The recent news that Canada and Indonesia have launched negotiations on a Comprehensive Economic Partnership Agreement (CEPA) is good news not just for Canadian companies who will gain access to a huge and growing market or Canadian consumers who gain access to new goods, but also to those people who are concerned about growing the Canadian economy, raising Canadian incomes, improving our quality of life, and deepening our engagement with a key strategic region of the world.

Part 1 – Indonesia

If there is one country in Southeast Asia that has captured the imagination of outsiders, it is Indonesia. From the Spice Islands that first attracted European traders to the region to modern day travellers looking for their Eat Pray Love moment, from businesses looking to expand into new markets to surfers looking for the perfect wave, Indonesia has always been a nation of opportunity, excitement, and mystery.

Perhaps more than most countries geography impacts Indonesia, affecting its people, its culture, and its policies.  Straddling between the Indian and Pacific Ocean, Indonesia sits in a strategic position between the East and West and the North and South. This central geographic position has allowed Indonesia to be part of the international trade system for centuries.

While Indonesia’s geographic position grants it potential economic and geopolitical advantages, it is its size that makes Indonesia special. Because Indonesia is huge.

With more than seventeen thousand islands, Indonesia is the world’s largest island country while by land area it is the 14th largest country in the world. Indonesia is the world’s fourth-most populous country and home to more than 270 million people. It is the most populous Muslim-majority country in the world while its capital city, Jakarta, is the world’s second-most populous urban area. Indonesia is also an amazingly culturally diverse and multicultural country that includes over 700 languages that are spoken by more than 300 ethnic groups. 

With nine neighbours including both land and maritime borders, foreign policy and international engagement is important to Indonesia. It seeks active participation in international issues especially those that are regional focused. Indonesia also strives to remain independent by not siding with any world power. In Southeast Asia, Indonesia is a strong supporter of ASEAN and its goals while the ASEAN Secretariat is based in Jakarta, further cementing the nation’s commitment to the regional group.

Indonesia’s Economy

Like its geographic size, Indonesia’s economy is big with a total GDP of US$1.119 trillion dollars and a per capita GDP of US$4,135.57. Indonesia is currently the 16th largest economy in the world, but its growth rates mean that its economic potential is massive. Projections by PricewaterhouseCoopers suggest that Indonesia will be the 4th largest economy in the world by 2050 with a GDP of $10 trillion dollars or ten times its current GDP. Only China, India, and the United States would be bigger.

After averaging over 5.6% growth for the past 50 years, Indonesia is now an upper middle-income country where 1 in 5 Indonesians or 52 million people are now considered middle class. An additional 115 million Indonesians are considered aspiring middle class, free from poverty but who have yet to achieve full economic security. As Indonesia grows bigger and richer, increasing household consumption will remain a major growth driver for the country.

Furthermore, Indonesia is enjoying a demographic dividend with more than 70% of its total workforce being between the ages of 18 and 65 years old. And its population is projected to increase to as much as 320 million people by 2045.

Like most rapidly growing economies, Indonesia faces challenges such as ensuring long-term economic growth, improving infrastructure, growing energy demands, food security, maritime security, corruption, and the need to balance all these issues with the growing impact of climate change. The sheer size and complexity of the country makes these issues increasingly more difficult to manage.

To tackle these challenges, President Jokowi is focusing the Indonesian government on five priorities: human capital development, infrastructure development, regulation simplification, bureaucracy simplification, and economic transformation to help tackle these challenges.

This article is part of the Canada-Indonesia Blog Series and there will be more articles scheduled.

Author:

  • Geoff Donald: Advocacy Chair, CABC, and Managing Director at Asia Engagement Consulting Group