Indonesia - Southeast Asia's economic locomotive

November 2012
Indonesia is today Southeast Asia’s biggest country and the world’s fourth most populous state.

  • Indinesia - southeast asia's economic locomotive
  • The mighty indonesian consumer
  • The allure of indonesia for foreign investment

Indonesia, an immense archipelago consisting of 17,508 islands, is Southeast Asia’s biggest country and the world’s fourth most populous state with over 238 million people. Characterised by diversity, there are about 300 ethnic groups constituting a heterogeneous population speaking 365 languages and dialects. Indonesia is also distinguished by its population's youthfulness: almost a third (28%) of Indonesians are under the age of 15, and 42% of the working population is less than 30 years old.

Already the 16th largest economy in the world with 45 million members of the consuming class and a US$0.5 trillion market opportunity, it has the potential to become the seventh biggest economy by 2030, putting it ahead of countries such as Germany and the U.K., according to a report by the McKinsey Global Institute.1

In 2011, Indonesia's economy grew at its fastest pace since the 1997-98 Asian crisis, posting GDP growth of 6.5%2, boosted by the expansion of all sectors, except mining, while being shielded from a volatile global economy by its robust domestic market. Moreover the country’s resistance to external economic shocks has been noted by the rating agencies. Fitch and Moody’s upgraded their ratings of the country in January 2012 to the highly coveted “investment” category.

Many analysts have underscored the winning combination of factors for Indonesia’s dynamism and attractiveness as a investment destination, for example: substantial natural and agricultural resources – allowing it to be the leading producer of palm oil, the 2nd largest producer of rubber, tin and nickel etc.3 – as well as a robust service sector both contribute to propelling growth; sound fiscal management has brought the budget deficit and public debt down to very low levels making for macroeconomic stability4; trends such as continuing urbanization, growing middle class and a young population also support a promising outlook.

It is no surprise that Indonesia is clearly identified as one of the countries in the next tier of large emerging economies or MIST (the term coined by Goldman Sachs economist Jim O'Neill who came up with the now popular term “BRIC” and which stands for rising economic powers Mexico, Indonesia, South Korea and Turkey).

1 Source: The archipelago economy: Unleashing Indonesia's potential, McKinsey Global Institute, September 2012
2 Source: Central Statistical Agency (6 February 2012)
3 Source: Publications of the Economic Section of the French Embassy in Indonesia (February 2011)
4 Source: The World Economic Forum’s 2011-2012 Competitive report on Indonesia raise the country’s ranking on the macroeconomic environment pillar to 23rd this year (up from 89th in 2007).