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Indonesia After 2014 by Greg Barton
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Indonesia After 2014 by Greg Barton

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  • 1. Indonesia after 2014: Democratization and Social Transformation - Can Indonesia Develop an Innovation-led economy? An Overview of Challenges and Opportunities Greg Barton Herb Feith Professor for the Study of Indonesia Monash University ICID, Den Haag, 13 Sept 2013
  • 2. 1. Democratic Transition • Successful democratic transition • Political and social stability • Disillusionment with political parties and leaders • Support for the democratic republic • Indonesia and Turkey represent the most successful Muslim majority nations
  • 3. Indonesia: flawed but free
  • 4. 2. Economic takeoff • Indonesia has returned to the economic takeoff that was interrupted by the 1997 financial crisis – Indonesia’s takeoff is reinforced by the rise of Asia and the other large emerging markets • The current level of political stability and openness is substantially better than the 1990s – Regime change no longer looms on the horizon
  • 5. Joining the BRICs and the E7 • Indonesia is now increasingly recognized as a key nation in the emerging second tier of rapidly developing large nations • joining the likes of Turkey and Mexico • in the wake of the original BRIC group (Brazil, Russia, India, and China) of first tier emerging nations. • The E7 – as Price Waterhouse Coopers refers to this group - Brazil, Russia, India, and China + Indonesia, Turkey and Mexico
  • 6. A present reality • This is a present reality not merely a long-term projection. • Over the next seven years Indonesia is on track to overtake Spain, Canada and Italy to become the world's 11th largest economy in 2020 (in PPP terms) – just behind South Korea – Indonesia is currently ranked 15th.
  • 7. 2010 v 2020
  • 8. Stable Growth
  • 9. Stable Growth
  • 10. McKinsey Global Institute – Sep 2012
  • 11. A decade of stable growth
  • 12. 3. The E7 and the Rise of Asia • Indonesia’s economic takeoff is linked to the general rise of Asia – In particular, the rise of China and India – China and India are key because of the absolute size of their economies • Together with China and India, Indonesia joins the other large emerging markets of Russia, Brazil, Turkey, Mexico: the Emerging Seven (E7)
  • 13. Asia’s rise is Indonesia’s rise
  • 14. Global growth (PPP)
  • 15. World Economic Expansion
  • 16. Growth - E7 vs G7 – 2011-2050
  • 17. 4. Era of the Middle Class • The rapid rise of the E7 is accompanied by sharp reductions in poverty • Most people in Indonesia are poor but over the next decade the majority of people will move out of poverty • New entrants to the ‘middle class’/’consuming class’ will still have modest incomes • By 2030 around 2/3 of all people in Indonesia (135-180m out of 280m) will be middle class • By 2030 around 2/3 of all middle class people will be living in Asia
  • 18. Asia’s rising middle class
  • 19. Middle class consumption
  • 20. The rise of the middle class
  • 21. 5. Urbanization • 2013 - 53% of Indonesians live in cities – 2030 more than 70% will live in cities • 2013 – 74% of GDP generated in cities – 2030 – 86% of GDP generated in cities – Jakarta will remain constant at 20% – but midsize cities (2-10m) will contribute 25% of GDP in 2030 – Small cities (0.15 – 2m) contribute 31% of GDP growing to 38% in 2030 • Indonesia (and the Philippines) are more urbanized than the rest of Asia
  • 22. E7 - Urbanisation
  • 23. The rise of the cities
  • 24. Urbanization: China, India
  • 25. Urbanization: SEA
  • 26. Indonesia: 2010-2025
  • 27. Agglomerations Mapped
  • 28. Economic Density
  • 29. Agglomerations: Java, Sumatra
  • 30. Agglomerations: Kalimantan, Sulawesi
  • 31. Not just Java
  • 32. 6. Labour Force • Indonesia has a population of 252 million growing at 0.99% per annum – By 2030 Indonesia’s population will plateau at 280 – By 2030 the work force will grow by 40m • Indonesia has a relatively youthful population with a median age of 28.9 years – 60% are 30 years or young – Only 7.6% of the population is 65 years or older • Indonesian wages are substantially lower than wages in China
  • 33. Growth in Wages – China - Indonesia
  • 34. Global Working Age Populations to 2050
  • 35. 7. Manufacturing • Manufacturing plummeted after the 97/98 crisis • Manufacturing growth remains stunted • There are signs of growth, including outside Java – particularly in new areas • Rates of return remain low and profit risk high • Indonesia is missing middle-sized firms • Indonesia has great potential that remains partially unrealized
  • 36. Slow Recovery in Manufacturing
  • 37. New Manufacturers
  • 38. Growth Outside Java
  • 39. Rates of Return: SEA
  • 40. Manufacturing: The Missing Middle
  • 41. 8. Infrastructure and FDI • Whilst Indonesia’s economic performance has been impressive growth is still lower than it could and should be • Foreign Direct Invest stopped for a decade after the 97/98 Economic Crisis – it remains too low • Investment is held back by lack of ease in doing business • Growth continues to held back by poor infrastructure – particularly logistics & transport • Internet use remains below par
  • 42. E7 – Ease of Doing Business
  • 43. Emerging 7 – FDI - 2002-2011
  • 44. Asia: road density
  • 45. Vehicle Fleet: 2001 - 2009
  • 46. Asia – Cost and Speed of Logistics
  • 47. SEA: travel times and expressways
  • 48. Central government expenditure on roads
  • 49. Infrastructure investment
  • 50. Investment in Infrastructure
  • 51. Asia compared: infrastructure
  • 52. Highway Quality
  • 53. SEA – Internet Usage
  • 54. Global Social Network Usage
  • 55. 9. Culture - Culture strongly influences thought and behaviour - Education – formal and informal – shapes the expression and influence of culture - Indonesian culture is both plural and distinctive - Optimizing innovation requires attention to culture and education
  • 56. Richard Lewis – Cultural Types
  • 57. Richard Lewis – Cultural Types
  • 58. Richard Lewis
  • 59. 10. Good or great? • Growth is currently ~ 5-6% • Growth can and should be ~ 7% • Labour productivity has accounted for 60% of growth in the last two decades and 40% has come from population growth • Productivity growth needs to increase substantially if 7% GDP growth is to be reached • Higher Education has grown dramatically but both quality and quantity need to improve – The gender gap has closed – but the quality gap remains
  • 60. Higher Education Enrollments: 1970-99
  • 61. Higher Ed – Closing Gender Gap – 93-05
  • 62. Asia – Research and Development
  • 63. Conclusion • Indonesia’s political and social stability represents a great asset and must be safeguarded • Growth stable but damage from 97/98 crisis remains • Indonesia is part of the E7 – for better or worse • Growth of the middle class is key • Urbanization presents challenges and opportunities • Demographics present a limited window of opportunity • Manufacturing needs to innovate and grow • Infrastructure needs massive investment • The development of human capital is the key to going from good to great