IT HAS been 76 years since Indonesia became independent. A gateway that allows us to be equal with other countries. The nation's great dream is to become a developed country in the 100th year of our independence. This degree is what makes Indonesia able to play an active role in implementing world order, as mandated by our founding fathers What must Indonesia do to become a developed country?
Developed countries
Developed countries are termed differently: the IMF calls them advanced countries . UNDP calls them developed countries , while the World Bank calls them high-income countries .
Currently the contribution of developed countries to the world economy varies, increasing from 13% (1990) to 17% (2010 - IMF), remaining 25% (UNDP) and 16% to 26% (World Bank). Developed countries are also defined in various ways. The similarities are the development of a country as measured by the level of GDP per capita (>US$12,696 in 2020, an increase compared to US$6,000 in 1989), the stability of the economy, politics and other social parameters that indicate the strength of a country, and the dominance of the industrial and service sectors in economy.
China is the country at the forefront of getting out of the middle income trap (MIT). Since having GDP per capita >US$1,000 in 2001, by the end of 2020 it had reached US$10,500. Malaysia experienced it longer, from 1977 to 2020 ($10,402). Hong Kong took 14 years (1971-1984) to become a developed country, the same as South Korea.
Meanwhile, Singapore only needed 12 years (1971-1982) and is now one of the highest income countries in the world. Several countries are categorized as MIT, for example Argentina which had a GDP per capita of US$14,613 (2017), then fell (US$9,912 - 2019; US$8,442 - 2020). Likewise with Brazil and Russia. Thailand has performed better (US$7,817 – 2019; US$7,189 – 2020) when compared to Indonesia (US$4,135 – 2019; US$3,870 – 2020). This condition has reduced Indonesia's status from upper to lower middle-income country.
Economic transformation
In the 2019-2024 RPJMN, the Advanced Indonesia Cabinet's strategic program is economic transformation. Defined, as a continuous process (McMillan et al., 2017) to (a) move workers and other resources from low to high productivity (structural change), (b) increase growth in existing sectors through the use of technology, and (c ) encourage areas that have potential as locomotives of growth.
Data from the World Bank and the United Nations Industrial Development Organization (UNIDO), shows that the economies of developed countries in 2016-2019 were dominated by the service sector (69.76%), followed by agriculture (16.23%), and industry only 14.01%. As for upper middle-income countries , services contributed 55.44%, followed by agriculture (24.87%), and industry (19.69%).
This economic structure is different from Indonesia, with services still accounting for 43.72%, followed by agriculture (36.21%), and industry (20.06%). More than half of Malaysia's economy is in the service sector (52.90%), followed by agriculture (25.44%), and industry (21.65%).
China and South Korea also have the same profile. Services dominate as the biggest contributor, but industry is bigger when compared to agriculture. The growth of sectors with technology for efficiency is also interesting to observe. UNIDO data shows that more than a quarter of South Korea's manufacturing industry (+US$507 billion) comes from information technology.
Of course, the high market dominance in information technology by Samsung and other manufacturers is the reason. For China, although the contribution of information technology in percentage terms has not changed significantly, its total output has increased 3x compared to 2005. As for the US, the contribution of information technology was 7.41% (2018) with total output of +US$2.61 trillion.
How about Indonesia? The food and beverage industry (19.86%), petrochemical (12.37%), and automotive (10.43%) are the three main contributors, with total output of +US$163 billion. Lastly, using certain areas as new growth centers (Zhou and Hu, 2021).
For China, this began in 1979 with the establishment of four special economic zones (Shenzhen, Zhuhai, Shantou, and Xiamen), with the main goal of attracting investment from overseas. The next decade expanded. Not only areas with ports that directly face the sea, but also areas that are river estuaries. If in 1995 only Shanghai was an upper middle-income , five regions had high-income in 2015: Beijing, Tianjin, Shanghai, Jiangsu and Zhejiang.
This is facilitated primarily by integrated development under national programs, especially the belt and road initiative . How about Indonesia? In 2019, only Jakarta had high-income . Five regions have upper-middle income : Riau, Riau Islands, East Kalimantan, West Kalimantan and West Papua. What is surprising is that five regions in Java still have lower middle income .
Recommendation
Indonesia still has 24 years to realize its big dreams as a developed country. If growth was equivalent to the average of the last 10 years, it would take 64 years for Indonesia to pass the minimum threshold for developed countries. For this reason, structural economic transformation is needed, by increasing the contribution of the service sector, up to 26% from current conditions.
This addition needs to go hand in hand with preparing Indonesian human resources through relevant higher education. It is necessary to choose services that have high added value, with linkage effect As the middle-income class increases, the need for tourism, world-quality higher education, health and related matters (including beauty), sports and the creative economy are some of the sectors that need to be prioritized.
Competing with other countries in industrial sectors that rely on low costs, especially human resources, is not an ideal choice for leaving MIT. Lee (2019) emphasizes the importance of selecting strategic industries with high added value with broad market reach, namely high technology.
Law No. 11/2020 concerning Job Creation Article 84 paragraph 2 point b needs to be operationalized, through Indonesia's strategic industrial road map road map will provide national research direction, which areas should be the focus of researchers that will be utilized by our industry. Of course, there are incentives for business actors, for example the acceleration of PP No. 45/2019 as the basis for super deduction tax , so that strategic industry business actors grow and develop.
The agricultural sector is also strategic, especially related to food security and inflation. It is understandable that developed countries still have a significant contribution from this sector. Of course using technology. There are 33.4 million Indonesians working in this sector, and the role of technology that is adapted to market needs will provide high added value and attract the younger generation to get involved.
The trend of returning to nature that is sweeping the world needs to be responded to by promoting non-organic tropical vegetables and fruit. Capitalizing on the need for halal meat and food is also promising, with 1.8 billion Muslims and a market value of US$3.2 trillion. The size of Indonesia's domestic market should not make us spectators and consumers of other countries' products.
Learning from Japan, South Korea and China, Indonesia must take advantage of the domestic market with middle-income class to develop services, industry and high-value added agricultural products. The strong foundation of the domestic economy guarantees Indonesia's continued economic growth towards becoming a developed country in 2045.
