Can Indonesia Achieve Its True Potential: How Does The Nation Become a 21st Century Economy
November 22, 2017
Gita Wirjawan History
• Population Shift / Change
• Planetary Change : o 4.5 billion years ago (Formed); o 3.8 billion years ago (Simple Life Form); o 600 million years ago (Complex Life Form); o Holocene (Post Pleistocene). Epoch 11,500 years ago (Stabilization of Temperature Oscillation). o Aristotle: Arid, Temperate, and Torrid.
1 Today
• Shift from soil, steel, to data o Gap between Moore’s Law and humanity. o Disappearance of old economy paradigm. o Middle class as beneficiaries of opportunities and risks. • Multi-polarization of the World o From Defined Benefit to Defined Contribution. o Decline of multilateralism? o Decline of centrality. o From Makassar to Mankato, Minnesota. o Intellectualize vs Popularize. o Liberal Democracy vs Socialism with Chinese Characteristics. • Climate shift o God forgives, people often forgive, nature never forgives. o CO2 enters atmosphere about 100 times faster than at beginning of Holocene Epoch. o Aristotle: Arid, Temperate, and Torrid. • Decline of price of money o Increased savings whilst finite number of asset classes 2 Tomorrow
• Economic / civilizational shifts : o By 2050, 1/2 of World’s population and 2/3 of World’s children will be in the Tropics o New economic powerhouses and their geopolitical rules; o Diminution of extreme poverty; o The role of peace and stability. o The role of capital : Implication of the ratios on underlying narrative; Decline of price of money. o The role of data and marginal productivity; MAFGA now represents world’s 5th largest GDP at nominal; The 4 horsemen; They vs Nation Status; They vs Themselves. o From Homo Sapiens to Homo Deus.
3 *) MAFGA = Microsoft, Amazon, Facebook, Google, and Apple Global / Regional Narratives
• Global / Regional Narratives Affecting Capital Mobility include: o One Belt One Road Initiative o Socialism with Chinese Characteristics o Liberal Democracy o Demographics o Multi polar world order o ASEAN+ architecture
4 Where is Indonesia ?
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History of Indonesia
• Past 2,000 years o Buddhism o Hinduism o Islam o Colonialism o Independence o Democratization
• How will history affect our Future o Era of Strategic Relevance?
7 Indonesia’s Moments of Greatness
• Moments of Greatness include: o 7th Century : Syailendra Dynasty (Borobudur, largest Buddhist temple in the world) o 14th Century : Majapahit Dynasty (robust regional maritime & economic architecture) o 21st Century : Regional / International Middle Power?
8 Indonesia’s Moments of Greatness
Prehistoric Era
Pleistocene Epoch
1,800,000 BP 40,000 BP 2nd millennium BC 1st millennium BC
Earliest known Homo sapiens Austronesians migrate Dong-Son bronze culture. Homo erectus fossil (modern human) from Philippines to Moon of Pejing (Bali). Wet- in Java. fossils in Java. Indonesia field rice cultivation. Ikat weaving. Small towns, villages, polities.
9 Indonesia’s Moments of Greatness
Buddhism – Hinduism Era Central Javanese Period Buddhism Buddhism - Hinduism
Over the centuries, the Trade routes Buddhist temple of various islands of Srivijaya claimed the were established Borobudur Indonesia have been Straits of Melaka with China and completed visited and settled by India people from India, China, Portugal and Arabia Srivijaya Kingdom (Sumatra) Sailendra Kingdom (Central Javanese) 400s 671, 687 700s 779 825 835
Buddhism was Yijing, a Chinese Son of the first Sanjaya Samaratunga died, introduced to Buddhist monk travelled king, Panangkaran, Patapan of Sanjaya Sumatra through to Srivijaya (today’s erected his own took kingdom, replaced Indianisation Palembang) growing the inscription admidst the Buddhism with influence of Buddhism. green fields of Mataram Hinduism in Java
Start of a tradition: Tribute missions to China
10 Indonesia’s Moments of Greatness
Buddhism – Islam Era East Javanese Period Buddhism - Hinduism Islam Appearance Some of the wali songo had some Chinese of the Nine ancestry maternally; for example, Sunan The sites of central Java are Saints (Wali Ampel (Chinese name Bong Swi Ho), abandoned, and the political Songo) Sunan Bonang (Ampel's son, Bong Ang), and cultural center of Java Majapahit rules Bali and Sunan Kalijaga (Gan Si Cang). shifts to the eastern part of Start the island Sultanate of Malacca Singhasari – Majapahit Dynasty Sultanate Era (Malacca, Demak, Aceh, Banten, Mataram, etc) 1222 1293 1402 1475 1511
Kublai Kahn's invasion to 1331 - 1364 Sultanate Demak Portugal conquers Java. Kublai Kahn sent a large Gajah Mada is Prime conquers Majapahit Sultanate of invasion fleet to Java with Minister of Majapahit under Raden Patah a.k.a Jin Bun Malacca 20,000 to 30,000 soldiers. This two successive kings; became the first sultan of Demak was a punitive expedition Golden Age of Majapahit. against King Kertanegara of Singhasari, who had refused Zheng He, an admiral from to pay tribute to the Yuan and China who was raised as a maimed one of its ministers. It Muslim arrives to ended with failure for the Indonesia, was key to Mongols. developments of Chinese Muslim Community in Java and Palembang.
11 Indonesia’s Moments of Greatness
Islam – Colonialization Era
1825 – 1830 Java War, attempt to rebel Islam from Dutch empire led by Diponegoro. Est 200,000 1811 – 1816 died. British interregnum; Thomas Stamford Raffles is Lieutenant-Governor of Java Dutch East Indies Co. (“VOC”) 1619 1800 1830 1849 1942-1945 1950
VOC seizes VOC dissolved by Dutch Dutch Dutch Colonial U.N Support Jayakarta (Dutch Dutch Colonial Colonial Period ended, Indonesia Batavia, Modern government Period on Period on Bali Japanese Independence Jakarta) Java occupied till 1945 Indonesia declared independence
12 Indonesia vs ASEAN
Productivity Bachelors (% Global GDP (PPP) R&D Spending Labor Force PPP adjusted Growth of Population Competitiveness (US$/capita) (US$/capita) (millions) (US$/person) (%) Aged 25+) Rank Singapore 3.4 125,400 1.7% 87,832 1,608.9 28% 2
Brunei 0.2 168,800 -1.1% 77,422 N/A N/A N/A
Malaysia 13.2 54,400 2.4% 27,292 256.9 16% 18
Thailand 39.0 25,500 3.1% 16,885 52.7 11% 32
Indonesia 124.0 23,000 3.8% 11,717 8.1 7% 37
Philippines 41.3 16,900 2.5% 7,739 5.4 17% 47
Laos 3.3 9,000 4.6% 6,871 N/A N/A 83
Vietnam 52.9 8,900 4.4% 6,423 9.9 7% 56
Myanmar 34.1 8,400 8.7% 5,804 N/A N/A 131
Cambodia 7.9 5,400 4.3% 3,741 N/A 2% 90
Total ASEAN 319.3 20,600 N/A 11,598 N/A N/A N/A
vs China 804 21,000 8.9% 15,394 298.6 3% 28
Notes: Labor Force: CIA World Factbook Productivity: GDP at Constant Prices per Worker using 2014 PPP – Asia Productivity Organization (APO) Databook 2016 Productivity Growth: CAGR 2000-2014 – Asia Productivity Organization (APO) Databook 2016 GDP (PPP) per Capita as of 2016 (IMF) Bachelors: Bachelors Degree Holders as % of Population Aged 25+ (UNESCO Statistics) 13 Developing a competitive middle class Indonesia • Avoiding the “middle income trap” : o From increasing labor and capital investment towards the enhancement of marginal productivity o Developing competitive middle class as the support for domestic consumption
Middle Class Population
2015 vs Country: 2005 2015 2020 2020 (%)
15,393 45,662 80,274 76% Indonesia 18,627 30,486 41,709 37% Thailand 10,188 19,322 29,227 51% Filipina 10,644 17,375 21,966 26% Malaysia 1,567 6,522 15,064 131% Vietnam
3,384 4,357 4,827 11% # in thousands of people Singapore *) Notes: Middle class refers to productive people 60,003 124,579 195,401 57% within a household ASEAN consuming between US$10 – US$100 per day 50,000 200,000 500,000 150% China 14 Source: Brookings Institute Lifting millions out of Poverty
People living on less than $1.90 a day 150 100 134.4
75
100 65.3 83.4 84.1 77.2 50 64.1 54.4 51.2 52.9 population of % Millions of people of Millions 50.9 50.7 40 39.8 48.9 50 44 36 38.5 33.2 28 29.2 25 23.4 23.3 24.4 24.7 21.6 22.8 21.6 21.0 18.4 16 13.6 11.8 9.8 8.3 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Millions of Poor (LHS) Poverty Headcount Ratoi (RHS)
(Source: WorldBank)
15 Infrastructure and Banking Indonesia vs ASEAN
Indonesia, like many other SEA countries, still has significant infrastructure needs. Positive improvement in banking conditions needed to support the buildout.
Indo- Malay- Viet- Singa- Thai- Laos Myan- Brunei Cambo- Philip- China nesia sia nam pore land mar dia pines
Roads (km) 496,000 144,000 206,000 3,400 180,000 40,000 34,000 3,000 44,700 216,000 4,106,300
Electricity 730 4,345 1,272 8,689 2,465 300 153 7,603 234 606 4,039 consumption (kWh per capita)
Lending 12.6% 4.6% 9.5% 5.4% 6.8% N/A 13.0% 5.5% 11.7% 5.8% 4.4% rates (%)
Deposit rates 7.0% 3.0% 5.8% 1.0% 2.0% N/A 8.0% N/A N/A N/A 1.75% (%)
Interest rate 5.6% 1.6% 3.7% 4.4% 4.8% N/A 5.0% N/A N/A N/A N/A differential (Lending vs deposit rates) Banking 36% 81% 31% 96% 78% 27% 23% N/A 22% 31% 79% penetration (% of 15yo+ with accounts) 16 Sources: Asian Productivity Organization Databook 2015, OECD, CIA World Factbook, World Bank Internet Penetration and Education Indonesia vs ASEAN
Indonesia Is Predicted to Be the Fifth Largest Internet Ecosystem in the World by 2018. High quality education still needs to be improved across Asia.
Indo- Malay- Viet- Singa- Thai- Laos Myan- Brunei Cambo- Philip- China nesia sia nam pore land mar dia pines
Population 264,510 31,164 95,415 5,740 68,298 6,858 53,550 429 16,005 103,797 1,388,233 (thousand)
Internet 50.4% 78.8% 67.1% 81.2% 83.5% 21.9% 25.1% 75.0% 25.6% 55.5% 53.2% penetration (%) Smartphone 20.7% 64.1% 26.4% 85% 40.5% N/A 80% N/A N/A 23.3% 51.7% penetration (%) Smartphone 54,494 19,967 25,162 4,890 27,628 5,829 42,840 538 12,483 24,173 717,310 users (thousand)
Number of 693 103 4193 60 167 92 163 12 56 1,9233 2,845 universites* (unit) Number of 689 1,236 1,4063 424 2,000 76 8901 12 2163 3,3183 23,9102 student** (thousand) Remarks: * Number of university and college ** Number of tertiary student 1 Data in 2004 2 Data in 2012 3 Data in 2014 Sources: 17 Newzoo’s Global Market Report, Businesstimes 2017 Government website, Wikipedia 2015 How Education will power and empower a Nation
• Targeted Spending (20% of government spending) o Indonesia’s Accumulation of Education Spending till 2045 Tax ratio of 12% : US$5.0tn Tax ratio of 15% : US$6.3tn Tax ratio of 20% : US$8.4tn Tax ratio of 25% : US$10.5tn
*US$5.0tn enough for 50 million students (1-year high quality tertiary education equivalent)
o Capex vs Opex
o STEM vs Liberal Arts
18 How Sustained Infrastructure Spending will reshape a Nation
• Targeted Spending (5% of government spending) o Indonesia’s Accumulation of Infrastructure Spending till 2045 Tax ratio of 12% : US$1.3tn Tax ratio of 15% : US$1.6tn Tax ratio of 20% : US$2.1tn Tax ratio of 25% : US$2.7tn
o Infrastructure narrative alone (without a human capital development narrative) may not complete the picture.
19 How Technology will affect Society
• Disruption vs Dislocation o Discovery of fire was arguably the first technological disruption Humanity has learned to embrace technology despite hazards
• What it would take to become a fully financially inclusive nation o Role of digital space and machine learning Moving the needle from 36% financial inclusiveness. Peer to peer engagement.
• Will future technological disruption lead to social equity? o Income Gap o Wealth Gap o Regulatory Stickiness
20 The Future The Big Picture
Top 10 GDP at PPP by 2030 & 2050
Source: PWC – the world in 2050
MAFGA at USD 3 Trillion would be: o The World’s 9th largest GDP (in 2016) at PPP. o The World’s 5th largest GDP at nominal.
21 Indonesia in 2045
• Economic Equity o 4th largest GDP US$11.4tn o 4th most populous nation 320 Million People o GDP per capita US$35,800 o # of Kilometers of Road 2 Million Km o # of Megawatts of Electrification 1 Million MW o # of Doctors per 1,000 people 4 Doctors o # of Hospitals Beds per 1,000 people 4 Beds o Financial Inclusion 95% o Tax Ratio (as percentage of GDP) 25% o International Tourist Arrival per annum 150 Million o Debt / GDP ratio 50% o Market Capitalization / GDP 100% o Bank / GDP ratio 100% o Towards Singularity
22 Indonesia in 2045
• Political / Geopolitical / Social Equity o 3rd largest democracy o Gini Ratio of 30% o ASEAN as anchor of regional peace & stability o Astronauts in International Space Station o Top 5 nations in Olympics medal tally standing o 10 Nobel prize winners o Soccer World Cup Champion o Artistic projection of soft power o Homo Sapiens to Homo Deus o Search for immortality, happiness, & divinity.
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Thank You
Gita Wirjawan Chairman, Ancora Group [email protected]