Ten ideas to unlock Indonesia’s growth after COVID-19

If Indonesia can quickly return to prepandemic growth rates, the country may become the world’s seventh-largest economy by 2030.

If Indonesia can quickly return to prepandemic growth rates, the country may become the world’s seventh-largest economy by 2030, from its 16th position in 2019, rising above Italy, Russia, South Korea, and others. To achieve this goal, the country must focus on building productivity and competitiveness once the COVID-19 pandemic subsides, an effort that requires immediate priority.

Our analysis, along with cases from economies at all stages of development, suggest ten powerful ideas focused on resilience, innovation, and enabling can help the country reimagine its economy and achieve this aspiration. These opportunities are founded on changes brought by the global COVID-19 pandemic, as well as on trends such as rapid digitization that preceded the health crisis and continue to change markets quickly.

Starting position

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Ten ideas to unlock Indonesia’s growth after COVID-19

For most of the past two decades, Indonesia’s annual GDP growth rates have fluctuated around 5 percent, reaching as high as 6.3 percent in 2007 before drifting back to 5 percent in 2019. The COVID-19 pandemic hit the economy hard, however, and in January 2021, Oxford Economics estimated the economy would contract by 2.2 percent in 2020. Despite the setback, it is estimated that the economy could rebound to 6.0 percent growth in 2021, driven by increases in consumer and infrastructure spending.

In a separate 2020 McKinsey report looking specifically at Indonesia, we identified a number of trends that will likely affect what we see as the next normal. These include a greater focus on resilient healthcare systems, faster adoption of digital technologies, greater concern for the environment, more emphasis on supply-chain reliability, and a greater willingness to sacrifice some privacy for greater health, safety, and comfort guarantees.

Even before the pandemic swept the world, the global economy was rapidly changing, pushed largely by advancements in digital technologies, such as advanced analytics, robotics and automation, the Internet of Things (IoT), and artificial intelligence. For example, a 2019 McKinsey study estimated that between 2014 and 2023, automation will create more jobs in Indonesia than are lost, with the most aggressive scenario forecasting up to 23 million more jobs.

In addition, the structure of the country’s economy will change as the population generally becomes wealthier. Labor demand will increase in some sectors, such as construction, manufacturing, education, healthcare, and retail and wholesale trade. Specific digital skills and workers with at least high-school educations will be more in demand.

But to bring the economy to the seventh rank globally, annual growth must be pushed to around 7 percent, a faster pace than the dynamic prepandemic levels of about 5 percent. Weighing all the factors at play, we propose ten ideas that could help unleash the true power in Indonesia’s economy, allowing it to emerge from the health crisis stronger than before.

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Resilience

A central aspect to strengthening Indonesia’s economic foundations is building resiliency against major and minor shocks. The pandemic has exposed vulnerabilities, for instance, in global supply chains, that must be addressed to reimagine the landscape of the Indonesian economy and bring the country forward quickly. Critical components of building resilience center on managing the healthcare system, food security, domestic tourism, and infrastructure development.

Harness public–private partnerships in healthcare

The healthcare system is at the center of the COVID-19 pandemic, which has shown the need for more investment to create greater resilience and better outcomes. The increased awareness and urgency the pandemic brought to the healthcare system, however, also offers the opportunity to reimagine and reform the sector.

Even before the crisis hit, Indonesia’s track record in healthcare was well below its peers’ average. In 2017, spending on healthcare per capita was $115, the lowest among leading Southeast Asian countries 1 and well below the regional average of $604. After the first COVID-19 case was confirmed in Indonesia in March 2020, the number of confirmed cases in the country grew to about 1.3 million by the end of February 2021, with more than 33,300 deaths. The immediate priority is to minimize the impact of the pandemic by encouraging wearing masks, practicing physical distancing and good hand hygiene, and accelerating testing and vaccine distribution, among other measures. Looking beyond these most pressing actions, leaders in Indonesia may also begin crafting longer-term plans for the healthcare system to emerge from the crisis stronger than before.

As part of this blueprint, greater public–­­private cooperation is needed to improve the country’s healthcare infrastructure. In particular, shortfalls in primary care must be addressed through greater investment in doctors and other healthcare professionals, labs, and medication stockpiles at puskesmas, or community health clinics. In one example, in 2012 the Indian government teamed up with a private company to run the North Eastern Indira Gandhi Regional Institute of Health & Medical Sciences, which is estimated to serve 240,000 low-income patients a year and train 100 doctors annually.

In addition, Indonesia could explore public–private partnerships in healthcare to bring greater innovation in care delivery, especially in rural areas. Telemedicine and mobile health vehicles are fast and inexpensive ways to reach patients, particularly in remote areas with little infrastructure, and to increase awareness of health issues. The pandemic has accelerated interest in these approaches, with a 35 percent increase in the use of telemedicine in Indonesia, and this momentum should be used.

These efforts could evolve further into health ecosystems that solve specific problems facing patients by bringing together various healthcare components, including telemedicine, hospitals, insurers, and pharmacies, into a close-knit network of providers that is easy for patients to navigate, often using digital technologies. In India, Apollo Hospitals has created an ecosystem that provides a full range of services, from smartphone apps to in-person hospital visits. About 15 million people downloaded its app within six months of launch.

Push digital technologies to boost agriculture

Agriculture in Indonesia is crucial to the country’s economy and well-being. The sector accounts for about 13 percent of the country’s GDP and almost a third of its jobs. But although the country ranks fourth globally in terms of agricultural production, it is 12th in terms of agricultural exports (Exhibit 1).

Indonesia is the fourth-largest agriculture producer and the 12th-largest agriculture exporter.
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The challenges affect farmers and consumers alike. Based on the latest data available, average farmer income is almost a quarter the country’s overall GDP per capita and about half that seen in Vietnam. Production costs for staples such as rice and corn are 25 to 50 percent higher than those in many of its Southeast Asian neighbors. Meanwhile, retail prices for rice are almost 20 percent more than in Vietnam, although lower than in many other Southeast Asian countries.

The COVID-19 pandemic has also taken its toll on the agricultural industry. A 2020 McKinsey survey of Indonesian farmers found that 75 percent of the respondents expected at least a 5 percent drop in income for the year, including 35 percent who feared a 25 percent drop or more. 2 Lower prices for their crops, difficulties in finding buyers, and price hikes for inputs were the most common concerns cited.

In finding a path forward, modern technologies will play a crucial role. Fortunately, like in other industries, the pandemic has helped accelerate the adoption of digital technologies as businesses and individuals pursue their affairs while avoiding person-to-person contact. It has also fostered a greater understanding of the need for food security and robust food supply chains.

We estimate that accelerating the adoption of modern agricultural technologies could generate up to $6.6 billion a year in additional economic output from improved yields and reduced costs. For example, smart collection bins could automatically weigh and check incoming deliveries and advanced irrigation systems could minimize wastage. In addition, radio-frequency identification (RFID) tagging could track outgoing harvest shipments, reducing spoilage and other waste.

But while Indonesia’s farmers are increasingly familiar with digital channels, very few are using them to improve their output or income. Our survey showed that 85 to 90 percent of farmers have good access to the internet and use the popular messaging channel WhatsApp, but only 2 percent go online to buy or sell goods and only about 30 percent are willing to consider this. Bringing more farmers to e-commerce channels is a significant opportunity for Indonesia.

The Indonesian agricultural sector would also benefit from creating a digital food balance sheet, which presents a comprehensive picture of a country’s food supply chain. Kenya has used this approach to create greater transparency on current usage and improved forecasting of supply and demand. Its balance sheet for maize, for example, brings together production, trade, consumption, and stock balances.

Promote domestic tourism and address infrastructure gaps

In 2019, about 16 million foreign visitors came to Indonesia. The sector contributed $20 billion in foreign exchange revenue and employed about 13 million people or around 10 percent of the total workforce. The COVID-19 pandemic hit the industry hard. In the first half of 2020, arrivals to Indonesia were off by almost 60 percent, the industry is expected to lose $10 billion in foreign exchange revenues for the full year, and more than 90 percent of the workers in the sector have been furloughed indefinitely without pay.

Even when the world begins recovering from the pandemic, it remains unclear how quickly travelers will be willing to jump onto planes and visit the beaches of Bali, the forests of Borneo, and other popular destinations. In addition, countries dependent on tourism will all be competing for smaller groups of travelers for a while. Recovery in the tourist sector is likely to lag behind that of others.

Looking forward, we expect travelers will, at least initially, avoid in-person contact in booking, traveling, and even staying at their destinations. They will prefer shorter trips to outdoor destinations and flexible cancellation policies. In addition, those staying at hotels and other large accommodations will put a premium on visible evidence of greater cleanliness and hygiene than in the past.

To help the tourist sector rebound as quickly as possible, Indonesia should focus on two crucial areas. The first is promoting domestic tourism. Evidence from many markets has shown that domestic travel has recovered more quickly than international travel, especially among young tourists who see themselves as less vulnerable. In China, for instance, domestic air travel reached 90 percent of 2019 levels by August 2020, while international travel was still lagging well behind.

Unlike international tourists, who concentrate in Bali and East Nusa Tenggara, the majority of domestic tourists in Indonesia visit Java. To push rates of domestic tourism, the government and operators should promote lesser-known domestic attractions, like the Lake Toba region in North Sumatra, the Mandalika area in East Nusa Tenggara, and Likupang Beach in North Sulawesi. Discounts and other incentives could also help ignite domestic travel.

The country can also use the unintended lull in visitors to beef up its tourist infrastructure. The disruption provides an opportunity, for example, to improve airports, accommodations, and other facilities. The jump in digital activity brought by the pandemic can also be used to accelerate the adoption of new technologies by operators in the sector, from online booking systems to advanced analytics that can offer real-time information on tourist activities and behaviors.

Continue focus on infrastructure development

Keeping a long-term outlook, Indonesia cannot lose sight of the importance of continuing and enhancing its infrastructure development efforts. McKinsey estimates that between 2020 and 2030, infrastructure investment in the country’s needs will grow on average by about 9 percent a year, reaching $330 billion. Much of this demand is the result of continuing urbanization and multiple national and provincial initiatives already under way.

While much of the need is centered on the capital and Java, scores of provincial projects across the country have been announced that cover 15 sectors, from highways and dams to housing and seawalls, in addition to 14 national efforts. Together, these efforts represent an investment of about $200 billion.

To finance these needs, the government is relying heavily on state-owned enterprises (SOEs) and private investment. Of the efforts designated National Strategic Projects, the government, normally constrained by deficit restrictions, 3 plans to finance about 12 percent of the total amount needed. At the same time, SOEs are seen covering about 30 percent and private companies about 58 percent. The approach has strained SOEs, which saw their combined debt increase by 250 percent and assets linked to infrastructure grow by 262 percent between 2012 and 2017.

In addition, as seen in many countries, project management and execution remain obstacles to generating the most value from infrastructure funds. McKinsey research has found that cost overruns averaging 37 percent are commonplace, while on average big projects take 50 percent longer to complete than original estimates.

Several measures can be used to help ensure that the country’s infrastructure needs are met. Greater effort can be made to attract private investment, especially using the public–private partnership model. For example, in 2019 a consortium including Indonesia’s Cardig Aero Services and Singapore’s Changi Airports International and Changi Airports Mena received the concession to develop and run the Komodo International Airport on Flores Island. The facility will return to government hands in 2044.

Additionally, the government can promote a broader range of funding for infrastructure projects. Looser rules on municipal bonds; continued growth of green bonds, which focus on environmental protection; and blended offers, which could include direct grants, interest rate subsidies, and risk underwriting; could all be considered.

In one instance of using blended financing, Islamic financing provides some of the funding for the Micro Hydro Power Plant in Jambi province, which will provide electricity for poor, rural communities in the region. Funds are also being provided to the Bank Jambi corporate social responsibility fund.

Creativity

A greater push toward innovative approaches is also needed to bring the country’s economy to new levels. As modern technologies sweep all industries, economies that lag behind in their adoption could miss out on opportunities. In Indonesia, particular emphasis should be given to accelerating the implementation of Industry 4.0 technologies, harnessing renewable-energy sources, helping smaller businesses modernize, and deploying a digital ID system (Exhibit 2).

Indonesian companies are struggling to scale up adoption but demonstrate a higher scope for achieving impact from Industry 4.0.
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Accelerate Industry 4.0 adoption

Faster adoption of a suite of technologies known as Industry 4.0, or the Fourth Industrial Revolution, could drastically increase productivity in Indonesia’s industrial sectors, including manufacturing, power, mining, oil and gas, and agriculture. These technologies exploit improvements in data collection, computing power, and connectivity and include IoT, advanced analytics, robotics, and automation, as well as advanced engineering techniques such as 3-D printing. In Indonesia, these technologies combined have the potential to push productivity gains of 40 to 70 percent for individual companies, adding a net 20 million jobs by 2030 and creating an additional $120 billion in annual economic output.

But while Indonesia’s manufacturers are aware of these technologies, only a few have begun a digital transformation, leaving immense potential untouched. There are exceptions. By 2020, the World Economic Forum had identified 69 global “lighthouses,” manufacturers successfully transforming to the new technologies, and two of these were in Indonesia: Petrosea and Schneider Electric.

Those clear leaders remain outliers, however. A separate McKinsey study in 2019 showed that only 21 percent of the country’s manufacturers were implementing Industry 4.0 technologies at scale, compared with 30 percent in South Korea, 40 percent in Japan, 50 percent in Singapore, and 56 percent in China. Most of the remaining Indonesian manufacturers were caught in a pilot trap, unable to go beyond initial explorations. Indonesian companies face multiple challenges in designing digitization blueprints, particularly accessing the right set of cost-effective technology solutions, integrating data systems to expand successful digital use cases, finding the needed talent, and driving a digital transformation effectively, which requires strong coordination across operating and support functions and clear senior ownership.

A 2019 Ministry of Industry workshop with 50 industry players found that more than 90 percent of the participants needed support in their Industry 4.0 transformations. Among their top reported needs were a showcase center where companies could see how Industry 4.0 technologies are implemented and an ecosystem where industry players could access best practices and have access to technical and service providers.

The pandemic has undoubtedly created even more challenges: More than 85 percent of manufacturers surveyed in Asia, for example, reported supply chain disruptions and drops in labor productivity of 10 percent or more. However, industry leaders who had foundational technologies in place have accelerated their adoption of Industry 4.0 as a way to overcome the crisis, creating greater distance between the those implementing new technologies and those who haven’t and greater urgency not to be left behind.

One crucial initiative to drive greater Industry 4.0 adoption in the country is the government’s Digital Capability Center Indonesia, known by its Indonesian acronym PIDI 4.0 (Pusat Inovasi Digital Industri 4.0). This network of centers, with a flagship hub in Permata Hijau expected to open this year, could serve as a one-stop shop to help companies implement digital solutions. The centers are designed to provide companies and their workers practical experience in modern technologies and demonstrate the benefits in a real-life environment. The goal is to expose 7,000 companies to Industry 4.0 through awareness workshops, train more than 400,000 workers at more than 4,000 companies, and directly support the digital transformation of 2,000 companies. The centers will also host an ecosystem of 100 to 200 technology and service providers and work to encourage R&D innovation in Indonesia.

Add renewable energy sources to the power network

Indonesia’s energy sector was struggling even before the global pandemic hit. Oil and natural gas production had declined to the point that the country, once a member of OPEC, became a net importer of oil and may soon become a net importer of natural gas. Falling demand brought by the pandemic only added to the sector’s woes.

Along with efforts to create efficiencies in the oil and natural gas industry and support its growth, Indonesia should turn to a largely untapped resource: renewable energy. Traditionally, the country has focused on building the lowest-cost power plants, and as a result, 60 percent of its generators are run by coal and 22 percent by natural gas. The country’s renewable-energy potential has been barely touched.

We estimate that Indonesia is only capturing about 2 percent of the energy potential from geothermal, solar, wind, hydro, and biomass energy sources, and most of this comes from hydroelectric dams. Before the pandemic struck, the government had announced an ambitious target to produce 23 percent of the country’s electricity needs from renewable resources, up from 12 percent in 2019. It should not lose sight of this goal. Already, the Philippines produces 29 percent of its power needs with renewables. Ensuring effective, efficient regulation and offering incentives for investment are among the measures needed to progress toward this goal.

But as the country works to lessen its dependence on energy imports, a move that is often overlooked would be to encourage the adoption of electric vehicles. Our analysis suggests that fuel imports could be cut by $100 million a year for every one million electric cars on the country’s roads. In addition, this shift would deliver clear benefits to the environment.

In Indonesia, we expect two-wheeled electric vehicles to dominate the market. By 2030, we see just under four million electric two- and three-wheelers on Indonesia’s roads, compared with about 1.6 million four-wheeled vehicles. Efforts should be made to encourage this transition through incentives for buyers and manufacturers, as well as support for R&D efforts.

Bring modern technologies to smaller businesses

Efforts to unleash the Indonesian economy must reach the smallest businesses, where faster adoption of modern technologies can deliver considerable benefits. Across the country, about 63 million micro, small, and medium-size enterprises (MSMEs) account for about 60 percent of GDP and nearly all of the country’s employment, at 97 percent.

These crucial businesses were severely hurt by the pandemic. A survey by the Indonesian Interior Ministry concluded that together they lost more than $100 million in revenue because of the pandemic, mostly in areas outside Jakarta. Small clothing shops, barbers and hairstylists, restaurants, cafes, bars, and food stores were especially hurt.

To pull MSMEs out of their troubles, greater effort is needed to enable them to adopt modern technologies that could increase their efficiencies and expand their markets. We estimate that digitization efforts here could create about $140 billion in added economic output. The gains come largely from additional sales that can be generated through online commerce and productivity improvements of 10 to 20 percent that are common with operational optimization.

Already, several companies in Indonesia are making inroads. Romlah, a Betawi snacks company, increased its annual revenues from $850 to $105,000 after teaming with e-commerce specialists Tokopedia and Bukalapak and food delivery service GoFood. Another leader, Om Botak, sells books, umbrellas, and rainwear and increased annual revenues to $140,000 after opening an online shop in 2011. On average, it receives more than 450 orders a day.

But such companies remain rare in Indonesia. Only about 0.1 percent of the country’s MSMEs have begun adopting digital tools, compared with a global standard of 1 to 2 percent.

Various measures can be deployed to help Indonesia’s MSMEs benefit from new technologies more quickly. The government and e-commerce service providers, for example, could work together to provide training in these technologies for business owners and their staff members. One-stop platforms could also be created that ease the transformation for these businesses. One such platform in India, for example, offers business owners help in areas including targeted local marketing, customer insights, and procurement.

In Malaysia, MATRADE, the country’s External Trade Development Corporation, was established in 1993 and focuses on helping midsize companies enter or expand export trade. Among other avenues of support, the portal offers market intelligence, databases, and proprietary tools to achieve its primary goal of generating $1.5 billion in additional annual exports by 2023 and creating 21,000 well-paying jobs.

Hasten adoption of digital IDs for an inclusive economy

In creating a modern, inclusive economy, Indonesia is missing a crucial piece of the puzzle: a digital ID for individuals. About 20 million Indonesians, roughly 8 percent of the population, have no identification that can open access to formal financial accounts, government benefits, educational opportunities, and other services that require credible credentials.

While the priority remains to provide traditional identification documents to the entire population, this effort should be complemented by movement toward creating a universal digital ID system. Unlike paper IDs, digital IDs can be authenticated remotely, providing ease and security for financial transactions and other services. With the proper safeguards, digital IDs help reduce fraud, protect individuals’ rights, and increase transparency, in addition to the convenience of not having to carry so many paper IDs.

The World Bank has estimated that digital IDs can open access to formal banking accounts to more than 1.7 billion people globally, including about 115 million Indonesians. Also, in Indonesia, digital IDs could free about 110 billion hours of work annually through easier use of online government services. The McKinsey Global Institute has also found that in emerging markets, digital IDs can create value equal to about 3 to 13 percent of GDP by 2030, with about half these benefits going directly to individuals. For Indonesia, this would be the equivalent of adding between $30 billion and $130 billion to the economy.

In Indonesia, public and private leaders could work together to explore policy guidelines and safeguards for a digital ID program. Crucial components, based on experience elsewhere, are that identities must be verifiable with a high degree of confidence, be unique for each individual, be voluntary, and protect privacy.

India provides an example of the potential benefits. In 2009 the government launched Aadhaar, a 12-digit identity number unique to each individual. The free service combines demographic information, such as birthday and address, with biometric information, such as fingerprints, a photo, and iris scans. By 2019, more than 1.2 billion Aadhaar identifications had been generated. And by being accepted as valid identification for “know-your-customer” banking regulations, the system has helped bring tens of millions of people into the formal financial system. However, security breaches in the system reported in 2018 only underlined the need for enhanced safeguards to build confidence in these programs. 4

Enabling measures

Certain enabling measures create benefits for a broad swath of the economy and should be part of any effort to build economic growth. In Indonesia, focusing education and training programs on capabilities businesses need today and tomorrow and creating a strong supply-chain and logistics network would deliver tremendous value.

Focus training programs on future needs

Skills demanded by employers were changing rapidly before the global pandemic struck. Largely because of new technologies, companies needed more people in areas such as advanced analytics, artificial intelligence, and robotics. And as automation replaced many repetitive tasks, other tasks, for example, those focused on problem solving and customer knowledge, emerged.

Indeed, McKinsey has estimated that Indonesia stands to gain a net four million to 23 million jobs by 2030 from the transition to digital technologies if it can provide workers with the appropriate skills. At the same time, increases in productivity and income will contribute generously to the country’s economic growth.

The pandemic has added its own twist to the changing job market. For example, the sudden shift to remote work, which is expected to persist to some degree after recovery, has highlighted the need for minimum digital abilities even for workers not directly tasked with technology positions. And because the health crisis has accelerated the adoption of new technologies, such as telemedicine and e-government, demand for the skills needed to run these systems has similarly grown.

To illustrate the size of the challenge, the World Bank estimated in 2018 that between 2015 and 2030 Indonesia will face a shortage of about nine million skilled and semi-skilled workers in the information and communications technology sector. Also, in 2018, Korn Ferry, a US recruitment consultancy, projected that a shortage of technology, media, and telecommunications workers in Indonesia will lead to almost $22 billion in unrealized output in 2030, the fifth greatest in terms of share of GDP of the countries in the global study.

Public and private leaders recognize the challenge and have begun efforts to address the shortfall. In 2020, the government announced plans for National Talent Management, a state organization that would gather data on individuals with much-needed capabilities. The body will help with recruiting and locating scholarships for these individuals and focus on priority sectors in arts, sciences, and sports. Already, companies such as Astra Indonesia and technology start-up Gojek have expanded training programs to focus on new skills needed for senior executives and engineers.

Such efforts, however, are just a start. To capture the potential productivity increases—and by extension greater income and economic growth—a concerted effort is needed to close the skills gap that Indonesia faces. Universities and vocational schools should work with companies to ensure they are teaching the skills the economy needs today and in the foreseeable future, and initiatives will be needed to retrain workers who are displaced by new technology to perform new roles in the modern economy.

Build supply-chain and logistics strength

Rebalancing supply chains and logistics networks is another trend that was noticeable before the onset of COVID-19 and was accelerated by the impact of the pandemic. Demand spikes that couldn’t be immediately met, for face masks and hand sanitizers, for example, drew attention to the weaknesses of the supply chain, while demand declines, such as those for retail goods, especially clothing, saw parts of the network struggle to survive.

Even when operations return to normal, capacity shifts and cost changes will continue to echo throughout logistics networks. But public and private leaders can build on their efforts to secure needed supplies during the pandemic to create a network that is stronger and that offers greater protection against any future shocks.

One approach is to encourage the shift toward regional, rather than global, suppliers. Between 1995 and 2012, supply networks expanded globally to the far corners of the world and intraregional trade suffered. A new look at supply-chain risk, as well as concerns about the impact of trade disputes, changed this, and in the next seven years, the intraregional share of global trade in goods rose from about 47 percent to just over 50 percent. With the rise of regional supply chains set to continue, Indonesia can think about how to position itself as a crucial actor in intra-Asian trade across multiple industries.

As part of its effort to capture the opportunity of supply-chain regionalization, Indonesia must strengthen its own supply-chain and logistics infrastructure, as well as develop quality service providers. In 2018, the World Bank ranked Indonesia’s logistics infrastructure 46th among 160 countries analyzed, an increase from 53rd in 2014, reflecting the government’s efforts. The World Bank in 2018 also ranked Indonesia 136th of 188 in the costs for exporting and 97th in the time needed to export. 5 These rankings show substantial room for improvement.

The pandemic has added more pressure to the system. For example, increased use of online shopping could bring the number of annual parcel deliveries in the country to 1.6 billion by 2022, six times the number shipped in 2018.

A wholesale reform of the transport and logistics sector may be needed to systemically transform Indonesia into an Asian powerhouse and a desirable hub in regional supply chains. For example, looking at maritime trade, reforms could include:

  • boosting productivity in port operations for both domestic and international shipping, including improved coordination between port operators and shipping lines
  • reducing the time containers wait to be loaded on ships
  • reviewing capacity programs to ensure they meet long-term needs
  • providing seamless multimodal connections between ports and manufacturers
  • modernizing logistic services, particularly freight forwarding, warehousing, and trucking
  • harmonizing regulations where relevant
  • building capabilities, especially digital skills

The government could help by stimulating investments in logistics and the necessary infrastructure, which could be especially important in efforts to distribute COVID-19 vaccines.

Looking ahead

The COVID-19 pandemic has thrust Indonesia onto an unexpected crossroads, and decisions made today will affect the country’s economic growth and well-being for years to come. Heading into 2020, the Indonesian economy was sustaining growth rates hovering around 5 percent a year. The pandemic erased this momentum.

Our analysis suggests that, with focused effort, Indonesia has the potential to become the world’s seventh-largest economy within a decade of recovering from the pandemic. Others also see the seeds of the country’s vast potential. 6

While Indonesia’s potential remains, leaders will have to work hard to reach these aspirations once the recovery begins. Execution on these ten ideas remains one of the country’s biggest challenges, given the coordination required across diverse sets of stakeholders with varying capabilities and often conflicting goals. Indonesia must also break through on execution to achieve its goals.

Below are a few key elements to consider as Indonesia seeks to break through on execution.

Ensuring transparency in delivering against the outcomes. Transparency plays a critical role in assessing whether the initiatives are delivering value. Indonesia could identify the top ten metrics—both leading and trailing indicators—to track the progress of its efforts. Potential metrics might range from macro indicators such as logistics costs as percentage of GDP; and company-level indicators like adoption of Industry 4.0 at scale; to micro indicators that could allow for broader ecosystem effects, like farmers’ ownership of smartphones. Critically, these metrics must be objective, discussed regularly as a feedback loop to tailor the initiatives further, and used to generate insights that would be useful in future efforts.

Breakthrough approach to joint delivery. An integrative approach would drive success in initiatives spanning multiple organizations, amplifying leadership, coordination, and other support that eases delivering on these initiatives. Globally, we see examples of how governments drive a joint effort through a centralized unit. For example, the United Kingdom’s Prime Minister’s Delivery Unit and Malaysia’s Performance Management and Delivery Unit aim to use an integrated approach to track priorities against key performance indicators. It’s important to note that, beyond just monitoring, these units work closely with the relevant parties, for example, agencies or state-owned enterprises, to deliver results, and also to solve cross-agency or cross-enterprise challenges.

Building Indonesia leaders of the future. Research conducted by McKinsey in 2017 suggests that only about 5 percent of the jobs in an organization create 95 percent of the impact. It’s important to ensure that critical roles in Indonesia are filled with people who have the right capabilities, leadership skills, and mindsets. Given the shifts in the future of work, some foundational skills—beyond digital skills—will become more important over time, for example, intrinsic problem-solving skills and the ability to manage stakeholders and to develop people. It’s important for both public- and private-sector entities to find ways to invest in building a leadership pipeline with these skills. The abundant opportunities to unlock value provide a platform to develop the future leaders, but it will require corporations and public-sector entities to be much more thoughtful on their talent bench.

Unlocking public-private partnerships to deliver social and economic value together. Private-sector investment and participation would be essential to success. Indonesia should strive to create a favorable climate for investors who have interest to deliver these initiatives, especially those who look into both short-term delivery and long-term outcomes. It will also be critical to create transparency by ensuring continuous, two-way dialogues between Indonesian officials and potential investors in priority sectors to understand their challenges—for example, social, health, or political factors, as well as tariffs and other policies. The dialogues should inform efforts to find mutually beneficial solutions.

While the immediate priority for Indonesia is mitigating the impact of the virus, the country can emerge from the crisis stronger if, at the same time, Indonesia’s leaders create strategies to transform the economy to innovate and build resilience at the same time. This is also an opportunity to breakthrough execution, as the ability to deliver will be the one that determines Indonesia’s ability to unlock renewed momentum for exceptional growth.

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