If demographics are destiny, Indonesia's economic prospects are bright

The news that last year China’s population fell for the first time in 60 years has attracted significant attention, with policymakers in China and around the world grappling with the global economic consequences of negative population growth in the world’s largest country.

But China is not alone in this predicament. South Korea, for example, recently broke its own record for the world’s lowest fertility rate, where the figure sunk to 0.81 births per woman, while in Japan the fertility rate fell for the sixth consecutive year to 1.3. The figure was so unsettling, that in a New Year’s speech Japanese Prime Minister Fumio Kishida stressed that the country’s birth rate had fallen “to the brink of not being able to maintain a functioning society.”

In contrast with this baby bust trend that is taking place across the region, Indonesia is a clear outlier. Earlier this year, President Jokowi announced that the fertility rate remained stable at 2.1 births per women, almost double that in China. But why should investors pay any attention to demographics?

In a geopolitically and economically uncertain world, demographics, specifically fertility rates, are one of an extremely small collection of indicators that can contribute to long-term economic forecasts. Indeed, the working age population for the next two decades has already been born — and thus can be modelled.

Indonesia’s peers, going through these demographic challenges, will have to contend with looming trials related to potential economic stagnation that result from a rapidly ageing population and a subsequent shrinking workforce.

Indonesia, on the other hand, is positioned to leverage its demographic dividend for economic expansion. Investors should anticipate significant upside economic potential powered by our young and growing population.

And while demographics are destiny, they are not the full picture.

A growing population does not simply translate to meaningful market growth without sound economic policy backing it up. In Indonesia’s case, the country has recently built a track record for market stability, competent political leadership, and solid fundamentals amongst investors.

Foreign investment in Indonesia in 2022 reached new heights, with more than $80 billion injected into the Indonesian economy — an enormous 34 per cent increase from 2021. Indonesia’s trade surplus also reached its highest ever recorded level at $54.46 billion.

At a time of rapid global inflation, Indonesia’s prudent monetary policy has ensured the stability of the Indonesian Rupiah (IDR.) In fact, the IDR is one of the best performing currencies in Asia, with year-on-year inflation significantly lower than in the US, UK and Eurozone. Indonesia’s labour market has also kept up with the growing population, and in 2022 there was a 4.16 per cent increase in full-time workers.

To pave the way for further economic growth, Indonesia’s government has made generational investments in public infrastructure. Under President Jokowi, more than 2,000 new toll roads have been constructed — as opposed to just 700 in the forty years prior. His administration has also overseen the completion of 16 new airports, 18 new ports, and 38 new dams.

Of course, a growing population is not without its challenges. In 2022, the Russia-Ukraine war once again unveiled the fragility of global energy markets. Growing economies must therefore do everything in their power to secure energy that is reliable in the face of geopolitical challenges and sustainable for the planet.

Indeed, for Indonesia, the mission of balancing energy security and the green transition presents a once-in-a-generation opportunity.

It is estimated that Indonesia has untapped hydropower potential to the tune of 75,000 megawatts which, based on current capacities, would make it the fifth largest producer of hydroelectric power in the world: a huge potential for independent private sector power producers.

Furthermore, when it comes to exports, Indonesia is uniquely positioned to benefit from the opportunity presented by electric vehicles. We are blessed with vast nickel reserves, a key component in lithium-ion batteries, and a skilled labour supply to produce EVs at scale. Hyundai recently built the first ever EV factory in Southeast Asia in Java, and LG is in the process of building a large battery plant in Indonesia. Recently, the Government of Western Australia and the Indonesian Chamber of Commerce and Industry (KADIN Indonesia) have signed a Memorandum of Understanding (MoU) as a milestone in building a “powerhouse” or a “Joint Production” hub of EV. In addition, our very own Indika Energy has also partnered with Taiwanese giant Foxconn as part of this EV revolution.

Our young people have a very real opportunity to be part of the most exciting global story of the 21st century. Their generation is the best educated, most talented, and most technologically connected in our country’s history. Their openness, hard work and ambition, tied with our wealth of natural resources, give me great hope for what lies ahead.

(Arsjad Rasjid is the Chairman of the Indonesian Chamber of Commerce and Industry and President Director of Indika Energy.)

• Opinion