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do and reach your audience effortlessly by using the link in the description. In recent decades, Indonesia has captivated
global attention as a shining star in Southeast Asia, firmly establishing itself as a highly
successful and rapidly industrializing 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 1980s and 1990s, 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 the 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 its economy and politics grabbed
the world's attention was during the chaos of the 1990s 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. And like India and other emerging markets,
it is adapting to a new world order in which globalization 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, South-East Asia’s
largest economy is rapidly becoming even more visible. Indonesia is the 7th 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
urbanizing, 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 create a more integrated consumer market, with over 100 million people
collectively spending $80 billion a year on everything from e-payments to 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 a fifth 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 EV 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 South-East 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 (GMV) of the digital
economy, which represents the value of goods sold through customer-to-customer or e-commerce
platforms, has risen from $41 billion in 2019 to $77 billion in 2022. It is predicted to continue to rise to US$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 (MSMEs), and a thriving startup ecosystem. As many outsider assume that Indonesia is
a typical Asian manufacturing exporter driven by its growing workforce or a commodity exporter driven by
its rich endowments 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 percent of Indonesia's nominal GDP, which is less than advanced economies like Australia
(16 percent) and Russia (15 percent). 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, capitalizing 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 1950s. 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 and 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 kilometers of toll roads and 36 out of 61 dams have been completed. This made Indonesia more Competitive in the
global economy. According to the IMD Competitiveness Index,
Indonesia's ranking has climbed from 44 to 34, marking a ten-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 carmaker, 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 has largely centered 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 kilometers away), the GDP per capita is significantly lower,
standing at less than $3,000 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 now. The fastest-growing cities are the middle-sized
ones with more than two million people, except Jakarta. These cities, like Medan, Bandung, and Surabaya,
have had an average yearly growth of 7.5 percent over the last five years. Jakarta's growth was a bit lower at 6.3 percent. 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 1997–98, 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 Yudhoyono's (SBY) presidency
from 2004 to 2014, Indonesia managed to recover from the crisis, primarily benefiting from
the mining boom and favorable monetary policies of several developed countries, particularly
the US. Nonetheless, growth didn't reach 7%, hovering
just above 5.0% 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 (FDI) 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 FDI 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-1980s to the mid-1990s. However, since then, it has been on the decline. The lack of substantial productivity improvements
has been a major factor contributing to the sector's overall performance decline. Studies have also identified other significant
causes, including an infrastructure deficit, labor 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 neighboring 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 — 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, Malaysia, Vietnam, and Thailand. 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
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