In 2005, economist Jim O’Neill, a former Chairman of Goldman Sachs Asset Management, identified Indonesia as one of the “Next Eleven.” That group, which became known as the N- 11, referred to emerging markets O’Neill expected to follow Brazil, Russia, India, and China—or “BRICs.”
Four years later, Robert Ward, Editorial Director of the Economist Intelligence Unit, included Indonesia in his own grouping of six countries that comprise the next generation of emerging markets.
These forecasts have aged well: since 2005, Indonesia’s GDP has more than tripled to almost $1 trillion, and it continues to enjoy strong growth. Here, O’Neill and Ward reflect on Indonesia’s successes and explore the challenges ahead.
While China and India continue to drive the global economy, they are joined by several other high-population, high-potential countries, particularly in Asia. Indonesia is one such country. In 2005, my Goldman Sachs colleagues and I listed it as one of the N-11 countries with the potential to become important economies during this century.
“Indonesia has weathered global economic challenges and the volatility that comes with them better than many other countries.”
— Jim O'Neill
The whole idea of the N-11 was primarily a response to many questions as to why the BRIC acronym only referred to Brazil, Russia, India, and China, and why other large, highly-populated countries weren’t included. Of the N-11 largest-populated countries in the world, Indonesia was clearly among those with the most valid claim. Especially given the age dynamics of its population, Indonesia had and still has all the ingredients to be one of those countries that, with a modest degree of productivity potential, could show strong growth. Indonesia has so far mastered the transition to democracy, enjoyed a peaceful election, and shown some resilience to global volatility. In terms of its persistent challenges, the familiar ones generally remain: boosting productivity, and improving the ability to deliver infrastructure and governance.
But the jury’s still out on whether its potential has come to fruition. At the highest level, Indonesia has not managed to grow as much as was forecast, nor to the high desires and expectations of its own policymakers. That said, Indonesia has weathered global economic challenges and the volatility that comes with them better than many other countries, including those in the N-11.
From BRICs to MINTs
In 2014, I had the pleasure of doing a series of programs for BBC Radio in the UK about four of the N-11. We called it “MINT: The Next Economic Giants.” The acronym MINT refers to Mexico, Indonesia, Nigeria, and Turkey, and the term has since been taken up by much of the investment community. (An alternative list includes South Korea in place of Nigeria and is referred to as MIST.)
These four are primarily a group of the N-11 countries that were the largest in terms of GDP. They either already had more than 1 percent of global GDP or were the most likely to achieve 1 percent of global GDP relatively soon. The four countries face very different challenges but are united by favorable demographics: they all have large and youthful populations.
In many ways Indonesia has performed better than the rest of the MINT countries relative to expectations. And it has certainly done better than many commodity producers, including some BRIC countries, like Brazil and Russia, during the years of extreme commodity price falls. It resisted the sharp cyclical weakness that so many other commodity producers, such as Brazil, Russia, and Nigeria all experienced. Hopefully this is permanent—it impressed me.
A Favorable Outlook
When I originally devised the BRIC acronym in 2001, I was often asked why I excluded Indonesia. Should it have been the BRIICs all along, or maybe even the BIICs? Wasn’t Indonesia’s economic potential more compelling than Russia’s? Despite the size of its relatively young population—a tremendous asset—I thought it unlikely that Indonesia would do enough on the economic-policy front to quickly realize that potential.
I’m delighted to see Indonesia succeeding. It is now close to becoming a $1 trillion economy, which consolidates its position as one of the 20 largest in the world. It has the long-term potential of getting close to being in the world’s 10 largest economies.
The outlook for the next 10 years remains good: Indonesia still has all the positive population dynamics that attracted me to focus on it back in the 1990s and early 2000s. If the country can boost its education and skills, and with it, productivity performance, its trend growth rate could accelerate to around 7 percent.
Jim O’Neill is a former Chairman of Goldman Sachs Asset Management, a former UK Treasury Minister, and a former member of IFC’s Economic Advisory Board. He is an Honorary Professor of Economics at Manchester University and is Chairman of Chatham House, an independent policy institute based in London.
Robert Ward, Editorial Director, The Economist Intelligence Unit
Nearly a decade on from its inclusion in our CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa) grouping, Indonesia is living up to its potential. From 2000 to 2018, Indonesia recorded an average GDP annual growth rate of 5.28 percent, second only to Vietnam among its CIVETS peers.
“The global center of gravity is moving to Asia, and Indonesia can be the forerunner.”
— Robert Ward, Editorial Director, The Economist Intelligence Unit
Contrary to most expectations, Indonesia has transitioned to a well-established and vibrant democracy. It has a youthful population with a median age of just 30.2 years and a large and growing middle class which, as it gets richer, is becoming more discerning in its needs. High rates of urbanization are also helping consumer markets grow and its tourism sector and services industry have expanded considerably.
Geography is a challenge. The Indonesian archipelago is comprised of nearly 20,000 islands, which makes it difficult to spread growth equitably. Owing to a lack of transport, energy, and communications infrastructure, parts of the country are developing well while others are being left behind. The Indonesian government is investing in roads, airports, and power plants, but Indonesia still has the highest logistics costs in the region. Accelerated infrastructure development is key to economic growth.
Indonesia’s prospects look good. We predict real GDP growth at just over 5.5 percent from 2018–2030, slowing to about 3.8 percent between 2031 and 2050. By the standards of the region and the Association of Southeast Asian Nations (ASEAN), it’s a pretty good outturn.
By 2050, we expect Indonesia to be the fourth-largest country by GDP based on purchasing power parity, following China, India, and the U.S. The difference in size among these three and Indonesia is significant, but I don’t doubt Indonesia will be a key player in terms of economic size in the next couple of decades. That will bring all sorts of challenges about how it defines itself within ASEAN and how it manages relations with China.
The global center of gravity is moving to Asia, and Indonesia can be the forerunner among its peers. The key to unleashing Indonesia’s growth potential is successful and speedier reforms, and accelerated infrastructure development where the country needs it most. It certainly has an interesting couple of decades ahead.
Robert Ward is the Editorial Director at the Economist Intelligence Unit, where he leads the EIU’s country, industry, and data analysis and forecasting teams. Previously he headed the EIU’s Global Forecasting unit, where he led the response to the global economic crisis.
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Published in October 2018