Many articles that discuss the future potential of Indonesia tend to focus heavily on its economic growth rate and population. While these are undoubtedly important indicators when assessing future prospects, relying solely on them results in an unbalanced view.

In the following sections, we will examine the future potential of Indonesia from four perspectives: economy, natural resources, environmental issues, and the capital relocation project. Rather than presenting only optimistic and positive aspects, we will also consider points of concern to provide a more comprehensive outlook.

Future Prospects of the Indonesian Economy

Indonesia is projected to surpass Japan to become the world’s fourth-largest economy by 2050

According to a 2017 research report by PwC, a London-based consulting firm, Indonesia ranked 8th globally in terms of GDP based on purchasing power parity (PPP) as of 2016.

The report forecasts that by 2030, Indonesia will surpass Russia, Germany, and Brazil to become the world’s 5th-largest economy, and by 2050, it will overtake Japan—currently ranked 4th—to become the 4th-largest global economic power. Looking at the size and growth potential of its economy, Indonesia can be regarded as one of the world’s most promising countries.

Source: Created by PT. TRICRUISE MARKETING INDONESIA based on PwC’s report “The World in 2050 – The long view: how will the global economic order change by 2050?”

On the other hand, according to a report by the IMF, Indonesia ranked 17th in the world in terms of nominal GDP in 2022. The gap with Japan, which ranked 3rd, is approximately 3.8 times, making a swift reversal seem unlikely.

Let us also consider the country’s population and real GDP growth rate. Indonesia has a population of 270 million and continues to grow. With an average age of 32, it is a relatively young nation. In addition, its real GDP growth rate hovers around 5%. In contrast, Japan is a super-aged society with an average age of 47, and its population of 120 million is steadily declining. Its real GDP growth rate is below 1%.

Even a simple comparison like this makes it easy to sense the promising future of Indonesia.

Trends in Indonesia’s Nominal and Real GDP Growth Rates

Sources:

• Reference 1: Ministry of Economy, Trade and Industry, “Country Report on International Expansion of Medical Services – Indonesia Edition”
• Reference 2: IMF, “GDP, current prices”

Looking at large-scale macroeconomic data may feel abstract and difficult to relate to. For a more tangible understanding of Indonesia, it may be helpful to focus on your specific industry and conduct a simple survey targeting Indonesian individuals who could potentially become your future customers.

The Future of Indonesia as an Upper Middle-Income Country and the “Middle-Income Trap”

In 2020, the World Bank upgraded Indonesia’s income classification from a “Lower Middle-Income Country” to an “Upper Middle-Income Country.” This classification is based on Gross National Income (GNI) per capita. Among Southeast Asian nations, Malaysia and Thailand have already attained “Upper Middle-Income” status, while Vietnam and the Philippines remain classified as “Lower Middle-Income Countries.”

Indonesia is now entering the peak of its demographic dividend period. Compared to countries like Thailand, Vietnam, and Malaysia, where aging is progressing at a faster pace, Indonesia still has a long window during which it can benefit from its young and abundant labor force.

During this period, Indonesia is expected to rebuild its economy, which had stagnated due to the COVID-19 pandemic, actively adopt new technologies, and enhance the quality of its human resources to strengthen its international competitiveness. In doing so, it hopes to avoid the so-called “middle-income trap” and chart a path toward a brighter future.

Sources:

• Reference 1: JETRO, “Indonesia Attains Upper Middle-Income Country Status”
• Reference 2: Mitsubishi Research Institute, “Emerging Market Economies”

Future Prospects as a Resource-Rich Nation

Indonesia is a country rich in mineral, energy, and plant-based resources. It ranks first in the world for nickel production, fifth for coal production, and second for natural rubber production—a material increasingly in demand for environmentally friendly automobile tires.

Furthermore, Indonesia is the world’s leading producer of palm oil, widely used in products such as food and detergents and as a raw material for biofuels. Indonesian palm oil accounts for approximately 55% of global production.

Source: Created by PT. TRICRUISE MARKETING INDONESIA based on WWF JAPAN, “Palm Oil: The Link Between Our Lives and Tropical Forest Destruction”

Indonesia is actively promoting the use of biodiesel derived from palm oil. The use of “B30”—a blend of 30% biodiesel with diesel—is already mandated. The country is currently conducting road tests using “B40,” a 40% biodiesel blend. These trials are expected to conclude within 2022, aiming for widespread implementation after resolving any technical issues.

Indonesia’s development of biodiesel does not stop at B40; it is expected to progress toward B100.

One of Indonesia’s key strengths as a resource-rich country is the balanced availability of extractable and renewable resources. Notably, its abundant plant-based resources allow for sustainable production, reducing overdependence on finite fossil fuels.

Moreover, the country’s economic growth is not excessively reliant on resource exports. Indonesia is working to enhance value by processing raw materials domestically before exporting them. This forward-looking and balanced approach is an important factor in assessing Indonesia’s future potential.

Sources:

• Reference 1: CNN Indonesia, “Facts About B40 Biodiesel Being Tested on Roads in Indonesia”
• Reference 2: WWF JAPAN, “Palm Oil: The Link Between Our Lives and Tropical Forest Destruction”

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Environmental Issues in Indonesia

Many emerging and developing countries, including Indonesia, now face the challenge of advancing economic development while simultaneously protecting the environment. The following section outlines key environmental issues and corresponding measures in Indonesia.

Environmental Challenges in Indonesia

Although Indonesia appears to be making steady progress in terms of economic growth, repeated natural disasters cast a shadow over its future potential. In particular, disaster response measures addressing the impacts of climate change are a pressing concern.

For example, in the capital city Jakarta, excessive extraction of groundwater by residents has led to rapid land subsidence, said to be the fastest in the world. This subsidence is estimated at around 10 to 20 centimeters per year.

This situation is exacerbated by rising sea levels, with projections suggesting that one-third of Jakarta could be submerged by 2050. In the worst-case scenario, the entire capital could sink. In addition to this, the city experiences frequent flooding during the rainy season and suffers from some of the worst air pollution levels in Asia.

Accurate forecasting, preparedness, and response to these disasters are essential to safeguarding Indonesia’s future. Recurrent natural disasters can damage infrastructure and threaten people’s livelihoods, potentially acting as brakes on economic growth.

To address this, the Indonesian government has included environmental countermeasures as one of its priorities in its National Medium-Term Development Plan through 2024, with a focus on decarbonization. Specific efforts include the adoption of renewable energy sources such as solar and geothermal power, as well as the implementation of biodiesel initiatives mentioned earlier.

Reference: JETRO, “Indonesia Sets Decarbonization Targets Through 2024, Promotes Renewable Energy Adoption”

Indonesia’s Environmental Countermeasures

Indonesia’s environmental strategy is built upon three main pillars:

1. Improving the Natural Environment
2. Enhancing Resilience to Disasters and Climate Change to Minimize Negative Impacts on GDP
3. Decarbonization

Various initiatives are underway, including:

• Establishing proper waste management practices at the household level
• Restoring and protecting forests and peatlands
• Promoting sustainable agriculture
• Constructing solar power plants
• Establishing a state-owned holding company for geothermal energy development

These efforts serve both global and domestic purposes: mitigating climate change while protecting Indonesia’s own environment. Protecting forests and peatlands, for example, contributes to the sustainable production of natural resources and supports economic growth.

In Indonesia’s Long-Term Climate Strategy announced in 2021, the government set a target to reduce greenhouse gas emissions by 29% by 2030. An additional note states that the reduction target could reach 41% if sufficient international support is provided. Through these targets, the Indonesian government aims to showcase the results of its past efforts and highlight its future potential in seeking further support from the international community.

Reference: Environmental News Platform “Kankyō Tenbōdai” – “Indonesia Submits New 2030 Climate Target and First Long-Term Climate Strategy”

By 2050, All New Cars Will Be Electric Vehicles

Indonesia is actively promoting the development and adoption of electric vehicles (EVs). The Ministry of Energy and Mineral Resources has announced that starting in 2040, all motorcycles sold will be electric, and by 2050, all new cars sold will be electric vehicles.

Indonesia’s EV market is already attracting attention.

At the Indonesia International Motor Show in April 2022, Hyundai showcased the “Ioniq 5,” the first locally manufactured battery electric vehicle (BEV) in Indonesia. In addition, local manufacturers Smoot and Gesits exhibited the country’s first domestically produced electric motorcycles.

Reference: JETRO, “Locally Manufactured EVs Featured at the Indonesia International Motor Show”

At the GAIKINDO Indonesia International Auto Show 2022, held in August—the country’s largest automotive exhibition—a test drive area for electric vehicles was introduced for the first time. A total of 11 automakers made their EVs available for test driving.

Motor shows and exhibitions offer valuable opportunities to directly observe Indonesia’s emerging trends, as they bring together a wide range of domestic and international companies to promote their products. Numerous exhibitions are held regularly, and it is highly recommended to check them out.

As of 2021, electric vehicles accounted for just 0.35% of all vehicle sales in Indonesia. However, given that this figure more than doubled compared to the previous year, there is reason to be optimistic about the future of Indonesia’s EV industry.

Indonesia’s push for electric motorcycles and EVs aims not only to address environmental issues, but also to conserve its domestic oil reserves and reduce fuel import costs. The country is also working to enhance its processing capacity for nickel laterite ore—a key material in lithium-ion batteries—so that it can become a global hub for electric vehicle production.

If the government’s vision for EV industry development materializes, Indonesia could demonstrate to the world that it possesses both the vision and capability to balance economic growth with environmental responsibility.

Sources:

• Reference 1: REUTERS, “Indonesia to Sell Only EVs and Electric Motorcycles After 2050”
• Reference 2: KOMPAS.com, “List of EVs Available for Test Drives at GIIAS 2022”
• Reference 3: JETRO, “Indonesia’s Automotive Sales Reach 880,000 Units in 2021, Up 66.8% Year-on-Year”

Future Prospects Seen Through Indonesia’s Capital Relocation

In January 2022, the Indonesian parliament passed a bill to relocate the nation’s capital. The relocation will begin in 2024, moving the capital from Jakarta to East Kalimantan, approximately 1,300 kilometers away. The project aims for completion by 2045. The new capital will be named “Nusantara,” a Javanese word meaning “archipelago.”

The reasons for the move include Jakarta’s overpopulation, severe traffic congestion, and critical environmental issues such as land subsidence and air pollution, as mentioned earlier. In addition, wealth in Indonesia is heavily concentrated in Jakarta and the island of Java, leading to significant economic disparities between regions.

The Indonesian government plans to designate the new capital as the political center, while Jakarta will remain the economic hub. Transforming Jakarta—which has long driven the national economy—will have a significant impact on Indonesia’s future prospects.

The estimated cost of the capital relocation is approximately ¥3.7 trillion (about USD 24.7 billion at an assumed exchange rate of ¥150 to USD 1), making it the largest infrastructure project ever undertaken by the Indonesian government. Development plans include government facilities, office districts, residential areas, and transportation infrastructure. Naturally, the project will require not only financial investment but also knowledge and technology from abroad. Indonesia hopes to benefit from the expertise of governments and companies from countries such as Japan.

However, the designated site for the new capital remains largely undeveloped jungle, and most of the project details have yet to be finalized. Frequent changes in government policy add to the uncertainty. For residents of both the new and old capitals, as well as for investors and Japanese companies considering entry into the Indonesian market, this period is likely to be filled with both high hopes and significant concerns. In any case, the capital relocation will undoubtedly be a major event in shaping the future of Indonesia.

Reference: BBC NEWS JAPAN, “Indonesia’s Parliament Approves Capital Relocation from Jakarta to East Kalimantan”

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The Future Potential of Indonesia

Up to this point, we have explored the future potential of Indonesia, focusing primarily on its economy, while also highlighting several areas of concern.

When discussing the Indonesian economy, attention is often drawn to its scale and growth rate. However, when considering future potential, it becomes clear that what truly matters is the country’s ability to achieve balanced development—improving not only its economy but also the global environment, its own natural surroundings, the living environment of its people, and their overall quality of life. From this perspective as well, Indonesia can certainly be described as a “country with promising future potential.”

However, when actually planning to expand into Indonesia, it is important to assess future prospects on a case-by-case basis, taking into account the specific characteristics of each industry and region.