case analysis archipelago economy : unleashing indonesia

1. The Archipelago Economy :
Unleashing Indonesia’s
Potential
Syndicate 5
Andy Eko (29114083)
Eka Taruna (29114095)
Kamilius Tegun (29114101)
Prayogi Purnapandhega (29114106)
Satam (29114111)

2. 0.0
4.0
8.0
12.0
GDP growth 2000-2010 (rank 3rd)
0
0.4
0.8
1.2
1.6
2
Growth Deviation 2000-2010 (the
lowest/rank 1st)
The Archipelago Economy: Unleashing Indonesia’s Potential
- McKinsey Report, September 2012
Indonesia By 2030Indonesia Today
0
4
8
12
16
Nominal GDP (rank 16th)
7th largest economy in the
world
135 million members of
consuming class
113 million skilled workers
needed
US$ 1.8 trillion market
opportunity
Challenges:
1. Productivity improvement
2. Uneven distribution of growth
3. Infrastructure and resource
constraints
45
85
135
170
195
180
145
110
2010 2020 2030 in 5-6% GDP
scenario
2030 in 7% GDP
scenario
below consuming
class
consuming class
240
265 280 280
Note: consuming class is
individuals with annual
net income of more than
$3600 in PPP at 2005
exchange rate
Favorable Population
2Source: Ministry of Finance Presentation on Feb 28, 2013

3. 15.2
21.4
26.2
27.0
28.1
28.9
34.8
37.7
38.6
43.0
53.5
54.1
73.3
51.2
58.8
55.4
47.6
45.5
46.1
53.9
32.8
33.9
38.5
27.1
32.0
20.6
3.2
1.5
3.1
5.6
0.8
3.1
0.7
3.3
2.4
2.2
0.8
0.5
30.4
18.3
15.4
19.8
25.6
21.9
10.6
26.2
25.2
16.3
18.6
13.9
7.0
Taiwan
Hong Kong
Japan
Australia
Philippines
South Korea
Singapore
Vietnam
Thailand
Malaysia
Indonesia
India
China
Increase their level of investment
Still in the market, but will not invest more
Reduce their investment
Have no plans to invest
The A. T. Kearney FDI
Confidence Index: Indonesia's
ranking rose from 20  9
• International surveys on investment prospects highlight Indonesia as one of the most
attractive investment destinations..
Investment will remain strong, driving forward economic growth in 2013 …
UNCTAD: Indonesia's ranking rose
from position 6  4 as a prime
investment destination 2012-2014
The Economist: Indonesia ranks
third major investment
destination in Asia in 2013
Source: A.T. Kearney, February 2012 Source: UNCTAD, July 2012 Source: The Economist, January 2013
3
Ranking
‘07 ‘10 ‘12
1 1 1
5 3 2
6 4 3
3 2 4
10 5 5
11 7 6
7 24 7
4 10 8
21 20 9
16 21 10
18 - 11
8 18 12
20 23 13
12 12 14
8 11 15
- - 16
13 13 17
- - 18
24 - 19
22 9 20
15 - 21
- - 22
22 6 23
24
25
China
India
Brazil
United States
Germany
Australia
Singapore
United…
Indonesia
Malaysia
South Africa
Russia
Turkey
Vietnam
United Arab…
Thailand
France
Taiwan
South Korea
Canada
Japan
Switzerland
Poland
Spain
The…
Source: Ministry of Finance Presentation on Feb 28, 2013

4. By
60 percent from the rate achieved from 2000 to 2010 if the economy is to meet
the government’s target of 7 percent annual GDP growth, above current trend
growth of between 5 and 6 percent
Boosting Indonesia’s productivity growth

5. The resilience of economic growth remains evident...
Source: Indonesia Statistic Bureau (BPS), Bloomberg, Moody’s (Ministry of Finance Presentation on Feb 28, 2013
10.5
8.1
5.9
4.4 4.3
3.6
2.9 2.6
1.5
0
2
4
6
8
10
12
5 years average growth between Indonesia and
peers country (%)
-13.1
0.8
4.9
3.6
4.5 4.8 5.0
5.7 5.5
6.3 6.0
4.6
6.2 6.5 6.2
-14
-9
-4
1
6
1998 2000 2002 2004 2006 2008 2010 2012
Indonesia Annual GDP Growth (% yoy)
5
11.9
10.3
9.6 9.8 9.7 9.5 9.1 8.9
8.1 7.6 7.4 7.9
11.2
8.5
7.6 8.2
9.2
8
6.7
6.1
5.3 5.5 5.3 5.3
5.9
6.3
5.8
6.8 6.4 6.5 6.5 6.5 6.3 6.4 6.2
6.1
0
3
6
9
12
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012
GDP Growth Quarterly (%, yoy)
China India Indonesia
Global Financial
Crisis
Asian Financial
Crisis

6. The majority of Indonesia’s productivity gain has come not from a shift of
workers from lower-productivity agriculture into more productive sectors, but
from productivity improvements within sectors.
The three sectors making contributions to this productivity improvement are :
1. wholesale and retail trade;
2. transport equipment and apparatus manufacturing;
3. transport and telecommunications.
Annual average growth of Indonesia is 6.4 % since 2002,
compared with Jakarta’s 5.8 %.

7. 1. Global consuming class will increase more than 75%, which will fuel demand
for a range of resources and commodities supplied by Indonesia.
Impacted Factors of Indonesia’s economic growth
2. Urbanization
a. Increase living in urban 71 % in 2030, up from 53 % today, as an estimated 32 million
people move from rural to urban areas.
b.
New cities will be created, increase overall Indonesian GDP generated by urban areas
from
an estimated 74 % today to 86 % in 2030.

8. 3. Growing working age population
Indonesia’s young and expanding
population could total 280 million by 2030, up from 240 million today.
4. Emerging digital and technology driven nation
Green technologies could also dramatically change the resource
market in coming years. For instance, Indonesia is home to 40 percent of the
world’s potential geothermal energy sources. If fully exploited, these could
generate up to 24 terawatt hours a year—roughly equivalent to 70 percent of
Jakarta’s annual energy consumption today.

10. 1. Transform consumer services
• Telecommunications and broadband Internet
• In financial services, regulation
• In retail trade, limiting competition
• In transportation, poor or insufficient infrastructure
2. Boost productivity in agriculture and fisheries
• Increased demand due to global consumer growth
• Environmental concern and urbanization
are both reasons that increases in production need to come
from more intensive production systems rather than more extensive land
use.
• In agriculture, if Indonesia pursued three approaches—
boosting yields, shifting production into high-
value crops, and reducing post-harvest and value-chain waste—
Indonesia could become a large net exporter of agriculture products,
supplying more than 130 million tons to the international market.
Indonesia’s Economy Faces Several Challenges— And Action In Four
Areas Will Be Critical To Addressing Them :

11. 3. Build a resource-smart economy
• Maximize its energy supply from unconventional sources such as next-
generation biofuels, geothermal power, and biomass, and
to more productively extract, convert, and use natural resources such as ener
gy, steel, and water.
• Using more efficient methods to generate power, improving
transportation, and retrofitting and constructing more energy-efficient buildings
could together reduce 2030 energy demand by as much as 15 percent.
4. Invest in skill building
• In order to achieve our base-case
projection of between 5 and 6 percent annual GDP growth, demand estimatio
n for semi-skilled and skilled workers will increase from today’s level of
55 million to 113 million by 2030, a rise of almost 60 million workers.
• Increasing skilled workers by :
1. Raise the standard of teaching
significantly, with an emphasis on attracting and developing great teach
ers;
2. Develop a more demand-driven curriculum; and
3. Create new, flexible education pathways.

12. BUSINESS $1.8 TRILLION OPPORTUNITY ƒ
1. Consumer services. With an additional 90 million consumers expected in
Indonesia, consumer spend in urban areas could increase at 7.7 percent a
year to become a $1.1 trillion business opportunity by 2030.

13. 2. ƒAgriculture and fisheries. Revenue from agriculture and fisheries could
increase at a rate of 6 percent per year to reach $450 billion by 2030.
Revenue from production could increase to $250 billion. The downstream
food and beverages industry could develop into a $180 billion opportunity,
while upstream activities, such as machinery, fertilizer, and seeds could offer
additional annual potential of $10 billion and total potential of $20 billion a year.
3. Resources. In 2030, the Indonesian energy market could be worth about
$270 billion. New sources of energy
such as geothermal and bio-fuels could grow rapidly at rates of more than
10 percent a year to become over a $60 billion market. However, the largest
potential of an estimated $150 billion is likely to continue to come from oil, gas,
and coal.
4. ƒHuman capital. There is a large opportunity in private education, demand
for which could potentially increase four-fold from $10 billion a year to an
estimated $40 billion in 2030.

14. Five myths about
Indonesia’s recent growth

15.  Indonesia’s economy has had one of the
most consistent growth rates among global
economies over the past ten years.
 From 2000 to 2010, Indonesia’s annual GDP
growth ranged between 4 and 6 percent.
 Indonesia’s macroeconomic management
has improved considerably. According to the
World Economic Forum’s competitiveness
report on Indonesia, the country ranked 25th
on macroeconomic stability in 2012. This put
the country ahead of BRIC nations (Brazil in
62nd, and India in 99th place) and its ASEAN
neighbors (Thailand in 27th, Malaysia in
35th, and the Philippines in 36th place).
Myth 1: The Indonesian Economy Is
Relatively Unstable
11.9
10.3 9.6 9.8 9.7 9.5 9.1 8.9 8.1 7.6 7.4 7.9
11.2
8.5
7.6 8.2 9.2 8
6.7 6.1 5.3 5.5 5.3 5.3
5.9 6.3 5.8 6.8 6.4 6.5 6.5 6.5 6.3 6.4 6.2 6.1
0
3
6
9
12
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012
GDP Growth Quarterly (%, yoy)China India Indonesia
2010 2011 2012

16. Myth 2: Economic Growth Centre
Almost Exclusively On Jakarta
 Some assume that
Indonesia’s growth comes
almost entirely from its
capital city, but this is not
entirely correct. Indonesia’s
growth comes almost
entirely from its capital city,
but this is not entirely
correct.
 Jakarta (Jabodetabek) is
indeed the major contributor
to Indonesia’s economic
output, accounting between
1/5 and 1/4 of total.

17. Myth 3: Indonesia Follows The Asian
Tigers’ Export-Driven Growth Model
• The so-called Asian Model –
driven by investment and
exports – is not ubiquitous.
Indonesia is a case in point.
• In Indonesia, exports generate
35% of GDP.
• With only 11% non-commodity
exports, Indonesia is lack of
manufacturing export sector.
• Relatively high share of
domestic consumption –
insulated the economy during
the global downturn or crisis.

18. Myth 4: Resources are the economy’s
main driver
• Indonesia is the world’s largest producer
and exporter of palm oil, the second-
largest exporter of coal, and the second-
largest producer of cocoa and tin.
• Palm oil, coal, and oil & gas remain
critical to Indonesia’s trade balance as
they represent 68% of export.
• Given the fluctuations in resource
prices, the sensitivity of the trade
balance of resource exports remains a
source of concern.
• Indonesia coal prices fell by 10% in
2012 – one explanation for the country
trade deficit.
*) Fluctuations in global resource prices
could result in instability in Indonesia’s
currency and even risk the stability of the
economy as a whole.

19. Myth 5: Growth Has Come Largely from
an Expanding Workforce
• Contrary to conventional wisdom,
improving productivity, rather than a
higher number of workers, has
been the most important driver of
Indonesia’s recent growth.
• Labor productivity has grown at a
rate of almost 3 percent a year over
the past decade, among the highest
rates observed in ASEAN countries.

20. • 75% of 1.8 billion global consuming class over the next 15 year
will be in Asia GDP tend to grow together with the urbanization.
• The growth of Asia region will rise the Indonesia’s export.
• Demands for resources and commodities from Indonesia
• Other potential economic activities is tourism.
• Export of manufactured goods.
Indonesia In The Heart Of Resurgent Asia

21. • Indonesia's exports to other Asian economies, particularly China and India
have already accelerated strongly in recent years
• Largest export today- palm oil and coal.
• In 2010, Indonesia exported 3.8 billion of coal to China
• Rising demand for food in the region also creates scope for Indonesia to
revolutionize its agricultural industry from a domestic provider into an
international food hub.

22. Actual Indonesia’s GDP growth and Export Trend
2012 - 2015
Indonesia GDP Growth Rate 2005-2015
The Gross Domestic Product (GDP) in Indonesia shrank 0.18 percent in the first
quarter of 2015 over the previous quarter. GDP Growth Rate in Indonesia averaged
1.45 Percent from 2005 until 2014, reaching an all time high of 3.82 Percent in the
third quarter of 2009 and a record low of -3.57 Percent in the fourth quarter of 2008.
GDP Growth Rate in Indonesia is reported by the Statistics Indonesia.

23. Actual Indonesia’s GDP growth and Export Trend
2012 - 2015
Indonesia Exports 1960-2015
Exports in Indonesia decreased to 13083.70 USD Million in April of 2015 from
13634.70 USD Million in March of 2015. Exports in Indonesia averaged 3785.25
USD Million from 1960 until 2015, reaching an all time high of 18647.83 USD
Million in August of 2011 and a record low of 30 USD Million in January of 1961.
Exports in Indonesia is reported by the Statistics Indonesia.

24. Future Mid-Sized Middleweights:
 Batam (Sumatra), expected to grow 6.4 percent per annum. The city is
benefitting from the SIJORI (Singapore-Johor-Riau), Growth Triangle that was
started in 1989.
a) Signed a MoU on a Free Trade Zone that includes Batam and Bintan.
b) Offers foreign investors incentives, include a liberal tax regime and streamlined
official administration.
 Pekanbaru (Sumatra), The city’s economy has been one of the fastest growing
over the past ten years, with a 9.8% compound annual growth rate fuelled by
the commodity boom. Pekanbaru’s GDP will grow at an average of 7.3% a year
to 2030.
 Makasar (Sulawesi), The trade centre of eastern Indonesia. Over the past ten
years, Makasar economy has grown at a 9% a year, largely due to productivity
growth. Expected that the city will maintain rapid GDP growth of 7.1% a year.
24-24
Around 90 percent of the urban areas whose economies are growing
faster than 7 percent per annum will be outside the island of java
Three cities that could double the populations from around one million
today to about 2 million by 2030 are Batam, Pekanbaru and Makassar

25. Indonesia Could Take advantage of Disruptive
Technologies
 Opportunities Presented by disruptive or Game Changing Technologies
 Developments in digital communications, and
 In the resources field.
World Development Indicators
 There were 220 millions registered mobile subscription in Indonesia (2010).
 The Internet is becoming mainstream.
 The majority of Indonesian internet users are relatively new to medium.
 Growing number of organizations using digital media an opportunity to shape
online behavior.

26. A Customer survey developed to understand changing consumer behavior across
digital experiences.
 Indicating Indonesian enthusiasm for, and ease with digital applications.
 Indonesia has a solid platform from which to launch e-commerce.
(5% of internet users engage in e-commerce).
 Expected to rise as consumer confidence in the reliability and risk protection
of credit card transactions improves.
 Improve Access: Providers of Public goods like as health and education might
also use digital media.
 Digital Technologies are not the only ones showing promise for Indonesia.
Green Technologies could dramatically change the country’s resource
markets. (renewable energies, with the largest geothermal resources in the
world).
The Digital Consumer Asia Survey

27. Strong Growth Internet Access
Research in Asia shows that:
 Indonesia’s (1%) broadband penetrations lags behind that of its peers.
 Vietnam, for instance has more than 4% broadband penetration.
(in low and middle-income countries, every 10% points increase in
broadband penetration accelerate economic growth by 1.4% points). -
more than in high income countries and more than is the case with other
telecommunication services).

28. Indonesia’s Consuming
Class
 If Indonesia’s GDP growth is aligned with
base-case projection of 5 to 6% a year
(2030). And additional 90 million Indonesians
join the ranks of the consuming class (2030).
 The Consuming class could increase in
number from 45 million (2010) to 135 million
(2030)
 If Indonesia were to achieve 7% annual
growth up (2030), then the consuming class
would be 170 million strong in that year, an
increase of 125 million individuals.