Why Indonesia could be your next big growth market

The south-east Asian economy is tipped to become the world's seventh largest by 2030.

by Lauren Brown
Last Updated: 23 Apr 2019

The success of last year’s Asian Games in Jakarta and Palembang, praised by BBC Sport as "the Olympics plus", has reportedly prompted Indonesia to bid to host the 2032 Olympics and Paralympics.

This symbolic marker of global success goes hand in hand with reports of the region’s burgeoning economic clout. In February Business Insider ranked the Southeast-Asian country third in its list of emerging markets predicted to "dominate the global economy," claiming its growth story was "one of the world’s most compelling".

A combination of plentiful natural resources and a slackening reliance on foreign funding saw Indonesia’s GDP grow by 5.2 per cent in the fourth quarter of 2018, the highest level of economic growth the country had seen since 2013. The dip in exports, which fell 4.6 per cent in December, made the unexpected results even more surprising.

According to Heritage’s 2019 Index of Economic Freedom, the country’s success was due to "the government’s efforts to improve Indonesia’s business environment and attract foreign direct investment by upgrading power and other infrastructure, prosecuting corruption cases more aggressively, and taking other steps to improve the regulatory environment."

The World Bank’s Doing Business 2018 index, however, painted a somewhat different picture, ranking the country as the 72nd best place to start an enterprise or generally to conduct business because of the difficulty in obtaining necessary permits and licenses, which could be "a time-consuming and expensive affair". 

Nevertheless, global consultancy McKinsey predicted Indonesia’s economy could become the world’s seventh largest by 2030 if its boost in domestic consumption and productivity growth were anything to go by. According to the firm, by 2030 Indonesia would have added 90 million people to its consuming class – a vital statistic given the country’s reliance on consumption rather than exports and manufacturing.

Meeting the government’s goal of seven per cent growth per year is not going to be easy. The McKinsey Global Institute estimated that it had to boost productivity growth to 4.6 per cent a year – 60 per cent higher than it has been during the past decade – in order to get there.

Whether Indonesia is successful or not in its Olympics bid – and we may not know the answer to that until 2025 – its economy is undoubtedly one to watch.

Image credit: Tom Fisk/Pexels

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