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Here we are with Indonesia's own bullet trains top speed of 350 kilometres per hour , the first in Southeast Asia In recent decades , Indonesia has captivated global attention as a shining star in Southeast Asia , firmly establishing itself as a highly successful and rapidly industrialising economy , much like its predecessors the Asian Tigers , Hong Kong , Singapore , South Korea and Taiwan .
Although Indonesia's economy grew with impressive speed during the 19 eighties and 19 nineties , it experienced considerable trouble after the financial crisis of 1997 which led to significant political reforms .
Today , Indonesia's economy continues to grow at an average rate of 5% positioning it as an upper middle income country and eagerly pursuing its ambition to attain high income status by 2045 .
While Indonesia is still a part of the developing world , it has a rich and versatile past in the economic as well as a cultural and political sense .
This resource rich archipelagic nation is the largest country in Southeast Asia , with 270 million people spread across thousands of islands that stretch from the Indian Ocean to the Pacific .
It is the world's largest Muslim majority state , its third biggest democracy and its fourth most populous country , with 52% of its population being young .
For many years , this mighty nation remained the world's largest invisible economy , shrouded in obscurity .
The last time it occur and politics grabbed .
The world's attention was during the chaos of the 19 nineties , when a crony capitalist system crumbled amidst the Asian financial crisis marking the end of the 32 year long dictatorship of Suharto .
But now it is again in the spotlight with playing a strategic role between America and China .
Unlike India and other emerging markets , it is adapting to a new world order in which globalisation and western supremacy are in retreat beneath the hoods of cutting edge electric vehicles , EVs and on apps used by hundreds of millions of customers , Southeast Asia's largest economy is rapidly becoming even more visible .
Indonesia is the seventh largest emerging market by GDP at purchasing power parity , and it's projected to surpass Germany and Russia by 2024 its economy is transforming rapidly .
Indonesia has a young population and is quickly urbanising , fueling growth in incomes Between now and 2030 Indonesia is expected to see an influx of an estimated 90 million additional consumers with significant spending power .
A source of dynamism is digital services , which are helping to create a more integrated consumer market , with over 100 million people collectively spending $80 billion a year on everything from EPAs apps for on demand trucking .
This growth in Indonesia's consuming class is stronger than in any economy in the world , apart from China and India .
One reason the Indonesian economy is gaining attention is that it has more than 1/5 of the world's nickel , a vital ingredient in the batteries that power electric vehicles .
The only other country with similarly vast reserves is Australia .
Additionally , Indonesia ranks as the world's third largest source of cobalt , another vital input as the west China and India increase subsidies to attract investment at home .
Indonesia sees an opportunity this abundance of essential resources for the global energy transition is expected to drive an economic revival and accelerate further growth .
But Indonesia's natural resources are not the only factor that might spur faster growth .
Jakarta , the capital , has become one of Southeast Asia's most successful incubators of new technology companies .
This , in turn , raises hopes that Indonesia's challenging geography it's a vast archipelago of thousands of islands can be overcome through digitization .
Indonesia's digital economy ranks first among other ASEAN countries .
The gross merchandise value MV of the digital economy , which represents the value of goods sold through customer to customer or eCommerce platforms , has risen from $41 billion in 2019 to $77 billion in 2022 .
It is predicted to continue to rise to $130 billion in 2025 .
This rapid growth of Indonesia's digital economy , occurring during a pandemic , serves as a testament to the adaptability , hard work and resilience of the Indonesian people as a whole .
The sustained increase in the value of our digital economy relies on a few key factors .
Government led digitalization , the progress of micro small and medium enterprises , M , SME , S and a thriving start up ecosystem as many outsiders assume that Indonesia is a typical Asian manufacturing exporter driven by its growing workforce or a commodity exporter driven by its rich endowment of natural resources .
However , the reality is that it is domestic consumption rather than exports and services rather than manufacturing or resources which are propelling growth .
In 1990 when Malaysia had similar income levels to Indonesia today , Malaysia's exports as a proportion of its GDP were approximately twice as high as Indonesia's are now .
This means that Malaysia relied more on exports for its economic activity compared to Indonesia .
Surprisingly , the resource sector's contribution to the economy has actually declined since 2000 , despite booming resource prices .
Mining and oil and gas now account for only 9% of Indonesia's nominal GDP , which is less than advanced economies like Australia , 16% and Russia 15% .
Indonesia has become increasingly attractive to foreign investors , with the youngest population in the region where 26% of the people are under 15 .
It boasts a massive consumer market .
Furthermore , Indonesia has maintained a cautious approach in its diplomacy for a long time .
This makes it a good choice for both Chinese and Western investors , capitalising on its relative lack of global attention , its strategic location size and abundant resources position it as a critical player in the rivalry between superpowers .
Indonesia has a tradition of not taking sides in global conflicts that goes back to the 19 fifties .
It wants to stay neutral and is looking to attract investments from both China and the United States .
This stance has transformed Indonesia into an arena where Chinese and American digital companies investors engage in direct competition .
For instance , in the field of batteries , CATL , a major Chinese company , is investing $6 billion in a project .
At the same time , President Jokowi is also trying to attract Tesla to invest in Indonesia .
Since president Joko Widodo , or Jokowi , was elected in 2014 , he has made substantial investments in infrastructure .
The government has built 16 new airports , 18 new ports , 2100 kilometres of toll roads and 36 out of 61 dams have been completed .
This made Indonesia more competitive in the global economy .
According to the I MD Competitiveness Index , Indonesia's ranking has climbed from 44 to 34 making a 10 point increase , the highest in the world .
Competitiveness isn't solely influenced by GDP and productivity .
It hinges on efficient infrastructure , strong institutions and policies that promote sustainable value creation .
In 2014 , just before Jokowi's first term in office , Indonesia banned the export of unrefined ore .
It allowed Indonesia to process raw materials domestically .
It helps to surge foreign investment , especially in metals processing , and force foreign investors to invest in Indonesia .
It has provided the most obvious boost to growth in recent years .
The investment extends beyond metals processing to manufacturing on the island of Java , home to half the population .
A South Korean battery firm , LG Energy Solution , and Hyundai , a car maker , began building Indonesia's first EV battery cell plant late last year .
The government wants Tesla to follow and has offered the company land for a big factory in Central Java .
This raises questions about Indonesia's economic growth as it is largely centred around Jakarta .
The GDP per capita in Indonesia's capital has reached approximately $19,000 per person .
However , in Central Java , which is relatively close to Jakarta about 230 kilometres away , the GDP per capita is significantly lower , standing at less than $3000 per person .
Moreover , in more distant and remote islands of Indonesia , the economic conditions are even worse with lower income levels than in Jakarta or Central Java .
However , the digital revolution is helping to reduce economic inequality in Indonesia .
It's making things better by reducing rules and giving investment rewards .
The E-commerce explosion is letting people from many different places take part in the digital economy .
You can buy nearly anything through Indonesian e-commerce .
The fastest growing cities are the middle sized ones , with more than 2 million people except Jakarta .
These cities , like Medan , Bandung and Surabaya , have had an average yearly growth of 7.5% over the last five years .
Jakarta's growth was a bit lower at 6.3% but Jokowi has bigger ambitions .
Indonesia's economic output has grown by a respectable 5% a year since the Asian financial crisis , well above the global average of 3.6% .
But its expansion has been overshadowed by faster growing economies .
China's GDP grew by an average of 8.7% a year , India by 7% and Vietnam's by 6.3% .
The president first won election on a pledge to raise the growth rate to 7% .
That will not happen , so why is Indonesia stuck with a 5% growth rate during Suharto the two decades before the Asian financial crisis .
In 1997 to 98 Indonesia's average annual economic growth rate was slightly higher than 7% .
However , it was lower after the crisis , mostly due to the inability of Indonesia's manufacturing sector to grow as fast as it did before the crisis .
During Susilo Bambang Yo yo's SBY presidency from 2004 to 2014 , Indonesia managed to recover from the crisis , primarily benefiting from the mining boom and favourable monetary policies of several developed countries , particularly the US .
Nonetheless , growth didn't reach 7% hovering just above 5.5% annually .
In 2014 .
Joko Widodo Jokowi succeeded SBY as the president of Indonesia .
His ambition is to bring Indonesia's economic growth back to at least the pre crisis level of above 7% annually .
By the end of his presidency , Jokowi and his cabinet implemented various policies to boost the Indonesian economy .
They reduced the country's fuel subsidy to increase government spending on infrastructure , aiming to remove the significant bottleneck hindering Indonesia's economic growth .
Furthermore , his government aimed to enhance national economic competitiveness promote exports and attract more investments .
While these efforts show that Jokowi and his economic team addressed several challenges in the Indonesian economy , they fell short of achieving the 7% growth target .
The main problems with the current growth is diminishing return on investment .
A significant portion of Indonesia's existing infrastructure is of poor quality , and the country lacks essential components such as roads , ports , airports and power generation .
Resources building and maintaining infrastructure are also particularly challenging due to Indonesia's geography and the frequent occurrence of natural disasters like floods , earthquakes , volcanic eruptions and tsunamis .
As a result , transportation and energy costs are high , which discourages foreign investment in the country .
Foreign direct investment FD I makes up a relatively small portion of the total investment , averaging 2% of GDP over the past decade .
This figure is lower than that of most Asian peers such as Vietnam , with 6.6% of GDP , Malaysia with 3.5% and Thailand with 2.5% .
Since FD , I typically results in significant productivity improvements and positive impacts on other parts of the economy .
This diminishes the overall efficiency of investment .
Another issue is the declining manufacturing sector , Indonesia witnessed growth driven by manufacturing from the mid 19 eighties to mid 19 nineties .
However , since then it has been on the decline .
The lack of substantial productivity improvement has been a major factor contributing to the sector's overall performance decline .
Studies have also identified other significant causes , including an infrastructure deficit , labour market issues , an uncertain business climate and a wavering stance on economic reform policies .
Among these problems , the productivity output per hour worked by Indonesian people is still low compared to neighbouring countries such as China , Malaysia and Thailand and higher than that of India and Vietnam .
Unfortunately , one of the reasons for low productivity is that the government spends less on development on capital , education , health and social assistance .
It remains low and has even fallen slightly relative to GDP since 2015 as weak revenue collection has forced the government to contain overall expenditure .
Whereas the average emerging economy in Asia invests more than 14% of its GDP on development , Indonesia still only invests about half that amount .
Corruption in Indonesia has remained a persistent issue , impacting the government's capacity to operate efficiently and provide public services .
It can discourage foreign investments and raise the cost of conducting business .
According to the Corruption Perceptions Index , Indonesia ranks considerably higher than China , India , Thailand , Malaysia and Vietnam .
However , Jokowi's pro growth agenda aims to significantly enhance Indonesia's challenging business environment .
Substantial progress has been made as indicated by the notable improvement in Indonesia's ease of doing business .
Ranking Indonesia may still attract scant attention internationally , but the outlines of a more visible economy are increasingly clear .
With its substantial nickel deposits , Indonesia is poised to play a prominent role in the thriving electric vehicle industry , which is still in the early stages of a decades long expansion .
If it succeeds , Indonesia will improve the lives of a quarter of a billion people and spur on a growth starved world .
It could even alter the global balance of power .
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