Indonesia: The Next Economic Powerhouse?

[Music] this is indonesia one of the emerging market economies of the world with more than 270 million people indonesia is the world's fourth most populous country with majority of population being muslim from a dutch colony to the largest economy in southeast asia the country has traveled quite a road you see indonesia is a fairly new country and when we look at their history there were two important people sicardo and sarato after the independence sukarno led indonesia under the model of directed democracy during this time many problems occurred the country was suffering economic crisis because of continuous war also there were lots of rebellions and conflicts with the communist party in 1965 army coup happened with the support of communist party of indonesia but it failed and then the army general sahara took control of the country with the support of the us after that sahara ruled the country for nearly three decades during which he took some economic expansion measures which were quite successful he was able to put indonesia's economy back on track from 1968 to 1988 their economy grew with the average of seven percent per year in terms of gdp also in less than 10 years the inflation dropped from 660 to 19 and all of this transformed indonesia into an asian economic miracle but even after this economic growth it was still a dictatorship the political repression violence and corruption was very high then in the 90s asian crisis happened and the indonesian economy collapsed the indonesian currency lost 80 percent of its value against the dollar and the country's gdp crashed badly because of this people lost their jobs and social unrest increased which led to mass protest against the sohara dictatorship then finally after long protests and violence so harder resigned and indonesia finally became a democracy the country held its first election in 2004. since then indonesia has experienced a period of change political openness decentralization and more open economic policies today indonesia is the world's 15th largest economy in terms of nominal gdp and also a member of the g20 furthermore they have done a good job in poverty reduction by cutting the poverty rate by more than half since 1999 with 9.78 percent in 2020 now when we talk about any developing nation most of the times they follow a typical path for their economic development most of the countries transform from an agriculture-based economy to industrial and service-based economy but this was not the case of indonesia the country is quite rich with natural resources hence they had a huge reliance on commodities like oil natural gas and coal in the 2000s commodity prices went up due to sharply rising demand in several emerging markets especially china this was a very lucrative period for indonesia as the country holds large reserves of crude palm oil coal gas and copper in the 2000s this commodity boost managed to accelerate indonesia's recovery from the asian financial crisis however these high prices of commodities did not last very long the reason for this was china which was the major buyer started to reduce the imports as a result of economic shift from manufacturing to services now being a large commodity exporter indonesia's export performance was heavily affected and not only its export performance but also overall economic growth is affected by commodity price fluctuations at the same time non-commodity exports also didn't pick up even today indonesia's manufacturing sector is not a major contributor to the global value chain market so now you might be thinking what is actually driving indonesia's economy well today one of the main driver of the economic growth is their large population and young workforce this massive population creates a huge demand of consumer goods this is a key driver of the country's economic growth as per estimates by 2030 indonesia will have 135 million consumers along with this the industrial and service sectors too are significant contributors to the country's economy the industrial sector includes manufacturing of textiles chemical fertilizers electronic products cement rubber tires clothing and shoes most of these are supplied to the american markets also a significant proportion of production is handled by medium and small-scale privately owned enterprises which supply consumer goods now if you talk about the service sector then between 2010 and 2017 it grew at an average of 7.1 percent per year which is much higher than the manufacturing and agricultural sectors at 4.4 percent but even after this growth the competitiveness and productivity levels of service sector are significantly lower than the other regional countries also the growing middle class is also contributing to rapid urbanization of the country this urbanization will help indonesians to shift from low paid jobs to higher paying service and industrial jobs now we have to understand that the demographic bonus will not last forever you see most of the nations which experience economic and technological advancement their fertility rate tends to decrease and this could happen with indonesia too the world bank has a forecast that by 2025 to 2030 indonesia will reach the turning point yet if the economy fails to grow at eight percent per year in the next decade indonesia could find it tough to reach the status of a high income economy along with this there are plenty of other things that could hold them back like the problems due to rising population and urbanization such as rising demand for electricity clean water and sanitation also the burden on public and private transportation will increase the country already has world's third worst traffic rate now another major problem is they're crippling infrastructure you see indonesia is a huge archipelago that consists of more than 17 000 islands with an end-to-end distance of 5000 kilometers and this makes cost of transportation logistics power supply and communication networks very high in recent years consumption of electricity has increased by 7 annually yet indonesia has failed to meet this grown demand the inadequate investments of the system resulted in increased frequency and duration of power outrages this has been proven costly to the local industries which lead to higher cost of manufactured products in the country along with this indonesian laborers are not well skilled and labor laws too are not favorable because of these reasons investors prefer to go to other countries such as vietnam the investment rate compared to gdp has actually increased yet this investment is not helping the economy as expected and that is happening because the investments are focused on constructing high rises rather than infrastructure the returns of this kind of investments are less also due to their bureaucracy indonesia's rank and ease of doing business is low another leg puller is the natural disasters particularly their capital city jakarta which is sinking due to rising sea level the city is only seven meter above sea level the excessive groundwater drainage is making jakarta sink about five to ten centimeters each year and this sure is causing huge problems now to sum it all up we can say indonesia has the opportunity to turn out as an economic powerhouse but the window of this opportunity narrows just 10 to 15 years from now indonesia is racing against time but how they will play in the coming years will ultimately determine whether the country will be stuck in the middle income trap or will be able to surpass it so what do you think does indonesia have any chance well tell us in the comment section below

Channel: Global Economics

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Id: 3-YjjeSuJig

Length: 8min 32sec (512 seconds)

Published: Sat Mar 06 2021