A diverse archipelago nation of more than 1,300 ethnic groups and 700 local languages, today Indonesia is the world’s fourth most populous nation and 10th largest economy in terms of purchasing power parity, consisting of 34 provinces, 16,056 islands, with approximately 273 million people. The demographic data shows that over 68% of the population is aged between 15 and 65, with a low dependency ratio and a dynamic workforce with high literacy rates; urban consumers account for about 57% of Indonesia’s total population and is expected to reach 71% (209 million consumers) by 2030, are likely to be concentrated in its 12 large cities – including Jakarta, Surabaya and Medan; Indonesia’s population comprises more than 39% of the total population of the 10 ASEAN countries
Indonesia has made enormous gains in poverty reduction, cutting the poverty rate by more than half since 1999, to under 10 percent in 2019 before the COVID-19 pandemic hit. Indonesia also achieved a notable success in reducing its stunting rate from 37 percent in 2013 to under 24.4 percent in 2021, although more work remains to be done to ensure strong and productive human capital development.
Indonesia’s labor force participation rate was recorded at 68.08% in 2021 and 69.06% in 2022. Indonesia has a large consumer base with fast-increasing spending power as a result of the growing middle class, with around 7 million people are expected to join the middle class per annum. Indonesia expected real household spending to grow by a further 4.8% (yoy) over 2022, an improvement from the 2.2% growth in spending recorded in 2021.
These strong fundamentals make Indonesia one of Southeast Asia’s most attractive investment locations.
Macroeconomics Indicators (source: WorldBank)
Stable Macroeconomics Indicators
Indonesia’s Structural Reform Priorities
- Education and skills: Improve outcomes in education
- Labour market: Reform labour regulations to reduce informality
- Competition and regulation: Ease barriers to entrepreneurship and investment, and strengthen institutions to fight corruption
- Infrastructure: Improve the regulatory environment for infrastructure
- Energy: Continue to make energy prices more cost-reflective
Indonesia Vision 2045
With an average growth target of 5.7% per year, Indonesia is targeting to become a high-income country by 2036 and the world’s fifth-largest economy by 2045. This high growth would gradually increase the middle-income class to about 70% of Indonesia’s population by 2045. To that end, strengthening the process of economic transformation to achieve the development goals of 2045 has become the focus in the context of achieving sustainable infrastructure, high human development, and better public services and welfare standards.
Achieved Macro Development Goals
Economic Growth Scenario Indonesia Vision 2045 (Source: Ministry of National Development Planning / Bappenas)
Sovereign Credit Ratings
These ratings reflect Indonesia’s resilience to the global financial crisis, improving government and external credit-metrics, and an ability to manage domestic political challenges to the reform agenda.
EoDB Rating (Source: Doing Business Report 2020)
Southeast Asia EODB (Source: World Bank)
Indonesia has climbed The World Bank’s Ease of Doing Business rankings steadily. Indonesia was ranked 109th in 2016 before climbing to 91st then 72nd in 2017 and 2018, respectively, and by 2019 through to the present, Indonesia is 73rd globally. While other countries seem to climb to a higher position almost yearly, Indonesia’s ranking is higher than that of only the Philippines (95th).
Indonesia’s rise in the rankings was due in part to multiple economic policy packages. Many policy packages were released in 2015 and 2016 with fewer subsequently as President Jokowi’s first tenure drew to a close and None have been released in 2019. Indonesia passed the Omnibus Law in 2020 to revise barriers to investments and improve the ease of doing business, in a bid to attract more investments to drive economic growth and create jobs. The Omnibus Law will simplify processes to get business licenses and introduce flexibility in the country’s labour market by easing recruitment and outsourcing.
These improvements include the launch of the Online Single Submission (OSS), which integrates licensing services to ease the process of setting up business in Indonesia. In addition, Indonesia also issued a regulation on the Positive Investment List as part of the Omnibus Law, which would see Indonesia opening sectors such as energy, telecommunication, transport, and construction services for full foreign investment.
The 2045 vision refers to Indonesia’s target of becoming a high income country, meaning that Indonesia must get out of the middle-income trap by 2036 with per capita GDP exceeding USD12,233 so that it crosses USD23,199 by 2045. And to achieve the targets, Indonesia needs foreign direct investment amounting to 4.5 percent of the national GDP annually.
