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Over the past decade, Joko Widodo has reinvented Indonesia’s economy to make it one of the world’s most attractive investment markets, thanks in no small part to a boom in demand for green energy technology.
Indonesia’s president, who took office in 2014, has wielded the country’s nickel deposits — the largest in the world — to upgrade a domestic mineral processing industry and bring in foreign investments, while breaking its long-standing current account deficit.
The transformation is not yet complete: the furniture-maker-turned-politician has set an ambitious target for Indonesia to become one of the world’s five biggest economies by 2045.
Who will be responsible for overseeing the next stage of Indonesia’s global ascent could be decided next week, when about 204mn voters elect the next president. Prabowo Subianto, a former military general and the frontrunner in the polls, has promised to maintain Widodo’s policies, most notably in commodities exports.
Ahead of the election, the Financial Times examines what the Widodo era has meant for Indonesia, as the president prepares to hand over the reins of south-east Asia’s largest economy.
Under Widodo, who is popularly known as Jokowi, Indonesia’s economy has grown about 5 per cent every year, except during the coronavirus pandemic years of 2020 and 2021.
While growth on average has been slower under Widodo’s tenure than the previous decade — in part because of lower commodity prices — economists said the stability has bolstered investor and consumer confidence.
Gross domestic product per capita has also climbed and is approaching a sweet spot of $5,000, which will bolster the middle-class and trigger a wave of discretionary spending, said Henry Wibowo, head of Indonesia research and country strategist at JPMorgan.
“It’s an important growth driver and it’s going to create a lot of new sectors,” he said.
But some economists cautioned that Indonesia should be growing at a faster rate to meet its goals.
Chatib Basri, a former finance minister and a senior lecturer at the University of Indonesia, said the economy needed to expand a rate of 6 to 7 per cent until 2050 to avoid getting stuck in the tiers of middle-income countries.
“Whoever becomes the new president in 2024, he has to aim to bring Indonesia to the high-income-level group,” said Basri. “For that, 5 per cent is not enough.”
One critical driver of growth has been Indonesia’s reserves of nickel, an important element of electric vehicle batteries. Widodo banned exports of nickel ore in 2019, part of a strategy to cultivate a domestic EV supply chain.
The move invigorated the metals and mining industry by forcing refiners and battery-makers to set up plants onshore. It also increased the value of nickel sales. Customs data shows exports of nickel swelled from just $1.4bn in 2014 to nearly $22bn in 2022.
Widodo has introduced similar export controls on bauxite, the ore used to produce aluminium, and the government plans to expand them to cover copper this year.
“The push to produce higher-value-added products has broadened Indonesia’s manufacturing export base and added resilience to Indonesia’s current account balance,” said Kai Wei Ang, Asean economist at Bank of America Securities.
Foreign direct investment has poured in since the nickel ban, with companies such as Ford, Hyundai, Chinese metals group Tsingshan Holdings and BYD, the world’s biggest producer of EVs, committing billions of dollars to the country.
In 2023, investment grew 3.7 per cent to hit an all-time high of $47.3bn, after jumping 46.6 per cent in 2022. About a third of FDI, predominantly from China, went into the metals and mining industries.
Widodo’s implementation of a so-called omnibus law on job creation has also encouraged investment flows, introducing sweeping reforms to cut Indonesia’s notorious red tape and opening up sectors previously closed to foreign investment.
Investors “recognise there’s been significant reforms in the investment climate”, said Douglas Ramage, managing director at consultancy Bower Group Asia in Jakarta.
Widodo’s administration has spent more on infrastructure than any of its predecessors, building a network of roads, railways, dams and ports across the archipelago of 17,500 islands. The budget allocation for infrastructure has swelled from Rp154.7bn ($9.9bn) in 2014 to Rp422.7tn in 2024.
“Infrastructure should remain a priority of the incoming government,” said Lavanya Venkateswaran, senior south-east Asian economist at OCBC. “Improving connectivity through greater roads, railways and airport networks and greater utilisation of these networks will help lower logistics and distribution costs.”
While the infrastructure splurge has contributed to economic growth and drawn investment, it has also saddled state-owned companies with huge debts, a burden that Widodo’s successor will have to address.
Indonesia posted an annual current account surplus for the first time in a decade in 2021, as the boom in nickel exports supplemented the country’s traditional trade in palm oil and coal.
But the surpluses could become a challenge to maintain if prices decline, underscoring the need for the next president to diversify beyond commodities exports.
“The current account transformation is a very important macro narrative for Indonesia for the next decades as it will help maintain currency stability and help the country stand out from most of its emerging market peers,” said Wibowo.