Waving to the world The ‘Selamat Datang’ statue standing against a background of bustling traffic and buildings in Jakarta. — AFP
INDONESIA’s aspirations for Golden Indonesia 2045 call for the country to enter the high-income category before the republic commemorates its centenary of independence in 2045.
This requires the country to grow around 6% to 7% annually for the next two decades, so the economy doubles in 10 years and becomes four times larger by 2045.
Indonesia’s goal for 2045 is a nominal gross domestic product (GDP) of almost US$10 trillion with a Gross National Income per capita of US$30,300 and a manufacturing contribution of 28%.
Assuming no “black swan” events like a global financial crisis or a major geopolitical incident take place, Indonesia’s growth is possible if the country boosts productivity in the areas that can provide those sources of growth.
In a well-known quotation, the economist Paul Krugman said, “Productivity isn’t everything, but it is almost everything in the long run.”
This rings true for Indonesia’s economic strategy. The National Developing Planning Agency (Bappenas) has a National Long-Term Plan, the RPJPN 2025-2045, which lists the broad priority areas for long-term growth.
This article emphasises three primary sources of growth that are integral to Indonesia’s economic strategy: the blue economy, manufacturing and city development.
Understanding the potential of these sectors and how to ignite productivity within them is crucial for Indonesia’s economic future.
First, the blue economy: Indonesia has over 17,000 islands and 108,000 km’s of coastline, with opportunities in marine living and non-living resources, industry, tourism, transportation, and logistics. Despite this potential, marine fish, sea product processing and aquaculture are still behind other leading countries.
In aquaculture in 2022, based on Observatory of Economic Complexity data, Indonesia was in fourth place as an exporter of shrimps and prawns (US$786mil), after Thailand (US$854mil), China (US$1.08bil) and Vietnam (US$1.75bil).
Seaweed is also crucial in Indonesia, with over 250,000 tonnes of exports.
The Safe Seaweed Coalition, a research and industry group, says that seaweed harvesting could grow by 15 times by 2050.
For sea products, technologies can be adopted to enhance productivity, such as automation and robotics, high-pressure processing, Individual Quick Frozen and artificial intelligence (AI) to monitor sea areas and sea health systems.
As a 2021 Bappenas/OECD report on the blue economy shows, an immediate source of growth is the acceleration of value added in traditional sectors (marine living, marine non-living, industry, tourism, trade, transportation and logistics) and emerging sectors (renewable energy, bio-economy and biotechnology).
The blue economy can drive Indonesia’s economic growth when value-added is created on ocean resources more inclusively and sustainably.
Therefore, as the engine of growth, the blue economy is about creating value-added from ocean resources, not just selling raw and low-value-added materials.
Technology and innovation must be the key to improving value-added by producing new products and lengthening the country’s value chain.
Second, the role of manufacturing: According to a 2023 report by Statistics Indonesia, Indonesia’s GDP is almost 13% agriculture, 18% manufacturing industry – and the rest consists of mining, construction, electricity and gas, water and nearly 43% services.
No country has reached high-income status without manufacturing, as Asia’s experience shows, with Japan, South Korea, China and other countries like Singapore relying on research and development and high processing sectors to add value to manufacturing.
However, promoting manufacturing in developing countries is more complex than in the past because of competition from high-income countries and nearby China, which dominates upstream and downstream sectors, and because manufacturing today requires advanced technologies and digitalisation.
Manufacturing is key
Manufacturing, which includes not only machines and robots but also the process of agricultural products and expanding services with goods production, is imperative in Indonesia to add value to agriculture and marine products.
Manufacturing also has the potential to increase returns to scale, as it allows agriculture and services to increase productivity and value and creates spaces of competitiveness and knowledge in the economy with virtuous growth cycles.
Third, city development: Over 82% of the Indonesian population will live in cities by 2045, according to the Communications and Information Ministry.
Cities’ layouts are central to productivity and contribute to GDP growth for manufacturing and services, as good transport connectivity reduces commuting times, facilitates access to jobs and the integration of value chains and supply chains and reduces production and distribution times.
Cities in Indonesia do not operate at the maximum level as only two cities are of the optimal size.
Moreover, the percentage gain (increase in productivity) if cities operate at the optimal sizes is about 75.4%; this implies that by connecting small cities and integrating with larger agglomerations, overall urban productivity can be boosted and become a source of growth incrementally up to 2045 and beyond.
Another study shows that creating productive clusters outside Java with necessary infrastructures such as electricity, ports and roads will continue to increase productivity.
Deconcentrating Java and creating new development zones, including the newly planned capital city of Nusantara, will allow middle-sized cities to integrate new suburban agglomerations into productive hubs and markets.
The aggregated effect of providing infrastructure and implementing territorial industrial policies will be a sizeable additional source of growth.
What is the primary key to ignite high productivity in those three areas? They are engineering and basic science. For the blue economy, the question is what technologies are used by countries that produce with higher values.
For manufacturing, besides foreign investment and trade, the questions are: Are local producers able to absorb new technologies?
Are firms ready to increase value and productivity, improve production processes and create new industries?
For city development, the questions are: Does expertise exist in using geospatial data and AI for spatial analysis? Are urban economists and planners working together to integrate city planning with productive processes?
As frontier technologies, including AI, are globally applied to increase value in agriculture, manufacturing, sea products processing and city development, Indonesia should accelerate the absorption of those technologies.
Advanced technologies are primarily being developed in high-income countries, so establishing networks and platforms for knowledge sharing of engineering and basic science is essential for high-value policies.
Productivity growth will be effective with Indonesia inserting itself as a recipient and a global knowledge contributor.
Indonesia’s ambitious targets for 2045 are open and possible, with productivity-led growth being the right model for the economy. — The Jakarta Post/ANN
Marco Kamiya is the United Nations Industrial Development Organisation representative for Indonesia and Timor Leste. Amalia Adininggar Widyasanti is the economic affairs deputy for the National Development Planning Ministry. The views expressed here are the writers’ own.
