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Deloitte Highlights Indonesia's Competitive Advantage, but Points to Underinvestment

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by September 18, 2017 General

According to the report, Indonesia’s working-age adult population will remain relatively stable in decades to come. Approximately two-thirds of Indonesia’s current 260 million population are working-age adults, more than in other countries in the region, like Thailand or Singapore.

As working adults tend to have higher purchasing power, Indonesia offers opportunities for the tourism, entertainment, hospitality, manufacturing and education industries.

Rapid urbanization and political focus on infrastructure development offer opportunities in the construction, utilities and transport sector.

The report also said Indonesian manufacturers have a better competitive advantage against the Chinese. Deloitte noted that the current average daily cost of factory labor in Indonesia stands at about $9, compared with $28 in China.

The report said Indonesia should capitalize this trend to promote low-cost manufacturing to attract more investors.

Underinvestment and Inequality?

Despite the ample workforce, according to the report, Indonesia’s cities are “underinvested,” lacking access to clean water, sewer system and public transportation, which holds back economic growth.

The Indonesian government is targeting the economic growth of 5.2 percent this year and 5.4 percent next year. That compared with last year’s 5.02 percent.

As the economy will continue to grow at a high rate, Indonesia may face further income and wealth inequality.

“Should assets and capital continue to be largely owned by a small elite class, the richest Indonesians are more likely to benefit disproportionately from the projected high rates of economic growth generated by the demographic dividend,” the report said.

Still, better access to infrastructure and education may also offset the risk of inequality.

“Indonesia’s relatively youthful workforce gives it a significant advantage in adapting to the technological changes that are likely to arise as digital infrastructure in Indonesia catches up with the rest of the world,” the report said.

Indonesia, India and the Philippines have their share in the demographic dividend, with India set to become an economic superpower. India’s potential workforce is going to increase from 885 million to 1.08 billion in the next 20 years.

“India will account for more than half of the increase in Asia’s workforce in the coming decade,” Deloitte India economist Anis Chakravarty said.

According to Chakravarty, India will have more advantages, because new workers will be “much better trained and educated” than the country’s existing workforce, and more women will join the employment market.

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