for Good Institute, a non-profit founded to catalyse research and collaboration on social, economic and policy trends accelerated by the digital economy in Southeast Asia. She is concurrently a Senior Fellow at the Centre for Governance and Sustainability at the National University of Singapore and Advisor to the Founder of the COMO Group, a Singaporean portfolio of lifestyle companies operating in 15 countries worldwide.  Her research interests lie at the intersection of technology, business and society, including sustainability and innovation.

 

Ming was previously Managing Director of IPOS International, part of the Intellectual Property Office of Singapore, which supports Singapore’s future growth as a global innovation hub for intellectual property creation, commercialisation and management. Prior to joining the public sector, she was Head of Stewardship of the COMO Group and the founding Executive Director of COMO Foundation, a grantmaker focused on gender equity that has served over 47 million women and girls since 2003.

 

As a company director, she lends brand and strategic guidance to several companies within the COMO Group. Ming also serves as a Council Member of the Council for Board Diversity, on the boards of COMO Foundation and Singapore Network Information Centre (SGNIC), and on the Digital and Technology Advisory Panel for Esplanade–Theatres on the Bay, Singapore’s national performing arts centre.

 

In the non-profit, educational and government spheres, Ming is a director of COMO Foundation and Singapore Network Information Centre (SGNIC) and chairs the Asia Advisory board for Swiss hospitality business and management school EHL. She also serves on  the Council for Board Diversity and the Digital and Technology Advisory Panel for Esplanade–Theatres on the Bay, Singapore’s national performing arts centre.

 

Ming was educated in Singapore, the United States, and England. She obtained her bachelor’s and master’s degrees from Stanford University and her doctorate from Oxford.