• Opinion
  • October 11, 2018
  • 7 minutes
  • 1

Indonesia wants to become a knowledge economy. Here’s how it can get there

Opinion: Economic transition will be local, but central government has a crucial role

knowledge economy

This opinion piece was written by Arnaldo Pellini, a research associate at the Overseas Development Institute.


In his opening remarks to the Indonesia Development Forum 2018, Professor Bambang Brodjonegoro, Indonesia’s minister for national development planning, reflected on what lies in store for Indonesia.

He noted that 2045 will be an extremely important year for the country. It will not only mark 100 years of Indonesian independence; but it’s also being held up as a turning point for the country’s development. Bappenas, the national development planning agency, recently projected that by 2045, the country’s economy will have become the fourth largest in the world, up from 16th in 2012.

To reach that level, the country will need to work hard to reduce disparities in economic growth between its regions. There is currently a considerable gap between the country’s eastern and western halves: the west contributes approximately 80% of national GDP.

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President Joko Widodo’s administration already recognises this, and the latest National Medium Term Development Plan 2015-2019 includes significant investments in infrastructure to improve connectivity between regions.

But as Minister Brodjonegoro highlighted at the forum, infrastructure is not enough. If Indonesia is to realise its goals for 2045, it needs to move away from extractive industries and exports of natural resources, which are economically and environmentally unsustainable in the long-term.

Instead, it needs to transition to a knowledge-based economy: an economy whose strength comes from the production, distribution and use of knowledge and information.

That shift to a knowledge economy is inevitable, according to Professor Veronica Taylor, who responded to Minister Brodjonegoro’s remarks. If the country is to compete in the global economy, it will need to invest in science and technology to drive innovation and spur economic growth.

Capitalising on the Fourth Industrial Revolution

So, what’s the best way to go about doing this? One option is to continue investing in human capital and try to take advantage of the so-called Fourth Industrial Revolution. This revolution is characterised by technological breakthroughs in a wide range of fields such as artificial intelligence, robotics, the internet of things, nanotechnology, biotechnology, material science and energy storage. Developing a strong knowledge economy is key to capitalising on this revolution.

The combined effect of these technological advances will profoundly change how products are manufactured, how citizens participate in decision-making, and what skills are needed in the labour market.

This revolution represents an important window of opportunity for middle-income countries that intend to transition from natural resource exports to knowledge-led economic growth.

New technologies also enable exciting innovations in governance and the provision of public services, which will be essential to ensure that development initiatives and economic growth are inclusive.

Interest in these innovations is already being shown by local governments, development programmes, and civil society organisations in Indonesia. Several participants at this year’s IDF presented examples of pilots, research, and policy experiments testing ways to improve public services with the help of digital technology.

One group presented on the use of blockchain technology for village information systems. Another shared the results of a study of more than one hundred micro enterprises in five cities in Java conducted by Pulse Lab Jakarta. The study aimed to identify enabling factors that have helped to address mental barriers to fintech, such as information sharing with trusted peers. A study by Hafida Fahmiasari explored the potential of big data for analysing port connectivity in Southeast Asia using data from the Global Marine Vessel Automatic Identification System.

The government’s role

These new technologies provide great opportunities to diversify Indonesia’s economic base and improve the efficiency of public services. The challenge for local and national governments is how to manage the pace and transnational nature of these technological advances.

Making the most of tomorrow’s technological advances means that Indonesia needs to invest today. Investments in schools and higher education, high-quality research  and professional skills will help strengthen public and private sector capabilities for social and policy innovation.

And to avoid widening the gaps between regions, these investments need to be made across the country.

Innovation will happen mostly at the local level, but the central government has a crucial role in creating an environment that will support the transition to a knowledge economy. This means providing space for policy actors to experiment and innovate — often with the help of technology — and, ultimately, to find local solutions to local problems.

In 2019, Bappenas will begin work on the new five-year plan for 2020 to 2025. This will be a major stepping stone on the road to building the human capital Indonesia needs to transition to a knowledge economy and thrive in the Fourth Industrial Revolution. — Arnaldo Pellini

(Picture credit: Flickr/Muhammad Rasyid Prabowo)

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