Indonesia, the largest economy in Southeast Asia, is a driving force within the region, accounting for 41 per cent of ASEAN’s population and 37 per cent of its economic output. Despite significant hurdles, including the 1997 Asian Financial Crisis, the impacts of COVID-19, and persistent structural challenges, we believe Indonesia’s economic growth remains firmly positive.
A key strength lies in its demographic profile—between 2030 and 2040, Indonesia’s productive-age population (15-65 years) is expected to peak at 198 million people, making up over 60 per cent of the total population.
Challenges to growth
Despite its vast potential, Indonesia faces several challenges that need to be addressed. These include corruption, regulatory inefficiencies, and policy barriers that hinder business growth and foreign investment.
Indonesia ranks 115th out of 180 countries on Transparency International’s Corruption Perception Index, highlighting the need for greater efforts to tackle corruption if the country is to attract more foreign investment. Furthermore, an Economist Intelligence Unit (EIU) study ranks Indonesia 58th out of 82 countries for its regulatory environment, underscoring the need for deeper structural reforms to unlock sustainable growth.
Investment and digital transformation: Catalysts for growth
Foreign Direct Investment (FDI) is vital to Indonesia’s success. In Q1 2024, FDI grew by 15.5 per cent, reaching IDR 204.4 trillion (US$13 billion), signalling strong investor interest. Indonesia aims to attract US$545.3 billion in investments by 2040, focusing on industries aligned with the global transition to net-zero emissions.
A major area of focus is the electric vehicle (EV) and green industries, with projected investments of US$30 billion in processed metals and US$45 billion in EV production by 2028.
Navigating challenges with digitalisation
One of Indonesia’s most significant opportunities lies in digitalisation. With over half of its population under 30, the country is ripe for a digital revolution. The government has laid out a clear vision to leverage technology, with policies that support infrastructure development and digital transformation.
The rise of Indonesian unicorns like Gojek and Tokopedia showcases the success of the tech sector, and Southeast Asia’s digital economy is expected to reach nearly US$1 trillion by 2030, with Indonesia poised to capture a significant share of this growth.
Also Read: Indonesia’s startup showcase 2024: The launchpad for Southeast Asia’s tech future
Digitalisation offers Indonesia a unique opportunity to bypass traditional economic constraints and unlock new avenues for growth. The EMAS 2045 initiative exemplifies the government’s long-term vision to position Indonesia as a global innovation hub, driving economic expansion beyond traditional industries.
Sustainable growth and the role of venture capital
Venture capital (VC) has become a key driver of innovation in Indonesia. As the country transitions to a digital and knowledge-based economy, VC investments have surged, particularly in the tech sector.
Approximately 46 per cent of Indonesia’s VC funding comes from foreign investors, primarily from developed markets like the US and Japan. This influx of capital will continue supporting the development of Indonesia’s growing tech ecosystem, fuelling start-ups and innovation-driven enterprises.
Conclusion: A bright future ahead
Despite the challenges, Indonesia’s growth prospects remain strong. With a focus on boosting investment, improving governance, and expanding its digital economy, we believe that Indonesia is well on its way to achieving its goal of becoming one of the world’s top 10 economies by 2045.
However, the road ahead will require sustained effort, the right leadership, and strategic reforms. If done well, Indonesia is set to emerge as a global economic powerhouse in the decades ahead.
To further explore Indonesia’s growth potential and connect with key players driving this transformation, join us at the InvestIdea Tech Showcase Day on November 29, 2024, in Singapore.
This event will spotlight innovative startups and investment opportunities within Indonesia’s dynamic tech ecosystem. Don’t miss the chance to be part of Indonesia’s journey toward sustainable growth. Sign up here.
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