Indonesia, Southeast Asia’s largest economy, is rapidly positioning itself as a global powerhouse. With GDP exceeding $1,3 trillion in 2023 and projected to grow by 4,7-5,5% for 2024, Indonesia has demonstrated remarkable resilience in the face of global challenges, such as trade wars or the impacts of the COVID-19 pandemic.
Its strategic location makes it a key hub for maritime trade, with two of the world’s most important trade routes passing through its waters. Furthermore, its wealth of natural resources and young, dynamic population have been key factors in its economic rise. Added to this is Indonesia’s commitment to digitalisation and sustainable industries, such as the manufacturing of batteries for electric vehicles (EV), which have further boosted its development.
Geography, demography and governance: the power of a global archipelago
The Republic of Indonesia is the largest archipelago in the world, with more than 17.000 islands covering 1.904.569 square kilometers. With more than 280 million inhabitants, it is the fourth most populous country and is home to the largest Muslim population in the world. The island of Java, where Jakarta, which has been the capital of the country until now, is located, is the most populous in the world, concentrating more than half of the total population of Indonesia.
Joko Widodo and economic transformation: driving sustainable growth
Indonesia has been a key player in global trade since the 20th century, when the kingdom of Srivijaya traded with China and India. Today, it is the world's seventh-largest economy by purchasing power parity according to the OECD, and the only GXNUMX member from Southeast Asia.
Under the leadership of Joko Widodo, who assumed the presidency in 2014 and was succeeded in October 2024 by Prabowo Subianto, Indonesia has experienced remarkable economic growth and has established itself as one of the most attractive investment markets in the world. This boom has been driven, in large part, by the global increase in demand for green energy technologies, which have opened up new opportunities in key sectors such as nickel.
From minerals to international investment
Widodo has leveraged the country’s vast nickel reserves, the largest in the world, to modernize the mineral processing industry and attract foreign investment, also helping to reduce its current account deficit. In 2019, an export ban on nickel, a mineral crucial for electric car batteries, was implemented as part of a strategy to develop a domestic supply chain for these vehicles. This measure revitalized the mining industry and boosted the value of exports by forcing refineries and manufacturers to set up batteries within its borders. Thus, the value of exports rose from $1.4 billion in 2014 to nearly $22 billion in 2022.
Export controls on bauxite, a mineral used to produce aluminium, were also introduced, and the export of copper concentrate was banned earlier this year.
Foreign direct investment has grown steadily since the nickel ban, with major international companies including Ford, Hyundai, Tsingshan Holdings (a Chinese metals group) and BYD, the world’s largest producer of electric vehicles, investing billions of dollars in the country. In 2023, investment reached an all-time high of $47.3 billion, an increase of 3.7% from the previous year, with a third of that investment going into the metals and mining industries, mostly from China.
Digital transformation: driving economic growth
With a young demographic and high internet penetration rates, Indonesia has fostered its position as one of the fastest-growing digital economies in the region. More than 73% of its population has internet access, and growing adoption is transforming traditional business models.
Driving this transformation has been key for sectors such as e-commerce, fintechs and digital services, which are essential for the country’s future. Government support, through programs such as “Making Indonesia 4.0,” has also been instrumental. These programs seek to digitize industries, strengthen SMEs and build a strong digital infrastructure. In addition, the pandemic accelerated this process, as both businesses and consumers began to use online platforms more for transactions, study and entertainment.
Environmental challenges and the path to sustainability
Indonesia's environmental challenges are primarily related to its high population density and rapid industrialization. Large palm oil plantations, mostly controlled by Singaporean conglomerates, contribute to illegal deforestation and forest fires, which in turn generate air pollution in Indonesia and neighboring countries such as Malaysia and Singapore. In addition, the country faces overexploitation of its marine resources and problems arising from urbanization, such as air pollution, traffic congestion, waste management, and water and sanitation services. Deforestation and peatland destruction have made Indonesia the third largest emitter of greenhouse gases in the world.
Infrastructure investments: connecting a sprawling archipelago
To address these challenges, Indonesia has committed to reducing its carbon emissions in line with the goals of the Paris Agreement, as set out in its 2022 Nationally Determined Contribution (NDC). The country is seeking a reduction of 31.89% (without conditions) and 43.2% (with conditions), exceeding previous targets of 29% and 41%.
To balance its sustainability goals with economic growth, Indonesia has implemented decarbonization technologies such as renewable energy and biofuels.
Indonesia has seen significant investment in infrastructure in recent years, most notably the development of the new capital city in Kalimantan, Nusantara, which aims to boost economic growth and alleviate Jakarta's overcrowding and pollution and is expected to open before 2045.
The expansion of liquefied natural gas infrastructure also ensures a reliable energy supply for industry and homes, while investments in clean water and flood control help improve public health and protect communities from natural disasters.
Indonesia on the international stage: diplomacy, neutrality and new alliances
Little by little, Indonesia has begun to position itself on the diplomatic scene, both regionally and globally. Its neutral character, without strong alliances with either the West or China, plays in its favour, as it lacks fixed allies and prioritises its own interests.
Moreover, being home to the largest Muslim population in the world, with over 240 million Muslims, gives it a key position in the global Islamic arena. As a member of the Organisation of Islamic Cooperation, the country has the capacity to act as a mediator in conflicts and dialogues between these nations.
On the other hand, its leadership within ASEAN and the growing role of this organisation in international relations further strengthen its global influence.
BRICS and Indonesia's global expansion: a new chapter in economic diplomacy
A few weeks ago, Brazil, the nation that currently chairs the BRICS, announced Indonesia's full membership in the bloc. This expansion follows the inclusion of Iran, Egypt, Ethiopia and the United Arab Emirates last year, further consolidating the group of developing economies.
Indonesia’s entry into BRICS reinforces the bloc’s mission to promote South-South cooperation and challenge existing global power dynamics. With its inclusion, the group encompasses greater economic and demographic diversity, consolidating its influence globally.
The country has also been particularly firm in its stance against the expansionist policies of the People’s Republic of China, particularly with regard to disputes in the South China Sea. On several occasions, it has intercepted and turned back Chinese fishing vessels operating illegally in its waters, and has even taken stronger measures against them.
Conclusion
Indonesia is emerging as an emerging power in the global economy, thanks to its strategic location, abundant natural resources, and policies geared toward sustainability and digitalization. Over the past few years, it has made significant progress in infrastructure, decarbonization, and economic development, while facing significant environmental and social challenges. Its inclusion in the G20 and the BRICS bloc underlines its growing influence in the international arena. As it moves toward a greener and more digital future, Indonesia continues to establish itself as a key player in global trade and a leader in Southeast Asia.
Department of Economics and Business Casa Asia