Indonesia’s favorable demographics, natural resources and relatively stable political environment have set up the country for what could be a very strong decade of growth.
Indonesia’s economy doubled in the past five years and GDP growth was faster than that of India, China and Brazil. In greater Jakarta—the world’s second-largest urban area with roughly 23 million people—GDP per capita grew by 11 percent each year from 2006 through 2009.
More importantly, this growth was driven by the private sector, not by government spending – the private sector accounts for roughly 90 percent of the country’s GDP. In addition, commodities account for only 10 percent of economic growth, which insulates the country from the volatility in commodity prices.
Indonesia’s strength is in its consumers. Over the past five years, the average income has doubled to $2,350 a year and Deutsche Bank thinks that can figure can reach $3,400 by 2011.
Despite this income growth, Indonesia still has the lowest unit labor costs in the Asia-Pacific region (chart), according to JP Morgan, and this has driven manufacturing activities from China into Indonesia.
A Deutsche Bank survey of 50 companies showed a 5 percent jump in employment over the past year. Low wages should help continue Indonesia’s industrial recovery.
Employment growth is key because half of Indonesia’s population is 25 years old or younger. Indonesia’s workforce as a portion of total population will rise over the next 20 years, and this should increase the country’s consumption levels and fuel further economic growth.