Indonesia is urbanizing at a breakneck pace and is on the way to becoming one of the most urbanized countries in developing Asia. Between 1993 and 2007, the average annual urbanization rate was estimated at 4.2 percent, placing it ahead of China (3.8), India (3.1) and Thailand (2.8). In 2010, Indonesia was already considered to be a majority urban country, with 54 percent of its residents living in cities. By 2025, Indonesia is projected to be 68 percent urban.
These statistics tell a powerful story of structural transition. Indonesia is now and will increasingly be a country defined by its cities ? not its villages. Mahatma Gandhi once said of India that its true nature is found in its 700,000 villages, not its cities. He would be wrong today. India’s growth now depends almost entirely on its cities. In Indonesia, the growing dominance of the city is similarly defining. Today, approximately 60 percent of Indonesia’s GDP is produced in cities ? a rate that will increase as urbanization continues.
The reality of urban transition in Indonesia, however, is complicated by chronic flooding, crippling congestion, growing pollution and metastasizing slums in metropolitan areas. These realities have led policymakers, politicians and analysts to consider how to halt urban growth. They have asked whether the Indonesian capital should be moved outside of Jakarta, whether new centers of economic activity should be fostered outside of congested Java Island or, among a range of policy suggestions, whether a development strategy based on targeting rural areas and lagging regions is part of the solution.
The questions and concerns are real, and how Indonesia’s national and local policymakers confront the challenges and opportunities of urbanization will be a key determining factor in finding a path to sustained growth and poverty reduction.
Taimur Samad is senior urban economist at the World Bank in Jakarta.
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