Labor is Indonesia’s Problem yet to Solve

Improving Education is the key

We all know that global economy is slowing down. British Parliament keep rejecting Theresa May’s Brexit Proposal, Trump-Jinping discussion is still underway, and Eurozone PMI is below 50 are some of the signs that the world economy is not in favorable situation.

This situation brings big question for Emerging Market economy? Will they outperform the developed countries in 2019?

For Indonesia, the answer is unlikely. Indonesia is a big country and the economy is resilient. The country proved itself to still have 5 percent something growth rate during economic crisis 2008. It sounds perfect in a nutshell but deep down, it brings some worries.

Indonesia Heavily Rely on Its Domestic Market

There is one important factor why Indonesia economic was resilient during global economic crisis 2008: its big domestic market.

Indonesia is a big country. Its 250 million population is such a gift for the economy since it drives consumer spending into around 50% GDP. It makes Indonesia is not relying on exports. Its domestic market is enough to support half of the economic growth.

But it means the import is skyrocketed.

The Country is a Net Importer

Indonesia is heavily rely on consumer spending. The people in the country like to spend money, and multinational company sees it as an opportunity.

Company like IKEA, Unilever and many FMCG brands flooding the market with their products. Not to mention, e-commerce websites like Tokopedia, Bukalapak, and Shopee make it easy for people to shop almost everything from their smartphone, even if the product is shipped internationally.

In a broader view, from oil to electronics, Indonesia is a big market to target and there is very little opportunity to have bigger export than import.

Commodity is Squeezing

As an emerging economy, energy is an important factor to drive the infrastructure development. It also means our economic is sensitive with the price change of the commodity. Indonesia is used to be an oil exporter but lately, OPEC “kicked the country out” of the association. The country is now a net importer of oil and when the price is booming, it is a bad news for the economy.

One economist stated that oil price in the country should be IDR8000 per liter, 34% higher than the current price. This situation is not favorable since budget deficit will be harder to improve.

The Priority: Employment Needs to be Solved

Majority of Indonesia economy is driven by of consumer spending. Consumer spending is related with the national wage, and the wage is related to employment rate.

But, the graph below shows that the quality of the country GDP growth is in warning.

It is shown that the economic growth in 2010–2018 did not provide new jobs for the people as much as it used to be in 2000–2009. Commodity price is the important factor behind this.

2000–2009 is the era of commodity boom. It brought the coal price high and it meant profit for the country like Indonesia. But, when the commodity price but oil slumped, it is a nightmare.

When commodity got a new low, coal (and other raw material) exporters cannot absorb many new workers and people will have less salary to spend.

It is a dangerous situation for spending driven country. So, it is better for Indonesia presidential candidates to solve this problem even sooner.