Indonesia has made steady progress in economic development in recent years, anchored on the Golden Indonesia 2045 vision, which aims to industrialise the country, raise the GDP per capita to $25,000 and create 10m jobs by 2045. Prepared by the National Development Planning Agency (BAPPENAS), Indonesia’s National Medium-Term Development Plan (RPJMD) 2020-24 is designed to ensure long-term sustainability and consistency in national development efforts. In May 2023 BAPPENAS passed the 2024 work plan for the final year of the RPJMD 2020-24. This plan emphasises the pivotal role of human capital development in reducing poverty and enhancing industrialisation, setting the foundation for the next medium-term plan, which is set to span from 2025 to 2029.
Progress & Challenges
The country cemented its solid post-Covid-19-pandemic economic recovery by regaining its status as an upper-middle-income country, with a GNI per capita of $4580 in 2022. GDP grew by 5.3% that year – the highest figure in nine years – to $1.3trn, making Indonesia the largest economy in South-east Asia. With a 148m-strong labour force, national development goals have shifted to improving the quality of human resources.
As of August 2023 some 7.9m individuals were unemployed in Indonesia, and 20.3% of Indonesians aged 15-24 were not participating in education, employment or training. Notably, that year the female workforce participation rate was 54.5%, which was significantly lower than the rate of 84.3% for men, limiting the country’s potential for economic growth. To tackle these issues, an emphasis on skills development can help bridge the gap between evolving market needs and workforce capabilities. According to Indonesia’s National Labour Force Survey conducted in February 2020, around 90% of the workforce had not received any training, leading to lower productivity. Indeed, Indonesia’s labour productivity rate was $14 per hour in 2023, compared to Malaysia’s $26 per hour and Singapore’s $74 per hour.
However, improved education participation rates and facilities have helped Indonesia’s human development index score increase from 68.9 in 2014 to 74.4 in 2023. This progress can be attributed in part to government initiatives aimed at workforce development to reduce unemployment and inequality. One such programme, Kartu Prakerja, which launched in 2020 as a multi-stakeholder partnership, provides training opportunities for Indonesians not enrolled in formal education. Covering a wide range of topics to develop employability, it also offers financial incentives to participants. Between 2020 and 2023 Kartu Prakerja reached over 17m beneficiaries, 86% of whom had never attended a certified training programme before. The programme increased participants’ skills, with 95% reporting improvements after completing the courses. Of the beneficiaries, 51% were female, and 22% of female participants found employment after the programme.
Another challenge Indonesia faces is brain drain, with many educated workers emigrating for better opportunities. To address this challenge – which is particularly significant in science and technology fields – Indonesia is considering allowing dual citizenship for people of Indonesian descent to attract more skilled individuals.
New Administration
Elected as the new president in February 2024, Prabowo Subianto will take over from incumbent President Joko Widodo, better known as Jokowi, in October 2024. Under Jokowi’s presidency, economic growth averaged around 5% amid significant macroeconomic uncertainties. With 204m voters under the age of 40 taking part in the presidential election, improving youth employment and vocational education are high priorities. Notably, as of August 2023 Indonesians aged 15-24 faced a 19.4% unemployment rate, compared to 5.3% for the general population. Consequently, the incoming Subianto administration has pledged spending to enhance education outcomes and is planning a free school lunch programme, which it estimates will benefit some 83.9m people by 2029.
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