As the Indonesian economy recovers from Covid, the government is looking to target new sources of economic growth to counter the country’s reliance on natural resources, avoid the middle-income trap and become a high-income economy.
Economists generally agree that sustainable economic growth depends on higher value services, manufacturing, research and development (R&D), and less reliance on commodities and natural resources. Companies’ increasing desire to diversify high-tech manufacturing supply chains presents a great opportunity.
Indonesia’s domestic manufacturing sector is focused on the low-value assembly of products designed and manufactured elsewhere. It generates low-quality jobs and little economic value or tax revenue. Export of commodities such as oil and gas is prone to cyclical fluctuation and does not present a long term solution given the global transition to zero carbon.
For Indonesia to join the ranks of high-income countries in the longer term it needs to diversify beyond these sectors and further build its nascent knowledge economy. Knowledge-based industries – such as biopharmaceuticals, information technology, chemicals and entertainment – underpin sustainable growth and employment in the economies of high-income countries.