Indonesia: OIC's first Trillion Dollar Economy

Indonesia, the largest archipelago nation and the most populous member of Organization of Islamic Cooperation (OIC) has become a trillion-Dollar economy on January 4, 2018, the first country in both archipelago and OIC categories to do so. This achievement is an opportunity to reflect on what has been achieved and what can be done in the future.

Indonesia: OIC's first Trillion Dollar Economy

Mohamad Radytio - Indonesia

Over the last four years, Indonesia has maintained 5 % GDP growth per year, a great achievement that helped it reached the trillion-Dollar threshold despite export slowdowns and spending curbs, where exports and spending/consumption are two of Indonesia’s main GDP growth contributor. Other OIC countries such as Turkey and Saudi Arabia, whose GDP per Capita is more than triple Indonesia’s GDP per capita, are yet to pass the threshold, even though World Bank estimated Turkey would pass the threshold by the early next decade.

While Indonesian economic growth was down from the high average of 6-7 % in previous administration, it still managed to breath above 5 % overall, thanks to current administration’s economic reforms which, among others, curtailed a lot of bureaucratic red tape previously necessary for investments. Also, the administration liberalizing various central and regional regulations that critics see as inhibiting foreign direct investment (FDI). As shown by data from Indonesia’s Investment Coordinating Board (BKPM), total FDI in 2017 reached 8,3 billion USD or about 111,7 trillion USD, an increase of 12 % year-on-year from 2016. The 2016 figure itself was a growth of about 10.6 % from 2015. The 2017 figure is also the highest amount of FDI ever recorded in Indonesian history, indicating government reforms successfully make Indonesia more attractive for investments.

This, in turn, managed to supplement the decrease in exports, which according to World Bank statistics fell to 14, 79 billion USD in December 2017 from a high 17.6 billion USD in 2014, the last year of Yudhoyono administration. While in 2017, for a first time in current administration the level of exports increasing 6.93 % to 14,79 billion USD, it was still below market estimates of 12,7 % exports growth. As for my estimation, given current trends and statistics, the level of exports growth would not return to 2014 numbers until at least 2020, when 2019 presidential election results would give certainty on the country’s direction, and therefore its stability. If commodity prices -which hold significant portion of exports- fall further, recovery would take even longer. This is why Sri Mulyani, the administration’s economy minister, has repeatedly argued for the need of reforms and investment-based economic growth.

Over the last two years, Widodo administration has slashed many government subsidies which the administration perceived as either unproductive or misplaced. It is hoped, from this policies, Indonesia can accelerate its GDP growth and in the long-run move from a consumption-based growth. Some economists assess that there would be a short term decrease in spending/consumption because fuel, electricity and fertilizer subsidies being withdrawn .However, in long-term it is also estimated that market readjustment would lead into increase in overall productivity ( i.e. less pollution, more effective consumption) and better allocation of government resources.

The latter is hold true because Widodo administration is increasing the infrastructure investment, partially funded by FDI and Chinese loans but also from government funds previously intended for subsidies. New bridges, toll roads, harbours, airports, and other infrastructures that being built in short period of time are testaments of Widodo’s success. Yet, while these reforms and its multiplier effects managed to get GDP growth floating above 5 %, it also failed to bring fair impacts to society. Many Indonesians feel their living costs getting unbearable, what was predicted as short-term decrease turned into prolonged difficulties. With imposition of new fees and taxes alongside the reforms, critics condemn the administration as disadvantaging the less-fortunate. Given Indonesia’s potentials, it should not be happening that way.

Indonesia is projected to have more than 300 Million population by 2025, with more than 33 % of them will be people below 30 years old, as told by Indonesian Statistical Central Bureau (BPS). This is not only a great potential because it means there will be about 100 million new consumers with active buying behaviors that would in itself driven up the consumption, but it gives a tremendous investment opportunities be it in the field of education, work training, or sociocultural exchanges, which is expected to become important in millennial years.

In educational field, in an area where transition into service-based economy is regarded as the future, young age of this demographic would make them easier to adapt into this transition, potentially becoming substitute to their seniors who have more experience but less adaptability. Furthermore, at a time when uncertainty becoming inhibitor to investments, Indonesia’s demographic and infrastructural structure give much needed stability. It has a pyramid-like structure which means there would be booming economic consumption, crops of new workforce that still can be shaped in accordance with needs, and infrastructural development which would facilitate growth and networking deep into rural areas.

To put it into perspective, even with infrastructure that still in development stage, significantly commodity-driven exports, unfavorable international market largely untapped regional potential and imbalanced economic growth planning, Indonesia is still managed to grow its economy above 5 % annually. If favorable conditions return, there is a successful transition into service-based economy and if there is a competent administration in place, then a double digit annual GDP growth would be possible to achieve. This is an economic potential that investors or like-minded people cannot miss.

This yet to mention Indonesia’s potential within Organisation of Islamic Cooperation (OIC). As Islamic learning becomes more common and people starts to thinking religious influence in daily life as a positive thing, Indonesia could really lead OIC not only in terms of economic and demographic size, but also in terms of providing guiding path. Against worldwide trends, religiosity becoming more apparent year-by-year, youth rebellion that becoming more extreme throughout the globe is in Indonesia being balanced by its youth’s increasing piety.

Ten years ago, Mosques were barely filled with young people and finding young girls with headscarves would be like winning a lottery. Now, young people are filling Mosques and Churches while you can find headscarved young girls on each corner of the country. In Indonesia, modernity is going hand-in-hand with religiosity. Indonesia has the ability to become a model for the Muslim World. All Indonesia needs is finding the visionary leader whose records or visions are able to reap all of its potential.

Güncelleme Tarihi: 05 Şubat 2018, 02:06