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Becoming the 5th Largest Economy of the World

What Indonesia will be doing in the 3rd millennium?

In every millennium Indonesia has created a great masterpiece which always become the icon of the world. Started in the first millennium where a dynasty by the name of Syeilendra was responsible in building the biggest Buddhist temple in the world and became the icon of Buddhist religion. Move on to the second millennium, we had a dynasty by the name of Majapahit which was also responsible for basically deriving governance in the right way for Indonesia and the greater region of Southeast Asia. The question that lingers among many of us, young Indonesian is, what is Indonesia will be doing in the third millennium. Could Indonesia created such kind of great masterpiece recognized by the world.

masterpieceIndonesia has the potential to create a great masterpiece in the third millennium by becoming one of the largest economy in Asia or even the world, especially when the world power economy were shifted from America and Europa to Asia. As known in 2000, five countries with the largest economy in the world were USA, Japan, Germany, UK and France. In 2014, the composition was changed into USA, China, India, Japan, and Germany while Indonesia on the tenth rank.

ten largest economiesGoldman sach on the trend compendium 2030, explained that in the next 2030, Asian Economy will make up between 50-55% of the global GDP. Of which China, India and hopefully Indonesia will make up a big chunk of that. It was as well mentioned that ASEAN five are capturing as the world’s interest because of their promising economic future. The real GDP of the ASEAN Five (excluding Vietnam) will grow by 6.6% per annum, and reaching about 4% of global GDP in 2030. The largest economies will be Indonesia and Thailand. The equity market capitalization of the ASEAN Five will increase by 6.7% per annum to USD 3.5 trillion. Their share of the world’s equity market cap will go up from 2.2% today to 2.4% in 2030. After Indonesia, Malaysia will reach the highest equity market cap with USD 1 trillion in 2030. Even excluding China and India, Asia will experience the strongest absolute increase in its middle class by 2030 with an annual growth rate of 4.2%. About 330 million new people will enter the middle class within the next 20 years, from 260 million people today to 590 million in 2030. In absolute numbers (millions), the biggest middle-class groups in 2030 will live in Indonesia.Indonesian-Middle-Class-Growth

According to a report released by The Boston Consulting Group (BCG), the Indonesian middle class is expected to grow from 74 million to roughly 141 million people by 2020. Over the next eight years, some 8 to 9 million Indonesians will enter the middle-class and affluent consumer socioeconomic category each year. Already the 4th largest in the world, more than 60% of Indonesia’s population is working-age, making the workforce nearly three times the size of the entire population of South Korea. This sizeable working-age population has helped drive a strong domestic market. Domestic demand accounts for more than half of Indonesia’s GDP, and over the next 20 years, the country is poised to become one of the fastest-growing economies in the world.

It has written in so many reports and articles that explained the new face of Indonesia in the next 20 years, started by the end of 2011, once Indonesia successfully reclaimed its highest rating ever, investment grade, after 14 years of transformation process since 1997. This investment grade rating indicates that global institutions believe that Indonesia’s economy successfully transformed into strong and resilient economy. However regaining investment grade is not the end of the Indonesia’s transformation process, because Indonesia still have lot of works to be done in order to improve the rating and gain the status of developed country. There are three dreams to be accomplished in order to stimulate economic growth so that Indonesia can be equal as developed country.

The first dream is about hard infrastructure. As known Indonesia’s infrastructure are currently choked, due to remarkable average of economic growth (5.6%) in the last 5 years (third highest among G-20 countries). Indonesia only has 502 thousand km of road far below India (4.6 million km), China (4.3 million km) and japan (1.2 million km). On the other hand, Indonesia consumes steel which is only 20kg/capita/year, and to become a developed country Indonesia needs to consume at least 500kg/capita/year. For instance South Korea known as the biggest industrial country in Asia, has steel consumption nearly 1,200kg/capita/year while Japan consume 506 kg/capita/year, China (477 kg/capita/year) and India (57 kg/capita/year).

hard infraSo that, in case of Indonesia would consumes steel 400kg/capita/year, means that Indonesia needs to consume approximately 5,000kwh/capita/year (currently only consumes 650 kwh/capita/year) which means that Indonesia needs to build more power plants that can produce another 35GWh of electricity. As a comparison China currently consumed electricity at the rate of 4,000 kwh/capita/year, while Japan (6,700 kwh/capita/year) and India (565 kwh/capita/year).

The second dream regards to the soft infrastructure, which is education and health. This is important when we talking about the huge number of young population in Indonesia. In 2011, Standard chartered had come out with the report called super cycle report. It’s basically talked about where the global economy go in the next 20 years. It says that in the near future most percentage of the global population were above 60 years old while small portion were below 15 years old. So, we will see the flip of the pyramid where the top side of the pyramids (the larger portion) filled up by the older people while the lower side of the pyramid (the smaller portion) filled by the young people.

ID_popgraph 2014 smallIndonesia Fortunately far from those condition, with the assumption that government can maintains the 1.2% population growth every years, so that in 2025 Indonesia would be able to maintain its current demographic population which is 70% of Indonesian population were below 39 years old and 40% were below 20 years old. This is a very fantastic competitive advantage as long as the government infused this young people with good education and health.

The future will be driven by young people, the larger the number of young educated people produced by a country then the brighter the future of the country. Indonesia currently only has less than 75,000 PhD while china and India has more than 500,000 PhD. Indonesia currently produced 700 PhD every years so that in the next 25 years Indonesia will only has less than 100,000 PhD, the number is far below what china and India has. The number of PhD holders in China is going through the roof, with some 50,000 people graduating with PhD across all disciplines every years while India produces 9,000 PhD every years. To compete with china, India, or even Japan, Indonesia need to improve its number of PhD at least added more than 10,000 PhD every years. With the assumption of Rp2 billion allocated for each grantee to finish their study, it means that government will only need Rp20 Trillion to produced 10,000 PhD every years. Fairly small number compare to the ministry of education budget with almost Rp370 trillion in 2014. In this case government should provide plenty access to all young Indonesian people to sense the world class education program such as Harvard, oxford or Cambridge University. In fact at Cambridge University there are only 16 Indonesian student, while India has 300 students, Singapore has 250 students and china has around 1,000 students.

number of studentsThe third dream regards to the digital infrastructure. Indonesia’s penetration of mobile phone currently is the fourth largest in world after China, India and USA. Unfortunately Internet user in Indonesia only 16% of the total population far below Japan (86%) or even China (46%). 50% of the internet users in Indonesia were access the internet through mobile phone, so there is a great potentiality for government to increase the number of internet user by providing the mobile phone holder with internet access. The small number of internet penetration is align with the low investment on the internet facility such as Wi-Fi or WiMAX. So then government should provide young Indonesian with the low cost internet service. At the end it will not surprising someone from Manokwari, Papua or someone from Sumbawa, West Nusa Tenggara could access the curriculum of MIT or Harvard through his or her mobile phone. And it is not impossible that someone like Steve jobs will be born from the land of Papua or West Nusa Tenggara.

internet penetrationLast but not least, genius is an infinite capacity for taking pain, we have gone through a lot of pain. In 1998 we were politically and economically moribund we were written off by so many people around the world. We have written on the book, article and everything that would have told everybody in the world that Indonesia was on bring of balkanizing. But guess what, now our fiscal portrait is as sexiest as ever, monetary portrait with the fantastic ability to manage inflation pressure like no other in Asia, and fantastic demographic bonuses. Need to be remember that a long journey of thousand miles begin with a single step, and here optimism is needed because the process of creating a masterpiece to become one of the largest economy in the world will takes a long time and huge effort.

Happy Independence Day

Jayalah Negeriku – Jayalah Bangsaku

Categories: Published Articles
  1. October 2, 2014 at 3:19 PM

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    who are wishing in favor of blogging.

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