Why Indonesia Is Quietly Becoming Asia's Next Superpower

Summary

Indonesia is rapidly emerging as Asia's third economic superpower, with its GDP growing tenfold in the past two decades. Leveraging its resource wealth, particularly nickel, and developing industries like e-commerce and fintech, Indonesia is transforming its economy. However, geopolitical challenges and the need for improved infrastructure could impact its continued growth.

Takeaways

• 🌏 Indonesia is emerging as a symbol of economic success in Asia, growing faster and becoming larger than traditionally recognized economies like Singapore, South Korea, and Japan.
• 📈 The Indonesian economy has expanded tenfold in the past two decades, making it a significant player in the global economy that has been overlooked.
• 🛑 Just 20 years ago, Indonesia faced a severe economic crisis with skyrocketing inflation, a collapsing currency, and political instability.
• 🛠️ Indonesia's initial growth spurt in the early 2000s was driven by commodity exports, particularly oil, which benefited from a rise in global commodity prices.
• 🔄 The country has managed to diversify its economy, moving away from reliance on natural resources by developing new industries, such as nickel processing for the electric vehicle (EV) industry.
• 🚗 Indonesia has the world's largest nickel reserves and is focusing on creating a battery-making industry to capitalize on the global shift towards green energy and EVs.
• 💻 The digital economy, particularly e-commerce and fintech, is another major driver of Indonesia's growth, with the country becoming a regional leader in these sectors.
• 🏙️ Indonesia's economic growth has been inclusive, leading to the expansion of a strong middle class and a large domestic market conducive to tech startups and e-commerce.
• 🌟 The country is home to 15 startups valued at over $1 billion, making it a tech powerhouse in Southeast Asia, second only to Singapore.
• 🔮 Predictions suggest that Indonesia will become the seventh-largest economy by 2030 and the fourth-largest by 2050, after the United States, China, and India.
• 🕊️ Indonesia aims to maintain a neutral stance in geopolitical tensions, balancing relations with both China and the United States while increasing its own influence.

Q & A

Which country in Asia is becoming a symbol of economic success and a major technological hub?

Indonesia is becoming a symbol of economic success and a major technological hub in Asia.

How has Indonesia's economy changed in the last two decades?

Indonesia's economy has grown tenfold in the last two decades, transforming from a struggling economy to one of the largest in the world.

What were the economic conditions in Indonesia at the beginning of the 21st century?

At the beginning of the 21st century, Indonesia was experiencing economic chaos with skyrocketing inflation, a collapsing currency, and political instability.

What was the impact of the Asian financial crisis on Indonesia?

The Asian financial crisis in the late 1990s hit Indonesia harder than any other country, causing its economy to contract by nearly 14%, inflation to reach 65%, and the currency to lose 70% of its value.

How did Indonesia's economic growth change in the 1970s?

In the 1970s, Indonesia's economic growth improved as the country started mass exporting crude oil and used the revenue to invest in infrastructure and other sectors of the economy.

What strategy has Indonesia used to diversify its economy beyond relying on resources?

Indonesia has used the revenue from its resources to build other industries and sectors, focusing on transforming its economy and moving away from just relying on resources.

Why is Indonesia focusing on the nickel industry?

Indonesia is focusing on the nickel industry because it is essential for the electrical cars industry and the shift towards green energy, and Indonesia has the largest supplies of nickel in the world.

What policy has Indonesia implemented regarding its nickel exports?

Indonesia has banned all of its nickel exports to build an entire processing and battery-making industry around it, aiming to maximize the value it can get out of its resources.

How has Indonesia's digital economy contributed to its economic growth?

Indonesia's digital economy, specifically e-commerce and fintech, has become a major driver of its economic growth, with the country having the largest e-commerce industry in Southeast Asia.

What are the potential geopolitical challenges Indonesia might face in maintaining its non-alignment?

Indonesia might face challenges in maintaining its non-alignment due to increasing tensions in the region, particularly between China and the United States, which could force Indonesia to choose sides.

What are the future economic predictions for Indonesia according to Kenzie and Goldman Sachs?

According to Kenzie, Indonesia should become the seventh-largest economy by 2030, overtaking the UK and Germany, and Goldman Sachs predicts it will become the fourth-largest economy after the United States, China, and India by 2050.

Outlines

00:00

🌐 The Rise of Indonesia: From Economic Chaos to Technological Hub

The first paragraph introduces Indonesia as an emerging economic powerhouse in Asia, often overlooked despite its significant growth. Once struggling with economic instability and political turmoil, Indonesia has transformed itself into a major technological hub. The country's economy has grown tenfold in the past two decades, overtaking Western economies in size. The transformation began with a period of economic chaos and political instability following its independence in 1949, through various forms of governance until the late 1960s. The 1970s saw a shift with oil exports and infrastructure investments, but the Asian financial crisis in the late 1990s hit Indonesia hard, leading to a severe economic contraction and political transition. Despite this, Indonesia managed to rebound and by 2024, its GDP is projected to reach nearly $1.5 trillion, making it the 16th largest economy globally.

05:00

🚀 Indonesia's Economic Growth: From Commodity Exports to Industry Diversification

The second paragraph delves into Indonesia's economic growth strategies, highlighting its transition from relying on commodity exports to building a diverse industrial base. Indonesia capitalized on high commodity prices in the 2000s, but unlike other resource-rich countries, it did not falter when prices dropped. Instead, it used resource revenues to develop other industries, such as nickel processing for the electric vehicle and green energy sectors. Indonesia's decision to ban nickel exports and focus on creating a domestic processing and battery-making industry is a strategic move to maximize value and secure a place in the EV industry. Additionally, Indonesia has become a digital economy powerhouse in Southeast Asia, with a robust e-commerce and fintech sector, fostering a strong middle class and a thriving startup ecosystem. Projections suggest that Indonesia could become the seventh largest economy by 2030 and the fourth by 2050, with a demographic advantage of a young, productive population.

10:02

🌍 Geopolitical Challenges and Indonesia's Path to Non-Alignment

The third paragraph discusses the geopolitical challenges Indonesia faces as it seeks to maintain a neutral stance amidst regional tensions. While Indonesia aims to balance its relations with major powers like China and the United States, the increasing military presence and tensions in the region pose a challenge. China's dominance in the South China Sea and the United States' alliances and military buildup in the area could force Indonesia to choose sides. The country's economic reliance on China and the potential consequences of losing access to the Chinese market add complexity to its non-alignment policy. Furthermore, disputes over regional waters and domestic sentiment against China complicate Indonesia's diplomatic efforts. The paragraph concludes by suggesting that Indonesia's neutrality might become increasingly difficult to maintain, potentially leading to a need to align with one side or the other.

Keywords

💡Economic Success

Economic success refers to the achievement of a country in terms of economic growth, stability, and prosperity. In the video, Indonesia is highlighted as a symbol of economic success due to its rapid growth and transformation into a major technological hub. The script mentions that Indonesia's economy is now 10 times larger than it was two decades ago, illustrating the country's significant progress.

💡Technological Hub

A technological hub is a region or city that serves as a center for technological innovation and development. The video emphasizes Indonesia's emergence as a technological hub, suggesting that the country is becoming a significant player in the global tech industry. This is evident from the script's discussion of Indonesia's focus on industries like nickel processing and battery making, which are crucial for the electric vehicle industry.

💡Resource-rich

Being resource-rich means having abundant natural resources. Indonesia is described as one of the most resource-rich countries in the script, exporting a wide range of commodities from oil and gas to coffee and rubber. This wealth of resources has been a significant driver of the country's economic growth, particularly during the period from 2004 to 2014.

💡Commodity Export

Commodity export involves the sale of raw materials or primary agricultural products to other countries. The script highlights Indonesia's reliance on commodity exports, particularly during the early stages of its economic growth. However, it also notes that Indonesia has moved beyond just exporting raw materials by developing industries that process these commodities, such as the nickel industry.

💡Economic Growth

Economic growth is the increase in the production of goods and services in an economy over a period of time. The video discusses Indonesia's economic growth extensively, noting that its GDP is estimated to reach almost $1.5 trillion in 2024, making it the 16th largest economy in the world. This growth is attributed to various factors, including resource exports and the development of new industries.

💡Infrastructure Investment

Infrastructure investment refers to the allocation of resources to build and maintain physical and organizational structures needed for the operation of a society or enterprise. The script mentions that Indonesia used its oil revenue to invest in infrastructure and other sectors of the economy, which helped lay the foundation for its economic growth.

💡Digital Economy

The digital economy encompasses all economic activities that result from digital technologies, including e-commerce and fintech. The video highlights Indonesia's development of the digital economy, particularly e-commerce, as a major driver of its current economic success. The country has the largest e-commerce industry in Southeast Asia, which has contributed to its economic growth and the creation of a strong startup ecosystem.

💡E-commerce Giant

An e-commerce giant is a company or country that has a dominant presence in the online retail market. The script positions Indonesia as an e-commerce giant in Southeast Asia, with a sector that is six times larger than that of the Philippines. This growth in e-commerce has been facilitated by smart policies and infrastructure investments, creating a large market for tech companies.

💡Non-alignment

Non-alignment is a policy of not aligning with any major power blocs in international relations. The video discusses Indonesia's commitment to non-alignment, aiming to maintain good relations with both China and the United States while increasing its own influence. This strategy is seen as beneficial in an increasingly polarized world, but it also presents challenges as regional tensions rise.

💡Geopolitical Importance

Geopolitical importance refers to the strategic significance of a country or region in international politics and economics. The script notes that Indonesia's growing economy and strategic location make it increasingly important in the region, particularly as tensions between China, Taiwan, the US, and its allies escalate. Indonesia's ability to navigate these geopolitical dynamics will be crucial for its continued growth.

💡Demographic Benefit

Demographic benefit refers to the advantage gained from a population's age structure, typically a younger and more productive workforce. The video predicts that Indonesia will have a major demographic benefit by 2050, with a growing population of young people in the productive age. This demographic advantage could contribute to Indonesia's economic growth and global influence.

Highlights

Indonesia is emerging as a symbol of economic success, growing faster than traditionally recognized Asian economies like Singapore, South Korea, and Japan.

Indonesia's economy has grown 10 times larger in the past two decades, making it a significant technological hub.

Despite its economic growth, Indonesia's rise has largely gone unnoticed, posing a risk to overlook its potential impact.

Twenty years ago, Indonesia faced a collapsing economy with high inflation, currency devaluation, and political instability.

Indonesia's economic history includes periods of chaos, transitioning from democracy to dictatorship, and experiencing extreme inflation.

The 1970s saw Indonesia's first period of economic growth, driven by oil exports and investment in infrastructure.

The Asian financial crisis in the late 1990s severely impacted Indonesia, leading to a dramatic economic contraction.

Indonesia's economy contracted by nearly 14% in 1998, with inflation reaching 65% and currency devaluation.

Indonesia's recovery involved establishing democratic institutions and stabilizing the economy after the crisis.

By 2024, Indonesia's GDP is projected to reach almost $1.5 trillion, significantly larger than its previous low point.

Indonesia's growth story is marked by two distinct decades, each driven by different factors.

Resource exports, particularly commodities, initially fueled Indonesia's economic growth from 2004 to 2014.

Indonesia's unique approach to resource management includes banning raw nickel exports to build a domestic processing and battery industry.

Indonesia has the world's largest nickel supply and is leveraging this for the electric vehicle and green energy industries.

The digital economy, especially e-commerce and fintech, is a major driver of Indonesia's current economic growth.

Indonesia has the largest e-commerce industry in Southeast Asia, with a strong middle class and good internet coverage.

Indonesia's tech industry is expanding regionally, with a growing number of high-value startups.

Indonesia is projected to become the seventh-largest economy by 2030 and the fourth-largest by 2050.

Indonesia's geopolitical strategy involves maintaining neutrality and good relations with both China and the US.

Challenges for Indonesia include improving bureaucracy, education, and infrastructure to attract high-value businesses.

Geopolitical tensions may threaten Indonesia's neutrality, as it navigates between China's and the US's regional interests.

Transcripts

when you think of Asia's most successful

economies countries like Singapore South

Korea and Japan probably come to mind

but it's actually a different Asian

country that's becoming a symbol of

economic success that has been growing

faster and becoming larger than any of

them and that's quickly establishing

itself as a major technological Hub and

at the same time it's a country that you

don't really ever hear about Indonesia

Indonesia's economy is now 10 times

bigger than it was just two decades ago

after many years of frantic economic

growth it has been overtaking major

Western economies in size one after

another but still its rise has so far

gone mostly unnoticed but ignoring

Indonesia would be a huge mistake

because hidden away from attention and

frontf news it's quietly transforming

itself into Asia's thirdd giant the

third and last economic superpower of

the region after China and India that

will soon become impossible to ignore

any longer so this is the rise of

Indonesia but to understand how much

Indonesia has grown we need to

understand where it started from because

just 20 years ago Indonesia was in a

very much the opposite situation as

today at the beginning of the century it

was a country with an economy that was

falling apart skyrocketing inflation

collapsing currency and political

instability so bad that no one would

dare to bet on the country's future

success so what what happened in the

20th century Indonesia was never really

an especially economically successful

country in any stretch of imagination

after gaining its full Independence in

1949 until the late 1960s Indonesia was

going through a long period of economic

chaos and political instability going

from a liberal democracy to a managed

democracy to finally a military

dictatorship it was experiencing 1,000%

annual inflation shrinking export

crumbling infrastructure and minimal

foreign investment finally in the 1970s

the situation started to get better

under the military dictator Indonesia

started to mass export crude oil and

thanks to a rise in oil prices at the

time it experienced its first period of

proper economic growth using the O

Revenue it invested in infrastructure

and building other sectors of the

economy and it became a major

manufacturer of everything from clothes

to furniture and for a while things were

looking good but by the end of the

century most of Asia was hid by the

Asian financial crisis and Indonesia was

hit harder than any other country within

just a few months the economy suddenly

collapsed and it went from a hopeful

success story to a sick man of the

region in 1998 its economy contracted by

nearly 14% inflation reached 65% and the

Indonesian currency lost 70% of its

value the economic damage was so big

that it led to a a downfall of

Indonesia's dictator and a chaotic

transition towards democracy and while

rest of Asia recovered relatively

quickly from the crisis and the region

was soon growing again in the early

2000s Indonesia was still in chaos

trying to establish new Democratic

institutions dealing with the remnants

of the previous regime and trying to at

least stabilize the economy its previous

growth now long forgotten as the World

Bank has claimed at the time no country

in recent history like let alone one the

size of Indonesia has ever suffered such

a dramatic reversal of Fortune in other

words if you had to pick one country in

the region on which you shouldn't bet on

Indonesia would seem like a pretty smart

choice but just 20 years later the

situation turned out to be completely

different and actually the complete

opposite in 2024 Indonesia's GDP is

estimated to reach almost $1.5 trillion

that's roughly 15 times bigger than its

low point in 1998 and six times bigger

than just 20 years ago and while back

then it was the 37th largest economy

today it's the 16th largest in the world

so how did they do it basically the

Indonesian grow story can be split into

two different decades in which the

growth has been driven by different

factors and once one growth engine has

been exhausted the country has managed

to find a new one to replace it with in

the first period of roughly 2004 to 2014

its Grove has been mainly driven by its

commodity expert Indonesia is one of the

most resourcer countries and so it

exports everything from oil gas and coal

to Coffee rice and rubber from 2004 on

the world has seen a major rise of

commodity prices and so its economy was

able to quickly grow but so far that's

not really anything special other

resourcer emerging economies saw rapid

growth at the same time but the problem

is that this only works for a while and

when the prices drop the growth

evaporates pretty quickly which is

exactly what happened to countries like

Brazil in the 2010s when commodity

prices collapsed and Indonesia was

widely expected to follow the same fate

but that never happened unlike other

countries Indonesia's Grove has only

accelerated so what happened well unlike

Brazil for example Indonesia was able to

use the revenue from its resources and

the periods of growth to build other

Industries and other sectors and in the

past as decade and a half it focused on

transforming its economy and moving away

from just relying on resources a good

example of this is the industry that the

country is building around nickel a

metal that's used in a number of

Industries but most importantly in

building batteries and so it's

absolutely essential for the electrical

cars industry and for the wider shift

towards green energy that the world is

going through and Indonesia is in the

lucky situation of having the largest

supplies of nickel in the world and it's

producing more of it than all other

countries combined now what most

countries do and what Indonesia

traditionally used to do as well is to

sell raw nickel to other countries that

then do the processing and use it to

make batteries that's how most resourcer

countries use what they have but the

problem with that is that although you

do make money from selling the raw stuff

you don't make as much and although it

creates jobs they tend to be more manual

labor type jobs so if you just keep

selling it you will always be a

lowincome economy and so Indonesia took

a very unusual decision and decided to

ban all of its nickel export so that

instead of just exporting the raw ore it

would build an entire processing and

Battery making Industries around it and

so that by only exporting finished

products it would become Irreplaceable

for the entire EV industry and maximize

the value it can get out of it now this

might sound obvious but it's not how

most countries treat their resources and

it's quite a unique thing to do which is

also why Indonesia has faced a lot of

criticism especially from the European

Union for doing this as the rich

countries in the EU would much rather

just keep buying the cheap ore and keep

the processing Industries for themselves

but it goes Way Beyond just Mining and

resources because another major industry

that Indonesia has developed and that's

driving the economy today is is the

digital economy and specifically

e-commerce and fintech today Indonesia

is something of an e-commerce Giant in

Southeast Asia it has the largest

e-commerce industry in the region and

the sector in the country is six times

larger than in the Philippines for

example even though Indonesian

population is only twice as large and

that's not a coincidence but actually

another example of quite smart policies

unlike in other countries that export a

lot of oil and resources where the money

goes only towards a tiny percentage of

individuals the economic growth in

Indonesia has been quite evenly

distributed and as a result the country

has grown a particularly strong and

large middle class and because the

government invested quite a lot into

infrastructure Indonesia has a good

internet coverage even in rural areas

together with a large domestic

population that represents a perfect

market for e-commerce companies and

others that develop Tech Solutions

around them and as a result Indonesia

now has a number of large tech companies

that are now expanding into the rest of

South Asia and on the back of an

e-commerce sector it is managing to

build a strong startup ecosystem as well

producing 15 startups with over $1

billion valuations more than any other

Southeast Asian country except Singapore

and it's quickly becoming known as the

regional startup and Tech Powerhouse and

this trend should only keep accelerating

according to Kenzie Indonesia should

become the seventh largest economy by

2030 and overtake the UK and Germany and

according to Goldman Sachs it should

become the fourth largest economy after

the United States China and India by

2050 and unlike countries like China it

will have a major demographic benefit as

by then its growing population will

mostly consist of young people in the

productive age and along with a

population and economy of this size

naturally comes a growing geopolitical

importance especially with Indonesia's

strategic location in a region that is

seeing growing tension between China

Taiwan the US and its allies but so far

rather than joining either side

Indonesia seems to be committed to carve

its own path balance between Beijing and

Washington and maintain good relations

with both all the while increasing its

own influence and so it's buying weapons

from the US by building deeper economic

ties with China taking part in milit

exercises with Japan and America but

refusing to condemn the Russian invasion

of Ukraine in doing so it's continuing

its own tradition of non-alignment

trying to become a third neutral power

and if it's able to do that it might

hugely benefit from being friends with

everyone in an increasingly polarized

world so is there anything that could

threaten this rise to power well in

order to keep the growth at this or even

a faster Pace the country has to do a

lot it has to improve its bureaucracy

education infrastructure and rule of law

so that it's able to attract and build

more high value businesses and whether

it's able to do that is unclear but

perhaps the biggest threat to its plans

for Success might actually be the same

thing that plays into its favor

geopolitics because actually staying

neutral and being friends with everyone

might turn out to be a lot more

difficult than it seems Indonesia is

already caught between military buildups

by China on one hand and the United

States on the other one to the North

China is trying to dominate the South

China Sea and to the South the United

States have been increasing the alliance

with Australia and building up its

military presence there and while

Indonesia tries to remain nonaligned

it's going to get harder and harder

China might Force Indonesia to choose

sides and either stand with China or

phase the consequences and since China

is its largest trading partner and

losing the Chinese market would be a

huge blow to their economy it might be

hard to refuse but at the same time

Indonesia doesn't want to be too close

to China either as the two countries are

in a dispute over parts of their

Regional Waters and 80% of Indonesians

consider China to be a threat and so as

the tensions in the region continue to

heat up Indonesia's non-alignment might

become increasingly difficult to

maintain with neutrality no longer an

option and it might have to end up

choosing sides after all