What's Happening?
A report by McKinsey & Company suggests that Indonesia could achieve high-income status by 2045 if it significantly boosts its productivity and expands larger companies. The report outlines that Indonesia needs to achieve an annual GDP growth of 5.4%, with productivity playing a crucial role. Currently dominated by small, informal businesses, Indonesia must increase investment and triple the number of medium-sized and large companies to enhance capital per worker and wages. The services sector is expected to contribute the largest share to this growth, with potential expansions in tourism and manufacturing.
Why It's Important?
Indonesia's transition to a high-income economy would have profound implications for its economic landscape and global standing. Achieving this status would require substantial structural changes, including urban development and workforce expansion. The report highlights the need for Indonesia to address urban challenges, such as overcrowding in Jakarta, and to create sustainable cities that can support a growing formal workforce. Success in this endeavor could position Indonesia as a major economic player in Southeast Asia, attracting foreign investment and fostering innovation.
What's Next?
To realize its high-income ambitions, Indonesia must implement a comprehensive strategy that includes enhancing financial, human, institutional, infrastructural, and entrepreneurial capital. Policymakers will need to focus on creating an environment conducive to productivity growth and business expansion. This may involve regulatory reforms, investment in education and skills development, and infrastructure improvements. The government's plans to build a new capital city could also play a role in alleviating urban pressures and supporting economic growth.
