By Anthony Harrington
When you are the world’s fourth most populous country, with over 238 million citizens, it makes sense to think in terms of lifting your game and moving from being the 16th biggest economy in the world to breaking into the world’s top 10. This is indeed the target that Indonesia has set for itself, and it has given itself just 12 and a bit years to achieve its goal. According to a far reaching report on Indonesia by the OECD, Indonesia can expect real GDP to grow by around 6% for 2012, with this level continuing through 2013. Moreover, unlike China, which is still struggling to shift from export driven growth to a more balanced economy, Indonesia’s growth is being boosted by strong domestic demand.
One of the things that the Indonesian government is currently getting wrong, according to the OECD, is the scale of the subsidies it is providing on fuel. “A substantial reduction in energy subsidies, which fail to achieve their social goals and have significant fiscal costs, would free up resources for pressing social and economic needs,” it says. However, the OECD does realize that the country’s economy, spread as it is among over 17,500 islands, needs a system of cash transfers from the richer to the poorer, to prevent the scourge of poverty from blighting the economy.
If this is done skilfully, then cash transfers could help to balance the negative impact on the poor of the withdrawal of fuel subsidies, the OECD argues. Politicians on the ground, of course, frequently differ vehemently from economists who are located thousands of miles away and have only an academic grasp of what they are calling for. But there is now considerable pressure from various sustainability bodies for both food and agriculture subsidies to be withdrawn by governments generally. Current thinking is to urge governments to find other kinds of safety nets, since there is a realization that policies that set out to control global market prices or to mitigate global market prices create massive distortions in local economies and can cause really bad local decision making. “Bad” here means bad both in terms of local effects on markets and in terms of the adverse impact on sustainability initiatives.
What Indonesia really needs to do, the OECD says, is to improve its tax system and the way it administers and collects taxes. Going after high net worth individuals to ensure that they pay their due taxes, while also broadening the tax base, would be hugely beneficial. The OECD is also arguing for a sub-minimum wage for young workers to try to tackle the problem of youth unemployment. It also wants to see Indonesia being a little less generous with “tax holidays” for companies in pioneer start up areas of the economy.
Where the OECD does want to see Indonesia applying some stimulus is in infrastructure spending. The country could do more in this area, provided it supports cost effective policies. The economy is the fifth largest in Asia, and Indonesia has made significant progress in relieving poverty and improving education since the Asian crisis in 1997-98. Strong policy management has had a beneficial impact on improving the economy and liberalizing the international trade regime. Small firms have accounted for most of the new jobs in the country since then and are responsible for some 50% of the growth in production, the OECD says. However, current growth is not yet at the 7-10% a year level that Indonesia will need to achieve its strategic goal of becoming the world’s 10th largest economy by 2025. The OECD report concludes that boosting productivity while at the same time paying attention to ways of mitigating rising inequality will be key to ensuring that Indonesia’s growing economic power brings benefits to all.
Gerald Fry November 26, 2012 1:00 am
In many respects, Indonesia is the “giant” of Asean. It is the largest archipelago in the world with over 17,000 islands and the fourth largest population with 248.6 million people. It is the world’s largest Muslim nation, with 86 per cent of its population adhering to this religion.
The area it occupies is also huge with its land and sea area being slightly smaller than the United States. If you place a map of Indonesia on top of Europe it would stretch from the northern tip Ireland to Afghanistan. Strategically it is located at the crossroads of the Indian and Pacific oceans.
The country – whose name literally means Indian islands, reflecting extensive Indian cultural influences – has extraordinary cultural diversity with about 600 languages and dialects spoken.
As a Dutch colony in olden times it was known as the Dutch East Indies and commonly referred to as the Spice Islands. In 1860, Eduard Dowes Dekker, a former Dutch colonial officer, under the pseudonym Multatuli, wrote a novel, “Max Havelaar”, exposing the harshness and inhumanity of Dutch colonial role, which triggered major educational reforms that contributed significantly to the anti-colonial movement. The Indonesian writer Pramoedya called this the “book that killed colonialism”. In 1976 the book was made into a film by Fons Rademakers.
After four years of armed rebellion in the aftermath of World War II, on December 27, 1949, Indonesia was granted full independence by the Netherlands.
After independence, Sukarno became Indonesia’s strong charismatic leader and became head of the non-aligned “Third World”. He was highly effective in establishing Indonesian national unity and promoted the ideal of “unity and diversity”, which continues to prevail today.
Though his economic policies were flawed, he was brilliant in promoting Bahasa Indonesia as the national language of Indonesia rather than Javanese, the language of the largest ethnic group.
In 1963 Indonesia took over Irian Jaya, the western half of the large island of New Guinea. This area has also extraordinary linguistic diversity and the indigenous people are largely Melanesian and Christian, very different than the Muslim Indonesians.
On September 30, 1965, Sukarno was overthrown in a coup known as the “Night of the Generals”. This coup has numerous similarities with what happened later in Chile on September 11, 1973 with the overthrow of Allende, and in Thailand on October 6, 1976 with the military coup and the assault on Thammasat University. As a result of the coup, General Suharto became Indonesia’s leader, shifting its development orientation to liberal capitalism.
Similar to what happened in Thailand, the Asian economic crisis of 1997 led Indonesia to undertake a major reform of its educational system, with education being significantly decentralised to its 440 local districts. The aim of the reform was to give local areas more autonomy, reduce costs and improve quality.
Indonesia’s educational system reflects the diversity of the country as a whole. There are many different kinds of schools such as pesantren, which are religious boarding schools where the curriculum is based on the Koran; popular Taman Sisawa schools, which were introduced as an alternative to Muslim and public schools; Catholic/Christian missionary schools; and public schools. The government provides substantial assistance to private schools.
As in Thailand, there has been a dramatic growth in private higher education in recent decades. Having been a Dutch colony and with its higher education curriculum being primarily in Indonesian, Indonesia faces many of the same English language challenges as Thailand in preparing for the AEC era.
Given Indonesia’s rich and diverse culture, popular culture provides a wonderful way for Thai students to become knowledgeable of Indonesia while also enhancing their English language skills. Among prominent Indonesia art forms are its marvellous batik textiles, its rich tradition of shadow puppetry and enchanting gamelan music.
Also there are prominent Indonesian writers whose works are available in English. The most renowned Indonesian writer is Pramoedya Ananta Tour. Among his notable works are “Child of All”, “House of Glass” and “Girl from the Coast”. Another prominent writer is Mochtar Lubis, who wrote “Twilight in Jakarta” and “Road without End”.
A more recent award-winning writer is the female author, Ayu Utami, who broke new ground by writing about the taboo topic of sex and politics. Her masterpiece is “Saman”, available in English.
In the AEC era, there is considerable potential for increased tourism. The Hindu island of Bali has many attractions and there is the magnificent Buddhist temple complex, Borobudur, in central Java.
Actually Indonesia is blessed economically with having vast natural resources, including oil. It consistently runs huge trade surpluses and, thus, has substantial international currency reserves. Its current level of international reserves is US$110.1 billion (Bt3.37 trillion), ranking 21st in the world.
Indonesia with its large and dense population can be a growing market for Thai agricultural products and increasing numbers of wealthier Indonesians could certainly be attracted to Thailand as tourists.
With Indonesia’s strong financial reserves, it should also consider providing more scholarships for Thais to go to Indonesia to study its rich language, culture and society. It should be relatively easy for Thais to develop proficiency in Indonesian, given that the language is written in the Roman script, has Pali-Sanksrit roots and uses many English cognates (for example, korupsi, komputer, sistem, komisi).
There will certainly be many enhanced opportunities for Thai-Indonesian creative collaboration in the AEC era.
Distinguished international professor, Department of Organisational Leadership, Policy and Development, College of Education and Human Development, University of Minnesota
2013 will see the launch of the eagerly awaited Asian Le Mans Series with the calendar being confirmed with races in China, Korea, Japan and Indonesia.
Photo by: Andy Chan
In order to help the maximum number of Asian entrants to learn the ropes of endurance racing with teams will consist of two or three drivers (open choice but there must be an amateur and a professional). Each line-up in each category must have at least one driver who is a native of the continent. The aim is to help bring on new talent, and also to help a few drivers who have problems finding seats.
Three invitations for the 2014 Le Mans 24 hours will be awarded to the 2013 winners of the LM P2, LM GTE and GTC categories (the GTC winners will have to enter a GTE Am car for Le Mans). The 2013 winning LM PC team will be given an invitation to take part in the 2014 test day for the Le Mans 24 Hours.
To date interest from teams, manufactures and partners have exceeded expectation and organizers expect the grid to be strong across all categories in 2013. Official team registration will commence on 28th October 2012 and run through 20th March 2013.
Organizers of the Asian Le Mans Series, are also in the process of establishing a comprehensive marketing and media program around the Series and recently announced that is has already secured two prestigious TV broadcast partners to show its races in 2013, those being, ESPN STAR Sports and Eurosport Asia-Pacific.
The Automobile Club de l’Ouest has entrusted the organization of this new Series to promoters S2M Group, established in China since 1999 and already an ACO partner for the ILMC races staged at Zhuhai in 2010 and 2011, which has been. TS Motorsport, established in Shanghai since 2005, will look after the logistics and race operating activities of the races. The ACO and its team of scrutineers and officials will be present to help this new championship get off the ground in 2013.
Pierre Fillon, Automobile Club de l’Ouest President: “The launch of a series of endurance races on the Asian continent bearing the name and embodying the values of the Le Mans 24 Hours is an essential step in the context of the Automobile Club de l’Ouest’s development on the international scene.
Photo by: Tom Haapanen
“It is our duty to put on Le Mans-type endurance races where the markets are surging from an economic point of view: concerning the motor car, the Asian one is the uncontested world leader. Like all our championships that follow the Le Mans 24-Hours spirit that has lasted 89 years, the Asian Le Mans Series will enable manufacturers to showcase the reliability of their products and enhance their image, as well as demonstrating the soundness of their new technologies in a sporting, competitive spirit guaranteed by the values of the Automobile Club de l’Ouest. Our dearest wish is that an Asian driver, an Asian team or a manufacturer/constructor from the Asian Le Mans Series wins the Le Mans 24 Hours.”
Mark Thomas, Managing Director of S2M Group: “Firstly I would like to thank the ACO for giving S2M Group the opportunity to be involved in the Asian Le Mans Series. Today’s calendar launch is the culmination of much time and work in terms of preparation and planning. Such a pan-Asian endurance motor sports Series cannot be successful without the collaboration of many different partners not least the respective National Associations and circuits that will host the races but also all the prospective manufacturers, teams and commercial partners that will be involved. In reality, today marks the start of much hard work to create a successful Asian Le Mans Series for many years to come. However we are confident with the team and partners we are bringing together we can cement the Series as one of the preeminent motor sports properties in Asia.”
2013 Asian Le Mans Series Calendar
The seaplane taxiing over a coral reef to deliver tourists to a remote luxury resort may soon become a more familiar sight in Indonesia, an archipelago of 17,000 islands and only 183 airports.
At the moment, seaplanes in Indonesia are limited to niche charter flights for high-end tourism and mining, but their use could spread to serve the needs of a fast-growing economy and to beat the lack of transport infrastructure.
State-owned domestic carrier PT Merpati Nusantara Airlines aims to start the first scheduled public seaplane services in the country since the Dutch colonial period, when seaplanes regularly hopped across the main island Java. It is in talks with Canada-based planemaker Dornier to buy 20 seaplanes in a $120 million deal.
“There is no way infrastructure development can fully service Indonesians … We’re talking about a lot of islands that have no airports but need government attention. The only logical way is using amphibious planes,” said Rudy Setyopurnomo, Merpati’s CEO.
Seaplanes ferry passengers from Bali’s airport east to the Moyo island hideaway, where Oliver Stone filmed ‘Savages’ earlier this year, in about an hour – less than half the time it would take on a helicopter.
The planes splash to a gentle landing on turquoise water and jettison excited passengers right onto the resort’s jetty.
“That was amazing – even smoother than a normal landing. And so convenient – much more comfortable than a helicopter,” said Anna, a tourist from Moscow, as she fed bread to the parrotfish swimming under the seaplane’s tail. “It will make a lot of places more accessible. A jumbo jet can’t do a water landing.”
Operator Travira Air also runs seaplanes from Bali and Lombok for staff at Newmont Mining Corp’s massive copper and gold mine on nearby Sumbawa island, saving executives a four hour journey to the airport and cutting costs for the company.
Renting the plane for 100 hours flying time a month costs around $140,000, versus over $200,000 for a helicopter carrying less people, Travira says.
Seaplanes symbolized the romanticism of early flight but were killed off by the jet age as regular scheduled transport. The prospect of a renaissance in Asia reflects not only the unique geography of places like Indonesia but also the sheer pace of Asia’s growth in demand for planes.
Indonesia’s government aims to finance 15 new airports in 2013, but is also relying on attracting billions in private financing for infrastructure. Progress so far has been slow, leaving Merpati looking at a solution not requiring runways – the 20 seaplanes.
“We’re going to buy them now. We expect next year to be the first delivery,” said Setyopurnomo, adding the planes could be built locally under a partnership with local planemaker PT Dirgantara Indonesia.
LIKE A BOAT
The Dornier Seastar planes, with turboprop engines made by United Technologies Corp unit Pratt & Whitney, look like flying speedboats. They carry around 12 passengers and fly faster than the eight-seater Cessna Caravan Amphibian that Travira uses.
“It is the first new seaplane developed in the past 50 years … It can park anywhere you can tie a boat up,” said Don McClaughlin, Dornier’s vice-president for sales. “Our two biggest target markets right now are Indonesia and China.”
Dornier and Cessna Aircraft Co, a subsidiary of Textron Inc, face seaplane competition from Canadian firm Viking Air’s 19-seater Twin Otter.
In China, Waterfront Air says it is applying for licenses to use Twin Otters for scheduled services between Shenzen, Hong Kong, Macau and Guangzhou’s industrial Pearl River region.
Elsewhere seaplanes are common in remote locations such as the Maldives, British Columbia and Alaska, but there are few scheduled services.
The Dornier and Cessna seaplanes have a maximum range of over 1,500 km (930 miles), just about enough to fly from Indonesia’s capital Jakarta with one refueling stop to the easternmost Papua region. But the cargo they can carry drops after about 300 km, making them more suitable for inter-island hops or operations around a base in far flung provinces.
Other challenges include a lack of specialist pilots, since locals often get poached by rapidly expanding budget carriers, regulations such as the need for annual landing permits, and larger waves in the rainy season making landing impossible in some locations, said Rudiana, Travira’s chief operating officer.
“If we can get over these challenges there are a lot of opportunities,” said Rudiana. He cited potential demand in areas such as the huge Natuna gas field off Borneo that ExxonMobil hopes to develop, tourism around islands such as Sumatra and Sulawesi, and for firms in Papua, home to major projects for Freeport McMoRan Copper & Gold and BP.
The Twin Otter would be useful as it can carry a higher payload much further, but charter airline Aviastar has struggled to get an operating license for one in Indonesia, known for its red tape.
“We could use a bigger plane – flights are packed on a Saturday as everyone wants to head off for the weekend,” said Peter Ferrigno, the logistics manager for Newmont’s mine.
(Additional reporting by Alison Leung in Hong Kong and Tim Hepher in Paris; Editing by Jonathan Thatcher)
Most international businesses and investors know that modern Indonesia boasts a substantial population and a wealth of natural resources. But far fewer understand how rapidly the nation is growing. Home to the world’s 16th-largest economy, Indonesia is booming thanks largely to a combination of domestic consumption and productivity growth. By 2030, the country could have the world’s 7th-largest economy, overtaking Germany and the United Kingdom. But to meet its ambitious growth targets and attract international investment, it must do more.
Indonesia has an attractive value proposition. Over the past 20 years, labor productivity improvements, largely from specific sectors rather than a general shift out of agriculture, have accounted for more than 60 percent of the country’s economic growth. Productivity and employment have risen in tandem in 35 of the past 51 years. And unlike typical Asian “tiger” economies, Indonesia’s has grown as a result of consumption, not exports and manufacturing. The archipelago nation is also urbanizing rapidly, boosting incomes. By 2030, Indonesia will have added 90 million people to its consuming class—more than any other country except China and India.
Nevertheless, to meet the government’s goal of 7 percent a year growth by 2030, the economy must grow faster. Given current trends, the McKinsey Global Institute estimates that Indonesia has to boost productivity growth to 4.6 percent a year—60 percent higher than it has been during the past decade. Amid rising concern about inequality, the country must also ensure that growth is inclusive and manage the strains that the rapidly expanding consumer classes will place on its infrastructure and resources.
Of course, Indonesia should tackle well-known problems such as excessive bureaucracy and corruption, access to capital, and infrastructure bottlenecks. But in addition it must address its impending skills gap; the country could, for example, develop a private-education market that might quadruple, to $40 billion, by 2030. If at the same time Indonesia took action in the three key sectors below, it could create a $1.8 trillion private-sector business opportunity by 2030:
- Consumer services. Indonesia faces a range of challenges to productivity growth—including complex regulation of financial services, poor transportation infrastructure, and barriers to entry for new retail players and expansion limits for existing ones. If Indonesia overcame these problems, consumer spending could rise by 7.7 percent a year, to $1.1 trillion, by 2030.
- Agriculture and fisheries. Indonesia needs to raise productivity per farmer by 60 percent just to meet domestic demand. If the country can boost yields, reduce postharvest waste, and shift to higher-value crops, it could become a net exporter of agricultural products, supplying more than 130 million tons to the international market. Revenue from these sectors, together with the related upstream and downstream revenues, could increase by 6 percent a year, to $450 billion, by 2030.
- Energy. Demand not only for energy but also for other key resources, such as materials and water, is likely to increase rapidly through 2030. Indonesia could meet up to 20 percent of its energy needs by turning to unconventional sources, such as coal-bed methane, next-generation biofuels, geothermal power, and biomass. This approach could also help boost resource productivity—for example, improving the country’s energy efficiency could reduce energy demand by as much as 15 percent. By 2030, Indonesia’s energy market could be worth $210 billion.
Tahun 90′an awal, Asia mengalami booming dimana ekonomi tumbuh pesat, diiringi dengan transisi negara-negara yang (semula) agraris menjadi negara industry. Negara-negara itu antara lain adalah Filipina, Malaysia, Thailand, dan Filipina, yang mengikuti jejak Taiwan, Korsel, Jepang, dan Singapura yang telah lebih dulu menjadi negara maju. Kemudian munculnya istilah untuk negara-negara yang newly-industrialized tersebut dengan sebutan “The Asian Tigers”, Para Macan Asia. Keyakinan dan harapan pun membumbung tinggi waktu itu, dan saya masih ingat ketika SD, guru-guru di sekolah begitu bersemangat menggambarkan kejayaan ekonomi Indonesia di masa depan. Istilah Indonesia Sang Macan Asia beberapa kali saya dengar di kelas dulu.
Hal yang tak terbayangkan kemudian terjadi. Saya baru lulus kuliah ketika krisis moneter meluluhlantakkan sendi-sendi Indonesia, dan lambat laut istilah Indonesia Macan Asia mulai memudar, seiring tergerusnya harapan dan semangat banyak orang Indonesia saat itu. Saya sempat membayangkan perasaan guru-guru SD saya, apakah mereka juga pudar harapan dan semangatnya terhadap masa depan Indonesia? Saya tidak tahu, sudah lama sekali saya tak berjumpa satupun dari mereka.
Yang saya tahu adalah, banyak orang yang tak lagi menaruh harap tinggi pada masa depan negeri ini. Beberapa waktu lalu saya menghadiri sebuah seminar mengenai Indonesia di Surabaya, dan ketika istilah “Indonesia kembali menjadi Macan Asia” disebut, banyak yang skeptis, bahkan mencibir. Saya masih ingat seorang peserta seminar yang duduk di depan saya menanggapi dengan sinis. “Indonesia macan asia? Mungkin macan yang tidur dan nggak bangun-bangun” ujarnya sambil tersenyum sinis. Ada juga yang mencoba melucu dengan mengatakan bahwa bisa jadi Indonesia memang sekarang menjadi macan asia, namun sudah sangat terlambat karena negara-negara lain telah menjadi dinosaurus Asia. (Saya benar-benar tersenyum geli waktu itu)
Baiklah, semua orang punya hak untuk pesimis dan skeptis tentang Indonesia, namun ada baiknya kita letakkan dulu awan pekat pesimisme yang menggantung di atas benak kita. Penting mencoba memahami sebuah laporan terbaru yang disusun oleh McKinsey Global Institute (MGI), sebuah lembaga konsultan ekonomi global yang sangat disegani di dunia, yang menulis tentang prediksi ekonomi Indonesia di masa depan. Judulnya gahar! “The Archipelago Economuy: Unleashing Indonesia’s Potential”. Tentu saya tak berniat sedikitpun mengajak anda semua membaca laporan MGI setebal 101 halaman, dan sayapun tidak berniat membacanya.
Chairman MGI Raoul Oberman mengatakan bahwa pertumbuhan ekonomi Indonesia sangat spektakuler dalam beberapa tahun terakhir, namun sayangnya kurang terdengar dan terapresiasi. “Indonesia is the best hidden secret” katanya. Raoul juga mengatakan bahwa saat ini Indonesia sudah menjadi negara dengan ekonomi terbesar ke-16 di dunia, dan akan terus tumbuh. Indonesia, masih menurutnya, mengalami pertumbuhan ekonomi paling stabil jika dibandingkan dengan negara-negara yang tergabung dalam OECD (Organization for Economic Cooperation and Development) dan BRIC (Brazil, Rusia, India dan China). Ditambahkannya, rasio utang Indonesia terhadap PDB yakni sekitar 24% termasuk yang terendah di dunia.
Indonesia juga diuntungkan dengan posisi geografisnya yang berada di jantung pertumbuhan dunia, yakni Asia, dimana jumlah konsumen kelas menengah akan naik drastis. Konsumen kelas menengah ini adalah mereka yang berpenghasilan per tahun di atas US $ 3600, yang mulai ingin memenuhi kebutuhan kebutuhan sekundernya, dan ini bisa menjadi konsumen dari produk-produk buatan indonesia , maupun hasil alam negeri ini.
Di Indonesia sendiri, saat ini ada sekitar 45 juta orang yang berada di jenjang ekonomi kelas menengah, dan diperkirakan pada 2030 akan bertambah menjadi 135 juta jiwa, sebuah jumlah yang sangat besar, lebih besar dari jumlah seluruh penduduk Malaysia, Singapura, Brunei dan Thailand digabung. Menurut MGI, pertumbuhan kelas menengah di Indonesia lebih tinggi dari negara manapun di luar China dan India.
Pesan terbesar dari laporan McKinsey Global Institute adalah prediksi bahwa Indonesia akan menjadi negara dengan ekonomi terbesar ke-7 di dunia pada 2030, menyusul China, AS, India, Jepang, Brazil dan Rusia. Kita tidak melihat negara-negara besar di Eropa anggota G-8, kemana mereka? Inggris, Prancis, dan bahkan Jerman akan disalip oleh Indonesia. Mungkin akan ada yang geleng-geleng sambil tersenyum sinis mendengar Indonesia akan menyalip mereka, tapi perlu diingat bahwa saat ini, ekonomi Indonesia (yang dihitung dengan Gross Domestic Product (GDP)/ Produk Domestik Bruto (PDB) sudah melewati GDP Belanda, sesuatu yang dulu tak terbayangkan. Artinya, dengan situasi ceteris paribus dimana ekonomi RI akan tetap tumbuh di kisaran 6-7 % per tahun, dan negara-negara Eropa 1-3%, sangat logis kalau suatu saat, Indonesia akan mampu melewati mereka, dan menurut McKinsey itu terjadi sebelum 2030. Wallahua’lam
When most people think of Indonesia today, they think of beaches and temples or of its famously teeming cities, but this country of 240 million and counting is a much more modern, diversified, and dynamic economy than many international investors and companies assume. To make the most of Indonesia’s vast potential, they’re going to need to change the way they think about the archipelago — and putting these five myths to bed is a good place to start.
Hardly. Far from being unstable, Indonesia has been growing steadily at an impressive rate of 4 to 6 percent over the past 10 years — less volatile than the economies of Brazil, Russia, India, and China, or any other developed country for that matter. Indonesian government debt has fallen by 70 percent in just a decade and is now at a level lower than in 85 percent of developed economies. Inflation, which was over 20 percent 10 years ago, now stands at 8 percent, comparable with more mature economies, such as South Africa and Turkey. Indonesia’s overall economic management has also shown remarkable improvement. The World Economic Forum ranked Indonesia 25th out of 139 countries for macroeconomic stability in 2012, up sharply from 89th in 2007. For comparison, Brazil ranked 62nd and India ranked 99th.
”Not much happens outside Jakarta.”
Not true anymore. Indonesia’s sprawling capital city contributes up to one-quarter of the archipelago’s entire gross domestic product (GDP). But Jakarta’s dominance is waning. A large number of medium-sized or “middleweight” cities like Bandung and Medan are growing faster than the capital and will be ever more important hot spots for foreign investors and companies looking for opportunities. Urbanization is spreading in Indonesia and is an increasingly important growth stimulus. By 2030, more than 70 percent of the population is likely to live in an urban area, up from just over half today. Between 2010 and 2030, more than 30 million people are expected to move from rural to urban areas. Cities with populations between two and five million — like Bekasi and Surabaya — are growing the fastest and could together account for 27 percent of GDP by 2030. In fact, around 90 percent of Indonesia’s fastest-growing cities will be outside the island of Java, where Jakarta is located, by 2030.
“Indonesia is nothing without its natural resources.”
Not when you look closely. There is no doubt that Indonesia is unusually rich in natural resources. It is the world’s largest producer and exporter of palm oil, the second-largest exporter of coal, and the second-largest producer of cocoa and tin. It has the fourth- and seventh-largest reserves of nickel and bauxite, respectively, according to the government. Indonesia also has the world’s largest geothermal resources. And, yes, Indonesia has large endowments of crude oil and natural gas. But mining, oil, and gas only account for 11 percent of Indonesia’s nominal GDP — the same share as in Russia. In fact, Indonesia has been a net importer of oil since 2004. It may come as a major surprise to many observers that half of Indonesia’s GDP comes from service sectors such as financial services — specifically savings and investment — retail, and telecommunications. Indonesia is already the fourth-largest user of Facebook in the world — a promising platform for the development of e-commerce.
“Indonesia is a typical Asian tiger.”
Wrong. Indonesia’s economy is not driven by exports — a feature typical in most Asian tigers. Indonesia’s exports only generate 35 percent of GDP, and, excluding commodity exports, only 16 percent. As the dominance of Indonesia’s service sectors suggests, domestic consumption is the economy’s driving force. And at a population growth rate of 5 to 6 percent a year, an additional 90 million Indonesians could join the “consuming class” by 2030. (Consumers are defined as individuals earning $10 a day or more, who therefore have enough money to spend on discretionary, not just basic, goods, and services.) That growth in consumer base is larger than any other economy in the world apart from India and China and stands as a testament to the growing market opportunity offered by Indonesia. Rising rates of consumption will bolster Indonesia’s domestic market, bolstering growth in the long term. The fact that domestic consumption is already a large driver of Indonesia’s growth has shielded the economy from the turbulence of the Asian financial crisis and the recent global recession. Catering to growing demand by developing its consumer services sector will ensure that the economy is even more insulated from future shocks.
“Population growth is behind Indonesia’s economic rise.”
Yes and no. Indonesia does indeed have a young and expanding population that could total 280 million by 2030, up from 240 million today. And demographics are likely to support growth for some time to come, contributing 2.4 percent to overall economic growth until 2030. But it’s not primarily people that are driving Indonesian growth — it’s productivity. In the last 20 years, increased labor productivity has been responsible for more than 60 percent of Indonesian growth, with the largest contributions coming from wholesale and retail trade, transport equipment and apparatus manufacturing, and transport and telecommunications. And contrary to the conventional wisdom that productivity improves at the expense of employment, both have risen in tandem in Indonesia for 35 of the last 51 years.
To meet the government’s ambitious target of 7 percent annual growth, Indonesia needs to do even better than it did in the past. Productivity growth needs to be 60 percent higher than it has been since 2000. That is challenging but achievable. If Indonesia boosts productivity and removes barriers to higher productivity and growth in three key sectors — consumer services, agriculture, and resources — and raises skills across the economy, it could accelerate growth and offer foreign investors a market opportunity worth $1.8 trillion opportunity by 2030.
Indonesia is at a critical juncture. Its economy has performed more impressively over the past decade than many outsiders — and even Indonesians themselves — think. But to build on this performance, Indonesia will need a productivity revolution in key sectors of the economy. Today, the archipelago economy is the world’s 16th largest, but with action now to unleash Indonesia’s full dynamism, it could jump to seventh by 2030. That would eclipse Germany and the United Kingdom, two members of the G-7 group of the world’s leading economies.
The Chinese economy attracts all the attention in the Asian Century, but Indonesia is right next to us, providing opportunities that are often more accessible and less crowded out by other foreigners. Thus a new McKinsey Report on Indonesia’s economy provides a counterweight to the China obsession and a reminder of just how well Indonesia has gone over the past decade.
Of course, no country can match China’s stunning pace of growth: more than 10% a year for the past decade. But this pace is unsustainable and the numbers now projected for China are not so different from Indonesia’s past performance, or its realistic potential. Since the disaster of the Asian crisis in 1997, Indonesia has clocked up a steady 5-6%, speeding up a little in recent years. McKinsey shares a widely-held view that Indonesia could and should do better – 7%, as it did during the three decades of the Soeharto regime.
Straight-line extrapolation should be taken with a grain of salt and inter-country GDP comparisons with a large spoonful, but McKinsey ranks Indonesia as number 16 in terms of GDP; 7% annual growth would take it to number seven by 2030, ahead of Germany and the UK.
The demographic bonus still has many years to run (no one-child policy in Indonesia to slow workforce growth) and both agriculture and the huge small-scale service industries have plenty of scope to release labour to do more productive things. Indonesian growth is largely driven by domestic demand and has been mainly unaffected by stagnation in Europe, the US and Japan.
Comparing the China growth debate with that in Indonesia shows some differences. In China, slower growth is seen as inevitable because they cannot go on investing 50% of GDP (or, nearly the same argument, they must be wasting a lot of investment by building fast trains to nowhere) and they can’t raise consumption or net exports fast enough to compensate for a substantial reduction in investment.
In contrast, the optimism that Indonesia can sustain and even speed up its rate of growth comes from identifying myriad glaring possibilities to do better. Creating an excess supply of fast trains (or any other infrastructure, for that matter) is not a concern in Indonesia.
On the supply side, Indonesia could produce much more from the existing resources. The star performer in the agricultural sector, palm oil, has average yields only one quarter of best practice. Good infrastructure would slash the costs of getting domestic agriculture and fisheries to market. It’s cheaper to import fresh fruit than to supply domestically.
On the demand side, McKinsey sees another 90 million people shifting into the ‘consuming class’ by 2030. Let’s by-pass the debate about exactly what the ‘consuming class’ is and focus in the things that people buy when they get some discretionary income. There is no shortage of demand for airline travel, telecommunications, entertainment, health and education. Indonesians buy a million cars a year and eight million motor bikes. Unmet demand for public goods demonstrates the potential. One study says that only 17% of the population has piped water. The World Bank ranks Indonesia 161 out of 183 countries in ease of getting reliable electricity, behind the Congo.
Optimists look at these figures and see the potential for huge improvement in productivity and growth. Pessimists look at the same figures and wonder what has gone wrong to produce this yawning gap between actual and potential.
Some of the answer is found in the international surveys of governance, corruption and ease of doing business. Indonesia invariably rates poorly. McKinsey puts the challenge clearly enough, but doesn’t say much about why Indonesia scores badly and how it might be changed.
The McKinsey report is very much of the ‘glass half full’ variety, but it does lay down the challenge: productivity will have to increase by 60% in order to reach the 7% growth objective.
It is an economic truism that productivity improvements are almost all that matters for higher living standards, but a lot of detail is lost in this truism. As McKinsey notes, the productivity achieved so far has not been a result of the once-off structural transfer from overcrowded agriculture to higher-productivity manufacturing. Only a little over half of the population is urbanised, so those gains are still waiting to be reaped. In fact, the share of manufacturing is lower now than at the time of the Asian crisis, accounting for around 25% of output, compared with 40% in Vietnam.
Put differently, Indonesia is still to make the big structural jump that Clifford Geertz talked about 50 years ago, when he worried that Indonesia would experience ‘agricultural involution’ (more intensive use of land, increasing output but not output per head) and miss the structural shift that had taken Japan from being a low-productivity agriculture-based country to a manufacturing powerhouse. Things haven’t turned out exactly as Geertz foresaw and the service sector can be a bigger part of the structural change than Geertz envisaged. But the strongest gains of productivity are in manufacturing and services tend to be low productivity. McKinsey doesn’t tell us why manufacturing expansion, stopped in its tracks by the 1997 crisis, has failed to revive.
This report sees lots of opportunities, but doesn’t say much about why these haven’t been seized so far. Why has the effort to fix corruption not been more successful? Why can’t Indonesia get its act together on infrastructure? Why are they slipping the wrong way on protection? Economics is only a part of the story and the politics is missing here.
In 1990, Irish journalist Susan Jane-Beers noticed an herbal-medicine clinic in the corner of a hair salon in the Indonesian capital of Jakarta, her adopted home. A victim of age-related chronic knee pain that conventional pharmaceuticals couldn’t numb, let alone heal, Jane-Beers decided to try jamu — traditional Indonesian medicine.
The results astounded her. After three days of taking only one-third of the prescribed dose of herbal pills, the pain had vanished, making her wonder if she’d found “the magic bullet of all time.”
Jane-Beers spent the next decade researching the origins, myths, tightly guarded recipes and commercial applications of herbal medicine in Java, where plants have been used for medicinal purposes since prehistory. Her 2001 opus Jamu: The Ancient Art of Herbal Healing remains the only definitive English guide on the subject. It’s also the most widely read outside Indonesia since Herbarium Amboinense, a catalog of plants completed by German botanist Georg Rumphius in 1690 — more than three centuries earlier.
A holistic therapy based on the notion that if disease comes from nature, then so must the cure, jamu uses a dazzling array of teas, tonics, pills, creams and powders to cure — or prevent — every ailment imaginable. The ingredients are by definition cheap, widely available and simple: nutmeg to treat insomnia, guava for diarrhea, lime to promote weight loss and basil to counter body odor.
Jamu has also been used to treat cancer. In her book, Jane-Beers writes of a traditional healer in the city of Jogjakarta who apparently cured what had been diagnosed as a terminal case of cervical cancer with a tea made of betel nut, Madagascar Periwinkle and mysterious benala leaves. By combining the tea with a strict soybean diet, the patient was said to have made a full recovery in 18 months.
Sound far-fetched? A 2011 study by Virginia Tech’s Department of Food Science and Technology on the soursop tree — whose leaves are used to relieve gout and arthritis in Indonesia — found evidence showing that extracts from soursop fruit inhibit the growth of human breast cancer. Vincristine, one of 70 useful alkaloids identified in Madagascar Periwinkle, radically ups the survival rate of children with leukemia, while turmeric is being looked at as a treatment for Alzheimer’s.
“Western medicine tries to destroy cancer, but at the same time it destroys elements of the body. Jamu helps the body produce its own antibodies to fight the cancer by itself,” says Bryan Hoare, manager at MesaStila, a wellness retreat in central Java that serves jamu shots with breakfast and employs a tabib, or indigenous healer, for private consultations. “Coming from the earth, jamu also makes you feel good. When you take it you experience a positive feeling.”
But if jamu is the magic bullet, why isn’t it better known in the West, where natural Asian medicines like India’s ayurvedic system and Chinese herbal healing have been growing in popularity for years?
The answer can be found on the streets of Indonesia, where jamu is consumed regularly by 49% of the population, according to the country’s Ministry of Health. Valued at $2.7 billion annually, the industry covers an incredibly wide gamut of products and regimens, including homemade tonics sold by street hawkers, slimming powders, cosmetics and jamu for babies and postnatal care. Yet the best sellers in terms of value are invariably the dodgiest: those claiming to boost sexual performance or suppress appetite.
“Indonesians may well have been amused when Viagra was released in 1998,” Jane-Beers says, noting the popularity of brands like Kuat Lekali (Strong Man), Kuku Bima (Nail of God) and Super Biul Erection Oil. “They have had their own remedies for years.”
Then there’s the association between jamu and white magic. Many indigenous healers insist on dispensing jamu on auspicious dates or in conjunction with animist spells that predate the arrival of Islam in the archipelago.
Mbah Ngatrulin, a Buddhist tabib I met in Ngadas, the highest village in Java, told me that spells are the key and that jamu may as well be “mineral water.” It’s the kind of comment that prevents many physicians across Southeast Asia from endorsing jamu lest patients take them for quacks.
According to Charles Saerang, head of the Indonesian Jamu Entrepreneurs Association, the primary impediment to a worldwide jamu craze is that locally produced jamu products don’t meet international manufacturing standards. That hasn’t stopped entrepreneurs from buying raw herbal materials in Indonesia, processing them in India and Malaysia and selling them in the U.K. — a market Indonesian-made jamu products can’t access. That’s a double whammy for Indonesia, which loses out on value added by third parties and the chance to promote the jamu brand name abroad.
It’s impossible to say when, or even if, jamu painkillers will be stocked at supermarkets and convenience stores in countries like the U.K. Yet inroads are already being made by small businesses like the Origin Spa in Melbourne. There, highly skilled practitioners apply massage techniques developed by 16th century Indonesian royalty — the founders of modern jamu— using creams and oils containing turmeric, betel leaves and crushed eggshells. There’s a minimum two-month waiting list for Origin’s five-day post-pregnancy treatment that is said to help women regain their figures quickly, improve lactation and dispel wind, dizziness and aches and pains.
“It’s surprisingly popular with the Asian mums throughout Australia,” says partner Jessica Koh. “But it’s still unfamiliar to most of the locals.”
— With reporting by Theo Manday / Ngadas
Read more: http://www.time.com/time/world/article/0,8599,2107489,00.html#ixzz1rWR9XrLy