Indonesia's Economic Transformation: Can New Industrial and Green Energy Sectors Drive 8% Growth?

Jakarta, INTI - Indonesia has set an ambitious target of reaching an 8% economic growth rate by 2028-2029, drawing parallels to the nation’s 1995 performance when growth reached 8.2%, driven by sectors such as manufacturing, automotive, construction, and services. Today, the government is once again focusing on these sectors, alongside new industries such as digital economy, semiconductor production, and green energy, to reach this ambitious goal.

In a recent speech at the National Coordination Meeting themed “Implementing Asta Cita Towards a Golden Indonesia 2045,” Coordinating Minister for Economic Affairs Airlangga Hartarto emphasized the importance of developing key sectors while maintaining stability in consumer spending, investment, and exports. “The President has called for 8% growth, and it is achievable because we have achieved this before,” he said. “Our approach must focus on maintaining consumption, achieving 10% growth in investment, and 9% growth in exports, with a focus on sectors such as downstream processing, tourism, construction, and emerging industries like semiconductors and renewable energy.”

Focus Areas: Green Energy and New Economy Sectors

Minister Airlangga underscored the potential for green energy to play a significant role in achieving this growth target. President Joko Widodo envisions Indonesia as a leading global producer of renewable energy, which aligns with the country’s commitment to sustainable economic development. By promoting green energy, Indonesia could tap into the growing demand for environmentally friendly energy sources, supporting both economic growth and global sustainability.

Another promising area for growth is the digital economy, where Indonesia aims to become a regional leader. Emerging technologies, including artificial intelligence, blockchain, and advanced telecommunications, are expected to create new job opportunities and contribute to the nation’s economic resilience.

Regional Economic Contributions and Disparities

Indonesia’s recent growth data, published by the Central Statistics Agency (BPS), shows a year-on-year increase of 4.95% in the third quarter of 2024, with Java leading the way. Java’s contribution to the national GDP reached 56.84%, with the manufacturing, trade, and construction sectors as its primary drivers. However, Papua Barat and Central Sulawesi have demonstrated that other regions can also lead with high growth rates, at 19.56% and 9.08%, respectively, supported by robust industrial and mining activities.

“Industrialization and downstream processing are pathways to prosperity,” said Minister Airlangga. “This is why the President is confident that we can achieve 8% growth by leveraging our strengths.”

Despite these successes, income inequality across provinces remains a concern. The top 10 districts in terms of per capita GDP have an average income of USD 33,267, whereas the bottom 10 districts have an average of USD 658. To address this disparity, the government encourages regions to pursue not only high per capita GDP but also quality growth, with low poverty and Gini ratios, as exemplified by provinces like North and East Kalimantan.

Inflation Management and Regional Responsibilities

As the country approaches the holiday season, local governments are being urged to manage inflation, particularly in volatile food prices. To keep 2024 inflation levels stable, the government aims to maintain food inflation below 5%. With holiday-related events likely to cause price fluctuations, regional authorities are also advised to prepare proactive measures to prevent excessive inflationary impacts on the economy.

Policy Directions for Sustained Economic Growth

In his closing remarks, Minister Airlangga outlined essential policies to support economic growth, including promoting downstream resource processing, utilizing existing infrastructure, improving regional connectivity, and expanding vocational training programs to prepare the workforce for industrial zone requirements. Minister Airlangga also reminded local leaders about the government’s microcredit programs, which are essential for strengthening SMEs.

"To enhance the resilience of SMEs, it’s crucial that local governments support the government’s microcredit programs. This will empower small businesses and contribute to a more equitable distribution of economic growth," concluded Minister Airlangga.