GM. I know it's been some time since you heard from me. Just to give you all an update: I got into an accident (I'm fine), went back to the UK for my graduation and did a little bit of travelling around Europe with my parents. 

But I'm back now and we're going to continue our series of economic development stories in South East Asia. 

Today we're going to talk about our neighbour - Indonesia 🇮🇩

Is Indonesia catching up on us?

• Well in terms of per capita GDP, not yet but they will be very soon
• At around $11,000 a person, Indonesia is solidly in the middle-income category

Then what's impressive about Indonesia?

• To understand that, we first need to know what to look out for when trying to figure out a developing country's development plan - look at its exports
• There are two types of developing countries
  • Natural resource exporters 
  • Industrial exporters
• The former has all kinds of issues - political dysfunction, overvalued currency, vulnerability to price swings etc.
• The latter generally start out poor because they don't have much to sell but when they start to see steady growth, they'll end up being richer than the resource exporters

Above are Indonesia's exports in 2020 and 2003

Now here's where things get interesting:

• When we look at Indonesia now, it basically looks like a natural resource exporter
• But it wasn't always this way. Back in 2003, logging and mining were way down on the list. They were industrial exporters
• Basically, Indonesia underwent two decades of deindustrialization

Now what happened here?

• Here's a good overview of the relevant history
• At first, Indonesia adopted the "post-colonial rags to riches" playbook - an export-oriented manufacturing-centric model 
• But the 1997 Asian Financial Crisis hit and its industrialization just kinda stalled
• When foreign investments started coming back, they were mostly going into resource-extractive industries and Indonesia caught the Dutch Disease - rising commodity prices in the 2000s made it more lucrative for Indonesia to sell commodities instead of manufactured products

Now here's where things get EVEN MORE interesting: 

• Despite this steady deindustrialization after the turn of the century, Indonesia kept growing at about the same rate as before
• If you look at the graph above, sure you can see when the AFC hit but can you spot the switch from the industrial export model to the natural resource one? I sure can't
• This kind of smooth, even growth is not typical for a commodity exporter
• Imagine what would Indonesia be like when they resume industrialization 🤔
• Well, they're moving back in this direction! The government is now planning to revive the manufacturing sector and reintegrate Indonesia into global manufacturing value chains
• We can see it with the government proposing Tesla to build a 500k annual capacity EV plant

If Indonesia plays its cards right, we will be the ones looking for jobs over there. TIME TO WAKE UP MALAYSIA!

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Before you go...

• Check out issue #66 where we talked about how Singapore went from a financial hub to a manufacturing hub 🇸🇬
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