When you think of Asia’s most successful economies, countries like Singapore, South Korea and Japan probably come to mind.
But it is another country that has become a symbol of economic success, growing faster than any other and fast establishing itself as a major technology hub.
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At the same time, we don’t hear much about Indonesia, but its economy is booming. In the shadows on the world stage, this economic powerhouse is starting to make waves.
While other countries hog the limelight, Indonesia, with its more than 17,500 islands, has been busy outdoing the existing powers one by one.
A quiet transformation is underway, hidden from the headlines, as the archipelago nation of Indonesia is on its way to becoming Asia’s third-largest economy.
A light rail transit (LRT) train in Jakarta, Indonesia, seen on August 23, 2023. A bold push to build infrastructure, advances in the digital economy and a minerals policy that mandates local smelting have combined to help grow the country’s economy tenfold.
Image credit: File
Indonesia is in a great position on the world stage. With a GDP estimated to reach $4.73 trillion by the end of 2024 (purchasing power parity, PPP, based on IMF estimates, April 2024), Indonesia will overtake existing large economies and consolidate its position behind China and India.
India is the world’s fourth most populous country and the 10th largest economy based on purchasing power parity (PPP), according to the World Bank.
Economic Driver: Digital Economy
Classified as a lower-middle-income country with an emerging market economy, the country has made great strides. It is an active participant in the G20, a forum where world leaders collaborate on key issues facing the global economy.
The 600-passenger “Whoosh” bullet train will connect Jakarta and Bandung in Indonesia and can reach a dizzying speed of 350 kilometers per hour.
Image credits:
Indonesia has made great strides in reducing poverty, with the poverty rate falling by more than half since 1999. Unfortunately, this progress has been temporarily reversed by the pandemic.
The country’s digital economy is showing bright signs: It is projected to reach a staggering $77 billion in 2022 and exceed $130 billion by 2025. This digital boom brings exciting opportunities for continued economic growth and development.
$4.73t
Indonesia’s estimated GDP Purchasing Power Parity (PPP) by the end of 2024 (Source: IMF)
Balancing Act: “Nickel Boom”
A view of North Jakarta: Indonesia boasts the largest e-commerce market in Southeast Asia, fuelled by a strong middle class and widespread internet access.
Image credit: Tom Fisk | Pexels
Indonesia is undergoing a remarkable economic transformation, leveraging its natural mineral resources to build a strong domestic manufacturing industry and economic outlook, rather than simply exporting key raw materials.
The Southeast Asian country currently accounts for about half of global nickel production, according to a June 2024 report from Bloomberg.
Here is how this move contributed to the Indonesian economy:
Increase in exports: Prior to the ban, Indonesia exported raw nickel ore, which fetched a much lower price than processed nickel products. The ban spurred the development of domestic nickel processing facilities, and this change led to a significant increase in the value of Indonesia’s nickel exports.
The study found that nickel-related exports have increased 30-fold since the ban.
Nickel: Propelling electric vehicles
NMC (Nickel Manganese Cobalt): This is the most common type of Li-ion battery used in EVs today. The nickel content in NMC batteries ranges from 60% to 80%, with newer formulations bringing the nickel content closer to 90%.
NCA (Nickel Cobalt Aluminum): This type has a higher energy density than NMC but is less stable. NCA batteries typically contain about 80 percent nickel.
Job creation and industrial development: Bold industrial policy is key to creating jobs for young people. The construction and operation of nickel processing plants, such as smelters, has created new employment opportunities in Indonesia, boosting the national economy and stimulating the development of the local nickel processing industry.
Young people in Yogyakarta, 564 km southeast of the Indonesian capital, Jakarta. According to Worldometer data, the 10-24 age group makes up about 22 percent of Indonesia’s population.
Image credit: Lenda Eko Riyadi
Strategic Control and Future Possibilities: Indonesia will gain control over the processing of its nickel resources, giving it greater control over a material that is critical for industries such as stainless steel and electric vehicle batteries.
This strategic position could benefit the country in future negotiations and lead to further economic advantages.
Indonesia’s Morowali Industrial Park accounts for the majority of the country’s exports of nickel suitable for batteries.
Image courtesy of Bloomberg
A unique approach to resources
Indonesia stands out for its resource management strategy. Unlike many resource-rich countries, Indonesia prioritizes processing raw materials domestically and maximizing their value before exporting. This approach has been criticized by some, but it has undoubtedly helped Indonesia’s growth.
Nickel King
From raw materials to refined products: Indonesia previously exported raw ore and sold it at a low price. To capture higher values, the government implemented a ban on raw ore exports and encouraged companies to build processing facilities in Indonesia.
This policy resulted in a rapid expansion of nickel processing plants, including smelters, in the country, creating jobs and boosting the industrial sector.
Beyond resources: the technology boom
Another key driver of Indonesia’s success has been the thriving digital economy, particularly e-commerce and fintech. Buoyed by a strong middle class and widespread internet access, Indonesia boasts the largest e-commerce market in Southeast Asia.
This has fostered a vibrant technology ecosystem that has spawned a number of multi-billion dollar start-ups.
Southeast Asia’s Digital Economy Leader
E-commerce leaders: Indonesia boasts the largest and fastest growing e-commerce market in Southeast Asia. With a population of around 280 million, most of whom are young and tech-savvy, Indonesia offers a huge potential customer base for online businesses. This, combined with increasing internet penetration and smartphone adoption rates, is fuelling the e-commerce boom.
Mobile First: Indonesia’s digital economy is heavily influenced by mobile technology. The majority of internet traffic comes from smartphones, making mobile apps and mobile-enabled platforms critical to business success. This trend highlights the importance of e-commerce platforms and online services that are optimized for mobile users.
Digital powerhouse: Beyond e-commerce, Indonesia’s digital landscape is rapidly diversifying, with significant growth in areas such as online payments, ride-hailing and digital media.
This diversification signals a mature digital economy with the potential to become a global player across a range of digital sectors.
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Untapped potential of Tier 2 and Tier 3 cities and MSMEs: These sectors have huge potential for economic growth. Investing in digital infrastructure and boosting digital adoption in Tier 2 and Tier 3 cities and MSMEs can create a more dynamic and inclusive digital economy.
Digital technology as a catalyst for growth: Digital tools such as AI and online platforms can empower Indonesians, improve access to services, and create new economic opportunities. This is particularly beneficial for education, female workforce participation, and MSME growth.
Future: Global power
Experts predict that Indonesia’s growth will continue. By 2030, Indonesia’s economy is expected to surpass those of the UK and Germany. A young and growing population further boosts Indonesia’s future potential.
Indonesia’s future depends on its ability to navigate domestic challenges as well as economic and geopolitical complexities.
The whispers are getting louder and soon the world will be forced to acknowledge an undeniable truth: Indonesia is a force to be reckoned with. A new giant of Asia has awakened, and its rise can only be described as staggering.
