Infrastructure development will make RI the 7th largest economy
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Investor Daily - Pembangunan Infrastruktur akan Jadikan RI Ekonomi Terbesar ke-7
20 May 2021
By: Arnoldus Kristianus
Jakarta - McKinsey suggested that the government among others intensify infrastructure development and adoption of 4.0 technology across all sectors in order to accelerate recovery and make Indonesia the 7th largest economy in the world by 2030. Infrastructure investment for the country’s interest is estimated to grow around 9% each year on average, totalling up to US$330 billion between 2020 and 2030.
The two points were part of a total 10 recommendations from McKinsey & Company to make Indonesia the seventh largest economy in the world by 2030. Meanwhile, the other eight steps are, first, boosting investment through the use of Public Private Partnerships (PPP) to increase capacity in the health sector.
Second, optimising technology to develop the agriculture sector. Third, promoting tourism for local tourists. Fourth, accelerating new and renewable energy mix to speed up energy transition. Fifth, encouraging the use of technology in micro, small, and medium enterprises (MSMEs) which are the backbone of domestic economy. Sixth, accelerating the adoption of digital technology.
Seventh, increasing workforce capacity for future-proof jobs. Eighth, the government has to build a stronger supply chain.
Senior Partner at McKinsey & Company Indonesia Khoon Tee Tan said that the 10 steps are categorised under three main themes, namely resilience, creativity, and enabling. “Yes, Indonesia can become the 7th largest economy in the world by 2030, if there are efforts to increase economic growth to pre-pandemic levels in the next nine years,” he said during a virtual media discussion, Wednesday (19/5).
In terms of resilience, Khoon Tee said, there are four things to do. First, to increase investment by using the PPP scheme to increase the capacity of the health sector, for instance increasing the capacity of doctors and other health professionals, as well as improving its infrastructure.
“The latest innovation such as telemedicine and mobile healthcare can increase coverage to underdeveloped regions. That can be achieved through partnership schemes,” Khoon Tee continued.
Second, optimising technology to develop the agriculture sector, even more so during this pandemic, as there were concerns over the state of food productivity. By using technology, productivity in the agriculture sector is maintained.
Third, promoting tourism to local tourists in order to drive economic growth to reach local areas.
In order to help the tourism sector recover as fast as possible, Indonesia should focus on two key areas. Those are to promote domestic tourism and improve tourism infrastructure,” he said.
The third step is focusing on building infrastructure, particularly infrastructures of logistics, transportation, and airports. McKinsey predicted that between 2020 and 2030, infrastructure investment for the country’s requirements grows around 9% on average each year, reaching a total of US$330 billion or around Rp4,723 billion.
“Most of the requirements is the result of continuous urbanisation, also the result of various national and provincial initiatives that have been ongoing,” he said.
Technology 4.0 in All Sectors
Khoon Tee further said that under the theme of creativity, RI government can take four steps to improve economic growth. First, encouraging the use of technology 4.0 in all economic sectors. Second, accelerating new and renewable energy mix to speed up energy transition. Third, encouraging the use of technology in the MSME sector, as the MSME sector is the backbone of domestic economy.
“Fourth, accelerating the adaptation of digital technology in order to increase the service level or public services and the private sector alike,” Khoon Tee said.
Meanwhile, under the enabling theme, there are two actions that the government need to take. First, increasing workforce capacity for future-proof jobs.
“The government must focus to the requirement for future skills of workforce. Secondly, the government should build a stronger supply chain,” he said.
Additional US$7bn for agriculture
Khoon Tee is optimistic that the use of technology will optimise the agriculture sector. Acceleration of modern agricultural technology adoption can generate up to US$6.6 billion a year in additional economic outputs, of the better outputs.
Khoon Tee said that the agriculture sector contributes 13% to Indonesia’s gross domestic product. In addition, around 30% of workforce makes up the sector.
“In order to increase productivity, efforts certainly need to be made, specifically in digital technology, automation, and mechanisation. These can help improve the agriculture sector and food resilience,” Khoon Tee said.
He said that currently, a lot of farmers are still working on small parcels of land. Therefore, efforts are needed to build a digital ecosystem, starting from digital supply chain to online sales, in order to help increase the farmers’ income.
“Later on, farmers can look for more affordable production equipment, and obtaining suitable prices for the products they sell. Digital technology as well as the effort to build a digital ecosystem can boost Indonesia’s economy with a relatively significant impact, also in terms of food resilience,” he said.
The survey carried out by McKinsey & Company Indonesia found that 85-90% farmers have good access to the internet and use the WhatsApp application. However, only 2% use it to buy or sell goods and only 30% would consider this. By encouraging farmers to use e-commerce, he is certain that positive impacts can be made for the agriculture sector.
