The Indonesian economy is on a tear. Unburdened by debt and graced with growing spending power, the country’s large, young, increasingly-connected population is driving new trends, bolstering economic growth and creating unprecedented investments opportunities across the archipelago. With President Joko Widodo on a mission to make those opportunities more accessible, foreign investors have a golden opportunity to get in on Indonesia’s unstoppable rise.
President Joko Widodo – affectionately known as Jokowi – secured his re-election with 55.5% of the popular vote in 2019, giving him a chance to make good on his promise to pursue tougher reforms and liberate the country from the middle-income trap. Among standing challenges, he aims to tackle the country’s high current-account deficit, shutdown redundant government agencies and get rid of rules that hinder new investment. All of this bodes well for foreign investors.
There’s a lot for investors to be excited about. One of Asia’s fastest-growing economies, Indonesia has averaged around 5% annual GDP growth since the turn of the millennium. At the going rate, Indonesia’s economy – currently the 16th largest in the world – will be the 4th largest by 2050. By some estimates that could happen as soon as 2030, while government projections tip this to coincide with the country’s 100th year of independence in 2045.
A confluence of government initiatives around manufacturing and infrastructure investment, a pick-up in the digital and creative economies, and increasingly powerful consumers underlie this growth trend and projections for continued momentum. Therein lie several opportunities for investors at home and abroad to take part in the country’s incredible journey.
A Burgeoning Digital Economy Full of Potential
With an internet user base of nearly 150 million in 2018 – the largest in Southeast Asia – Indonesia’s Digital Economy is currently valued at $27 billion and forecast to reach $100 billion by 2025. Indonesia also leads the region in e-Commerce, which stood at $12 billion in 2018 and accounted for more than half of all consumer spending.
Amid the drive for fast, convenient, easy-to-use digital solutions, Indonesia has emerged as a hotbed for innovation and a primary destination for investment. In the three-year period through 2018, Indonesia’s internet economy attracted over $6 billion worth of funding. If Indonesia embraces digitization – through start-ups and elsewhere – it can realize an estimated $150 billion in GDP growth by 2025
Indonesia’s digital economy has already given rise to four unicorns – private start-ups valued at over $1 billion: Go-Jek, Traveloka, Tokopedia and BukaLapak. The Indonesian E-Commerce Association expects Go-Jek and Traveloka will soon become decacorns or private start-ups valued at $10 billion. These companies promise to bring greater economic growth and international attention to Indonesia in today’s increasingly digitized global economy. And the government wants more. Amid its drive to highlight the country’s digital start-ups, it’s targeting 20 new unicorns by 2025.
Infrastructure Programs for a Sustainable Future
Infrastructure was at the heart of Jokowi’s presidency in the first term and remains central to forward-looking plans following his re-election. As several government officials have said, greater connectivity is crucial in order for Indonesia to have higher economic growth.
During his first term, Jokowi’s $350 billion infrastructure drive facilitated the construction of 947 kilometers of toll roads, 3,432 kilometers of highway, 39 kilometers of bridges, 10 new airports, 19 ports and 17 dams. He also put plans in place to ensure that Jakarta has 223 kilometers of MRT tracks and 116 kilometers of light rapid transit tracks.
Looking ahead, Jokowi put plans in place to spend an unprecedented $412 billion on building projects from 2020 to 2024. Sixty percent of that will go to transportation-related infrastructure, with the rest divided between energy, irrigation, information and communications technology, and sanitation. Among his most recent plans, Jokowi announced plans to invest $70 billion in the construction of 5,400 kilometers worth of toll roads across the country – triple the distance of what currently exists.
In addition to generating business for Indonesian companies through various building projects, better infrastructure would also complement the government’s efforts to attract more tourists – helping to narrow the current-account deficit – and facilitate the flow out domestic tourism. Airline passengers in Indonesia have increased by over 60% in the past five years driven largely by domestic travel as increasing prosperity drives increased travel demand.
Initiatives Designed to Foster Sustainable Growth
Sustainable economic development is central to the Vision Indonesia 2045 – the government’s long-term plan to tackle structural reforms, unravel excessive bureaucracy, boost the country’s competitiveness and enhance the social and financial wellbeing of its citizens.
Meanwhile, as new and emerging technologies revolutionize the way that companies design and manufactured goods, the government rolled out the Making Indonesia 4.0 roadmap in 2018 to take full advantage of these innovations. This is part of its plan to turn the country into a manufacturing powerhouse in the region. At the going rate, the government expects the automotive, chemicals and electronics industries to push manufacturing’s contribution to the economy from 20% to 25% by 2025.
Coupled with an increased focus on the development of human capital and political reform – all central to Vision Indonesia 2045 – the question is not if Indonesia will realize its economic potential but when. For investors, the question has changed from ‘Why Indonesia?’ to ‘Why not Indonesia?’
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