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The international market remains volatile and global growth has still not fully recovered from the financial crisis, but the baseline scenario for Indonesia, as per recent IEQ’s, is one of continued steady growth. 2012 is projected to end with overall growth of 6.1%, up slightly from the 6.0% projected figure of the July 2012 IEQ; while 2013 is projected to see growth of 6.3%.
Challenges
If the Indonesian economy is to grow at such a rate over the coming decades, the infrastructure must be developed to support it. Policy frameworks and the regulatory environment must con- tinue to be strengthened to build economic resilience, and current constraints on growth must be removed. There are four key areas within the economy where action can be taken to support contin- ued growth.
The consumer services sector will continue to grow as the con- sumer class in Indonesia continues to increase. This will lead rise to new markets in financial services and retail services. With an estimated 90 million extra consumers by 2030, there is a huge op- portunity for domestic services to tap into the increased spending power of a younger, higher earning generation.
With such a rapidly increasing consuming class, the pressure will mount on the agricultural and fisheries industries, and a boost in productivity will be required in these sectors. At a time when many Indonesians are abandoning farming to migrate to cities, and land resources are being stretched by the expansion of cities, it is essential that production is improved to meet the demand of a burgeoning population.
There will also be a heavy demand on resources if growth is to be supported, and there is an opportunity for Indonesia to create a resource-smart economy. demand for energy could triple by 2030, while the country must also endeavour to supply its population with water and sanitisation. By concentrating on new sustainable and renewable energies, Indonesia could reduce its dependence on raw materials and fossil fuels. Building a skilled workforce will also help to sustain growth in the future and Indonesia must invest heavily in this area
to avoid a shortfall
of skilled workers in
the long term.
Business Op- portunity
If these four key areas are developed to their full economic potential they could represent an op- portunity for private- sector businesses of $1.8 trillion USd by 2030. As the population rises, consumer spending could increase at a rate of 7.7% per year, building up to a
$1.1 trillion USd marketplace by 2030. If the economy meets the government’s GDP growth target of 7% annually, it would result in an additional 125 million consumers and increase the business opportunity to $1.5 trillion USd.
Boosting productivity in agriculture and fisheries could see rev- enues rise by 6% per year, amounting to a market of $450 billion USd by 2030, while the overall energy market in Indonesia could reach $270 billion USd. The number of Indonesian students could double by 2030, and the private education market could rise to a value of $40 billion USd.
Supporting framework
The government’s 2013 proposed budget continues to support initiatives that were laid out in their medium and long-term devel- opment plans, and also includes a four-pillar development strat- egy to support growth in the future. The policies are pro-growth, pro-poor, pro-job, and pro-environment.
The pro-growth strategy will accelerate infrastructure develop- ment to improve domestic connectivity with the aim of creating a more resilient and competitive economy. The pro-job policies tar- get providing 450,000 job opportunities for every 1% of economic growth and include efforts to promote labour intensive industries. The pro-poor strategy involves continued support for social pro- grams outlined in the Master Plan for Acceleration and Expansion of Indonesia’s Poverty Reduction (MP3KI). The pro-environment
EConoMY oVERVIEW
IN 2011, TRANSPORTATION & MINING SECTOR RECEIVED THE MOST IN FDI
policies will promote the use of alterna- tive and sustainable energy resources, and enhance the country’s adaptive capacity to respond to climate change.
Everything is in place for Indonesia to take advantage of the opportunity for rapid growth in the face of global un- certainty, but there is much for the ar- chipelago economy to develop before it can become a major world force.
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STRATEGY IndonESIA 2013