BEING a retired academician, I keep myself abreast with development trends by reading materials from scholarly publications. Thankfully, this limits my social media engagement as I do not have enough time to read and respond to the many opinionated, verging on thrash, views that populate social media.
I recently came across a Deutsche Bank publication entitled "Indonesia: A rising economic powerhouse" (Jan. 8, 2024), which summarized why the country was on its way to becoming an economic superpower in the next two or three decades, joining China, the United States and India.
Three factors were identified as the engine of Indonesia's economic transformation:
First is its abundant natural resources that are critical materials for the electronic vehicle (EV) industry, whose growth is mainly being driven by a shift to more climate-friendly technologies. Indonesia is the world's biggest producer of nickel, the second-largest producer of tin and the fourth-largest producer of bauxite, which have made Indonesia a premier battery manufacturing site.
The second factor is Indonesia's ability to reap the benefits of its demographic dividends. Indonesia's population is estimated to be around 274 million, the fourth largest in the world after India, China and the United States. Its median age is 31 from a working age population (15 to 59) of around 177 million by the end of this year. It has a labor force twice as much as the Philippines.
With proper education and skills training, Indonesia's labor force is expected to contribute substantially to its rapid economic growth. In contrast, China, Thailand and Vietnam's labor forces are fast aging.
The third factor is that with increasing incomes, the ranks of the middle class in Indonesia are swelling. In turn, they will create significant demand for products and in the process, fuel economic growth further.
It is estimated that Indonesia's per capita income was around $5,000 in 2022, higher than the Philippines' $3,499 and double that of India. The World Bank reported that around 20 percent of Indonesia's population joined the middle class during the last 15 years due to rising wages. Around 55 million belong to the middle class. This huge and viable market is virtually the population of the United Kingdom and more than most European countries.
Indonesia's path to sustained and high economic growth was achieved through a deliberate effort on the part of its government to introduce much-needed economic reforms.
First and foremost was the effort to improve the ease of doing business in the country. It enacted the Omnibus Law in 2020, which replaced 79 investment-related laws and in the process, dramatically streamlined business regulations. It made labor laws attractive for investors, reduced the corporate income tax from 25 percent to 22 percent, lifted the "Investment Negative List" that restricted foreign investments in certain sectors and expanded tax incentives.
The second was Indonesia deciding to increase value-added from its resources by banning exports of unprocessed minerals. This forced global manufacturers to locate their processing operations in Indonesia. The country was able to do this because, as noted earlier, it is a big mineral player.
Finally, Indonesia is benefiting from the rising value of commodity exports. Given the fact that base metals and coal constitute 14 percent and 16 percent, respectively, of its total exports, an increase in prices provides windfall gains, even more so with the shift from exporting unprocessed minerals to processed ones.
The Indonesian government knows full well that it can become a future key EV hub if it is able to fully develop downstream mining industries. And with the surplus it is generating from its mineral exports, Indonesia is also preparing itself to face the challenges that climate change is imposing.
Construction of a new capital is underway in Nusantara, Borneo. It is expected to be inaugurated this August 17 to coincide with Indonesia's Independence Day. Experts have predicted that global warming will inundate 40 percent of Jakarta and thus, President Jokowi decided to transfer the country's capital.
The urban development project is expected to cost Indonesia around $32 billion. Foreign investors have been invited to participate in the massive urban development program so that Nusantara can become fully operational by 2045.
Indonesia has provided the Philippines the blueprint on how to attain sustained and high economic growth rates. Just like Indonesia, the Philippines is a mineral-rich country and the resources, if properly utilized, can accelerate our economic development.
But again, just like with other development issues, the Philippines is stuck in long, endless and unproductive debates with so-called progressive groups on what to do with our mining industry. This makes me wonder why "progressive" is used by the media to describe such groups as their mindsets are stuck to a Jurassic development ideology.
fdadriano88@gmail.com
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