PREREQUISITES TO PREREQUISITES TO INNOVATION-DRIVEN ECONOMY:INNOVATION-DRIVEN ECONOMY:

THE CASE OF INDONESIATHE CASE OF INDONESIA

Faisal Basri

13 September 13 September 20132013

Part IPart IOur Identity as a Maritime Our Identity as a Maritime

CountryCountry

The uniqueness of IndonesiaThe uniqueness of Indonesia

Indonesia has a coastal line of 95,181 km, the 4th longest In the world with a wide variety of marine habitats and other natural resources.

The Largest archipelagic stateThe Largest archipelagic state“Untuk membangun Indonesia menjadi negara besar, negara kuat, negara makmur, negara damai yang merupakan National Building bagi negara Indonesia, maka negara dapat menjadi kuat jika dapat menguasai lautan. Untuk menguasai lautan kita harus menguasai armada yang seimbang.” (Ir. Soekarno dalam National Maritime Convention I (NMC), 1963)

Price disparities (Rupiah)Price disparities (Rupiah)

Region Rice Wheat flour Sugar Cooking oil Salt

East Jawa 4,250 3,606 6,000 4,150 1,600

West Kalimantan 4,400 4,000 5,800 4,500 2,450

East Kalimantan 4,500 4,000 6,500 4,500 2,000

South Sulawesi 4,400 3,500 6,500 4,500 2,000East Nusa Tenggara 4,200 4,500 5,800 6,300 2,000

Merauke 5,000 7,000 7,000 6,670 3,000

Nabire 6,000 10,000 11,000 11,000 4,000

Paniai 18,000 7,500 8,000 7,000 8,000Source: Ministry of Trade.

Which one cheaper?Which one cheaper?

“Medan” orange, Indonesia Mandarin orange, China

Source: World Bank

Prices of oranges…Prices of oranges…

Prices were measured in a supermarket in Jakarta

Jeruk Medan……Rp. 20,000 per kg

Jeruk China…………..Rp. 17,000 per kg

WHY IS THIS THE CASE?Source: World Bank

This explains why oranges from Medan are This explains why oranges from Medan are more expensive to some extent….more expensive to some extent….

Cement in Papua is 20 times more expensive than in Jakarta because of shipping costs

Container Shipment cost:Padang – Jakarta = US$600 Jakarta – Singapore = US$185

Other ironic factsOther ironic facts

Source: R.J. Lino’s presentatatiom, March 2011.

Logistics performance index, 2012, n=155Logistics performance index, 2012, n=155

Source: World Bank, Logistic Performance Index: LPI Results 2012 (http://lpisurvey.worldbank.org/)

CountryLPI

rankLPI

score CustomsInfra-

structureInternational

shipmentsLogistic

competenceTracking &

tracingTime-liness

Singapore 1 4.13 4.10 4.15 3.99 4.07 4.07 4.39

Hong Kong 2 4.12 3.97 4.12 4.18 4.08 4.09 4.28

China 26 3.52 3.25 3.61 3.46 3.47 3.52 3.80

Malaysia 29 3.49 3.28 3.43 3.40 3.45 3.54 3.86

Thailand 38 3.18 2.96 3.08 3.21 2.98 3.18 3.63

Brazil 45 3.13 2.51 3.07 3.12 3.12 3.42 3.55

India 46 3.08 2.77 2.87 2.98 3.14 3.09 3.58

Philippines 52 3.02 2.62 2.80 2.97 3.14 3.30 3.30

Vietnam 53 3.00 2.65 2.68 3.14 2.68 3.16 3.64

Indonesia 59 2.94 2.53 2.54 2.97 2.85 3.12 3.61

Cambodia 101 2.56 2.30 2.20 2.61 2.50 2.77 2.95

Lao, PDR 109 2.50 2.38 2.40 2.40 2.49 2.49 2.82

Myanmar 129 2.37 2.24 2.10 2.47 2.42 2.34 2.59

Economic disintegration within IndonesiaEconomic disintegration within Indonesia

Source: R.J. Lino’s presentatatiom, March 2011.

The sea unites IndonesiaThe sea unites Indonesia

But…. the solution is this!!!But…. the solution is this!!!

Part IIPart IIPerekonomian IndonesiaPerekonomian Indonesia

Other potentials in food sectorOther potentials in food sector

Available of rich volcanic soil in a great extent. Of the 188 million hectare land area, around 94 million hectares are biophysically suitable for agricultural activities (e.g. physiographic, shape of regions, slopes, and climate)

High level of rainfall Tropical climate that is suitable for growing

various kinds of plants and fish Rare occurrence of natural disturbances such as

hurricane and heat wave

Trade deficit: food productsTrade deficit: food products

Sources: Badan Pusat Statistik.

US$ billions

Weighted total of all category scores (0-100 where 100 = most favourable)

Country Ranking ScoreUnited States 1 89.5France 4 86.8Netherlands 5 86.7New Zealand 11 82.7Australia 14 81.1Japan 16 80.7South Korea 21 77.8Israel 22 77.7Malaysia 33 63.9China 38 62.5Thailand 45 57.9Viet Nam 55 50.4Philippines 63 47.1Indonesia 64 46.8Myanmar 78 37.2Congo 105 18.4Source: Economist Intelligence Unit, Global food Security index 2012., London, 2012.

Global food security index 2012Global food security index 2012

Trade deficit: oil and gasTrade deficit: oil and gas

*January-July.Source: Badan Pusat Statistik.

-25

-20

-15

-10

-5

0

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

Gas Oil & oil products Oil & gas

US$ billions

Trade balance of oil and oil productsTrade balance of oil and oil products

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

Crude Oil

Exports 5,621 6,241 8,146 8,169 9,226 12,419 7,820 10,403 13,829 12,293 5,936

Imports -3,928 -5,831 -6,797 -7,853 -9,057 -10,062 -7,362 -8,531 -11,154 -10,803 -8,075

(X - M) 1,694 410 1,349 316 169 2,357 458 1,872 2,675 1,490 -2,139

Oil Products

Exports 1,548 1,654 1,932 2,844 2,879 3,547 2,262 3,967 4,777 4,159 2,385

Imports -3,583 -5,892 -10,646 -11,080 -12,787 -20,231 -11,129 -18,018 -28,134 -28,680 -16,399

(X - M) -2,035 -4,238 -8,714 -8,236 -9,908 -16,684 -8,876 -14,051 -23,357 -24,521 -14,014

Total

Exports 7,169 7,896 10,078 11,013 12,105 15,966 10,082 14,370 18,606 16,452 8,321

Imports -7,510 -11,724 -17,443 -18,933 -21,844 -30,293 -18,491 -26,549 -39,288 -39,483 -24,474

(X - M) 342 -3,828 -7,365 -7,920 -9,739 -14,327 -8,409 -12,179 -20,682 -23,031 -16,153

* January-July. Source: BPS.

Trade deficit: manufacturing productsTrade deficit: manufacturing productsUS$ billions

Sources: Badan Pusat Statistik.

Source: World Bank, “Indonesia Economic Quarterly: Maintaining Resilience,” October 2012.

Indonesia’s exports have shifted toward raw Indonesia’s exports have shifted toward raw commodities & resource-based manufacturedcommodities & resource-based manufactured

(Share of Indonesia’s non-oil and gas exports, percent)

Exports were more dominated by limited Exports were more dominated by limited number of commoditiesnumber of commodities

Source: World Bank, Indonesia Economic quarterly, July 2013: 3.

Export composition, 2012 (percent)

Foreign merchandise tradeForeign merchandise trade

     

  2010 2011 2012 2013* 2010 2011 2012 2013*

Total export 157.7 203.5 190.0 106.2 35.4 29.0 -6.6 -6.1

Non-oil and gas 129.7 162.0 153.1 87.6 33.0 24.9 -5.5 -2.7

Oil and gas 28.0 41.5 37.0 18.6 47.5 48.3 -10.9 -19.4

Total import 135.6 177.4 191.7 111.8 40.0 30.7 8.0 -0.9

Non-oil and gas 108.2 136.7 149.1 85.6 39.0 26.2 9.0 -3.4

Oil and gas 27.4 40.7 42.6 26.2 44.2 48.4 4.6 8.5

Surplus (Deficit) 22.1 26.1 (-1.7) (-5.6)

Non-oil and gas 21.5 25.3 4.0 2.0

Oil and gas 0.6 0.8 (-5.6) (-7.6)

Billion US$ Growth (yoy)Description

*January.-July..Source: BPS.

2011 2012 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 I. CURRENT ACCOUNT 1,685 -24,431 -3,164 -8,176 -5,264 -7,827 -5,819 -9,848

A. Goods, net (Trade account) 34,783 8,618 3,810 818 3,190 801 1,602 -601

1. Exports, f.o.b. 200,788 188,496 48,353 47,538 45,549 47,056 45,231 45,670

2. Imports, f.o.b. -166,005

179,878 -44,543 -46,720 -42,360 -46.255 -43,629 -46,272

B. Services, net -10,632 -10,331 -1,983 -2,790 -2,359 -3,198 -2,480 -3,070

C. Income, net -26,676 -26,748 -6,048 -7,101 -6,955 -6,643 -6,044 -7,140

D. Current Transfer, net 4,211 4,029 1,058 898 861 1,213 1,102 962

II. CAPITAL & FINANCIAL ACCOUNT 13,767 25,148 2,096 5,087 5,885 12,080 -328 8,199

A. Capital Account 33 37 5 3 8 22 1 2

B. Financial Account 13,734 25,111 2,091 5,085 5,878 12,058 -329 8,196

1. Direct investment 11,728 13,982 1,550 3,747 4,539 4,146 3,876 3,324

2. Portfolio investment 3,806 9,206 2,628 3,873 2,516 190 2,760 2,529

3. Other investment -1,801 1,922 -2,087 -2,535 -1,177 7,722 -6,966 2,343

III. NET ERRORS & OMISSIONS -3,395 -503 34 277 213 -1,027 468 -827

IV. RESERVES & RELATED ITEMS -11,857 -215 1,034 2,811 -834 -3,225 6,615 2,477

Balance of paymentsBalance of payments (US$ million) (US$ million)

Source: Bank Indonesia.

Part IIIPart IIIHuman Resources and Human Resources and

InnovationInnovation

Human development indexHuman development index

Sources: UNDP, Human Development Report 2013.

Pada tahun 2030, HDI bisa mencapai tingkat seperti Malaysia sekarang.

HDI in selected countries, 2012 (n = 186)HDI in selected countries, 2012 (n = 186)

Sources: UNDP, Human Development Report 2013.

HDI HDI Overall Change AdjustedRank Country Value Value loss (%) in rank Rank 3 United States 0.937 0.821 12.4 -13 16 28 Czech Republic 0.873 0.826 5.4 9 19 45 Argentina 0.811 0.653 19.5 -8 53 71 Venezuela 0.748 0.549 26.6 -17 88 85 Brazil 0.730 0.531 27.2 -12 97 91 Colombia 0.719 0.519 27.8 -11 102 92 Sri Lanka 0.715 0.607 15.1 11 81101 China 0.699 0.543 22.4 0 101103 Thailand 0.690 0.543 21.3 0 103108 Bolivia 0.675 0.444 34.2 -12 120114 Philippines 0.654 0.524 19.9 4 110121 Indonesia 0.629 0.514 18.3 3 118127 Viet Nam 0.617 0.531 14.0 14 113136 India 0.554 0.392 29.3 1 135138 Lao, PDR 0.543 0.409 24.7 4 134138 Cambodia 0.543 0.402 25.9 3 135161 Haiti 0.456 0.273 40.2 -7 168

Inequality-adjusted HDI

Profile of workforce by job statusProfile of workforce by job status

Informal workers

54%

Employeeswith nocontract

38%

Permanent contract

employees6%

Employers2%

Source: World Bank, presented by Shubham Chaudhuri at Kompas Economic Panel Discussion, June 21, 2012.

Pada tahun 2030, pekerja formal diharapkan mencapai 75%

Source: BPS.

Workers and Unemployment by educationWorkers and Unemployment by education

20.611.4

28.8

14.5

18.9

24.6

23.7

39.9

8.0 9.6

0

20

40

60

80

100

Workers Unemployed

Diploma +

Senior high

Junior high

Elementary

Not completed primary

August 2011

30

Approach to educationApproach to education

Proper approach: set the targets first

Education is a function of: Family Peers School inputs Innate ability

Current approach: set the budget first

Health expenditure, 2011Health expenditure, 2011

0 3 6 9 12 15 18

South SudanQatar

MyanmarIndonesia

Lao PDRMalaysia

BangladeshIndia

PhilippinesThailand

Timor-LesteChina

CambodiaRussiaTurkey

VietnamIsrael

South AfricaBrazil

AustraliaNorwaySweden

SwitzerlandGermany

FranceUnited States

Health expenditure, total (% of GDP)Total health expenditure is the sum of public and private health expenditure. It covers the provision of health services (preventive and curative), family planning activities, nutrition activities, and emergency aid designated for health but does not include provision of water and sanitation.

Health expenditure, total (% of GDP)Total health expenditure is the sum of public and private health expenditure. It covers the provision of health services (preventive and curative), family planning activities, nutrition activities, and emergency aid designated for health but does not include provision of water and sanitation.

Sources: World Bank, World Development Indicators.

Selected basic health indicatorsSelected basic health indicators

1. % Age 5 are under weight: Percentage of children under age 5 falling two standard deviations or more below the median weight-for-age of the reference population, 2010 (UNDP)2. Under 5 mortality: probability of dying between birth and exactly age 5, expressed per 1,000 live births, 2010 (UNDP)3. Maternal mortality ratio: ratio of the number of maternal deaths to the number of live births in a given year, expressed per 100,000 live births, 2010 (UNDP)4. Malaria: deaths due to malaria expressed per 100,000 people, 2008 (UNDP)5. Tuberculosis: estimated rate per 100,000 population, 2011 (WHO)

Country

% Age 5 are under

weight

Under 5 mortality

rate

Maternal mortality

ratio Malaria TuberculosisBrazil 1.7 19 56 0.1 42China 3.8 18 37 0.0 75Thailand 7.0 13 48 0.4 124South Africa 8.7 57 300 0.2 993Malaysia 12.9 6 29 0.1 81Indonesia 18.4 35 220 3.2 187Vietnam 20.2 23 59 0.1 199Sri Lanka 21.1 17 35 0.0 66Philippines 21.6 29 99 0.2 270India 42.5 63 200 1.9 181

The global competitiveness index frameworkThe global competitiveness index framework

Sources: World Economic Forum, The Global Competitiveness Report 2013-2014..

Global competitiveness and its pillars (rank, n=148)Global competitiveness and its pillars (rank, n=148)

Sources: World Economic Forum, The Global Competitiveness Report 2013-2014..

Country InnovationGCI

(Total)Basic

requirementsEfficiencyenhancers

Innovation and sophistication factors

Finland 1 3 7 9 2Switzerland 2 1 3 5 1Israel 3 27 39 26 8Germany 4 4 9 8 4Japan 5 9 28 10 3Sweden 6 6 8 7 5United States 7 5 36 1 6Taiwan 8 12 16 15 9Singapore 9 2 1 2 13Netherlands 10 8 10 11 7Korea 17 25 20 23 20Malaysia 25 24 27 25 23China 32 29 31 31 34Indonesia 33 38 45 52 33South Africa 39 53 95 34 37India 41 60 96 42 41Brazil 55 56 79 44 46Thailand 66 37 49 40 52Philippines 69 59 78 58 58Vietnam 76 70 86 74 85Russia 78 64 47 51 99Yemen 148 145 145 144 139

Part IVPart IVStrengthen the Heart of The Strengthen the Heart of The

EconomyEconomy

Financial deepeningFinancial deepening

Indonesia has yet to optimize its domestic resourcesIndonesia has yet to optimize its domestic resources

Source: Solana (WEF) based on World Bank dan IMF

The financial development index (1)The financial development index (1)

Source: World Economic Forum, The Financial Development Report 2010.

Country2011 rank

(n = 60)2010 rank

(n = 58)2011 score

(1-7)

Change in score

BankingRank

Banking score

Hong Kong SAR 1 4 5.16 +0.12 3 5.43United States 2 1 5.15 +0.03 21 4.19Singapore 4 3 4.97 -0.08 16 4.40Malaysia 16 17 4.24 +0.04 15 4.49Korea 18 24 4.13 +0.13 20 4.21China 19 22 4.12 +0.08 9 4.92South Africa 29 32 3.64 +0.11 33 3.53Brazil 30 31 3.61 +0.09 41 3.31Thailand 35 34 3.32 -0.04 31 3.70India 36 37 3.29 +0.05 43 3.12Russian Fed 39 40 3.18 -0.04 57 2.35Mexico 41 43 3.16 +0.09 47 2.82Turkey 43 42 3.14 -0.02 34 3.48Philippines 44 50 3.13 +0.17 36 3.41Vietnam 50 46 2.98 -0.05 29 3.91Indonesia 51 51 2.92 +0.02 53 2.69Venezuela 59 55 2.44 -0.12 58 2.34Nigeria 60 57 2.44 +0.03 56 2.43

The financial development index (2)The financial development index (2)

Source: World Economic Forum, The Financial Development Report 2010.

Country2010 rank

(n = 57)2009 rank

(n = 55)2010 score

(1-7)Private credit

to GDP (%)Bank deposits

to GDP (%)United States 1 3 5.12 211 78Singapore 4 4 5.03 91 113Japan 9 9 4.67 95 183Germany 13 12 4.49 102 104Malaysia 17 22 4.20 96 100China 22 26 4.03 n.a. 145Korea 24 23 4.00 90 61South Africa 31 32 3.53 162 63Brazil 32 34 3.53 54 61Thailand 34 35 3.37 78 84India 37 38 3.24 48 63Russian Fed. 40 40 3.21 39 31Vietnam 46 45 3.03 90 74Philippines 50 50 2.97 27 46Indonesia 51 48 2.90 23 34Bangladesh 55 54 2.55 36 50Venezuela 56 55 2.55 27 31Nigeria 57 52 2.43 24 21

Source: World Bank.

Domestic credit provided by the banking sector includes all credit to various sectors on a gross basis, with the exception of credit to the central government, which is net. The banking sector includes monetary authorities and deposit money banks, as well as other banking institutions where data are available (including institutions that do not accept transferable deposits but do incur such liabilities as time and savings deposits). Examples of other banking institutions are savings and mortgage loan institutions and building and loan associations.

Domestic credit provided by banking sectorDomestic credit provided by banking sector

Source: Asian Development Bank.

Size of local currency bonds market (1)Size of local currency bonds market (1)

% of GDP, March 2013

Source: Asian Development Bank.

Size of total local currency bonds market (2)Size of total local currency bonds market (2)

% of GDP

102

74 73

48

2735

1731

0

37

215

123

10690

74 69

4639

21 14

0

50

100

150

200

250

December 2000 March 2013

Source: World Bank, World Development Indicators.

Stock market capitalizationStock market capitalization

125

159

3224

32

67

49

16

137129

8978 74

6046 46

150

20

40

60

80

100

120

140

160

180

2000 2011

Percent of GDP

Year of introduction of social insuranceYear of introduction of social insurance Industrial Unemploy- FamilyCountry accident Health Pension ment allowanceBelgium 1903 1894 1900 1920 1930Netherlands 1901 1929 1913 1916 1940France 1898 1898 1895 1905 1932Italy 1898 1886 1898 1919 1936Germany 1871 1883 1889 1927 1954Ireland 1897 1911 1908 1911 1944U.K. 1897 1911 1908 1911 1945Denmark 1898 1892 1891 1907 1952Norway 1894 1909 1936 1906 1946Sweden 1901 1891 1913 1934 1947Finland 1895 1963 1937 1917 1948Austria 1887 1888 1927 1920 1921Switzerland 1881 1911 1946 1924 1952Australia 1902 1945 1909 1945 1941New Zealand 1900 1938 1898 1938 1926Canada 1930 1971 1927 1940 1944U.S.A. 1930 -- 1935 1935 --Sources: Christopher Pierson, Beyond the Welfare State, 3rd edition. Cambridge: Polity Press, 2006, p.110.

Assumptions: 32 million formal workers; wages Rp 1.5 million/month, contribution 5%, wage growth 10%, workers growth 6%

YearContributions

Rp billion/year

Accumulation

Rp billion 1st 28.800 28.8002nd 33.581 62.3813rd 39.155 101.5364th 45.655 147.1915th 53.234 200.4256th 62.070 262.4957th 72.374 334.8698th 84.388 419.2579th 98.397 517.65410th 114.731 632.385

Health insurance contributionsHealth insurance contributions

Source: Hasbullah Thabrany, “Dampak Ekonomi Pelaksanaan SJSN,” presented at GP Farmasi Round Table Discussion on April 27th 2010.

Pension funds (contribution = 6%)Pension funds (contribution = 6%)

Pension funds are the very significant source of funds for long-term investments.

YearContributions

Rp billions/yearAccumulationRp billions/year

1st 34,560 34,5602nd 40,297 74,8573rd 46,986 121,8434th 54,786 176,6295th 63,880 240,5096th 74,485 314,9947th 86,849 401,8438th 101,266 503,1099th 118,076 621,18510th 137,677 758,862

Source: Hasbullah Thabrany, “Dampak Ekonomi Pelaksanaan SJSN,” presented at GP Farmasi Round Table Discussion on April 27th 2010.

Part VPart VStrengthen the Heart of The Strengthen the Heart of The

EconomyEconomy

Avoiding the middle-income trapAvoiding the middle-income trap

880

1,260

1,400

1,530

2,470

3,420

5,210

7,610

9,740

9,800

11,630

12,700

16,392

22,670

36,560

47,210

0 10,000 20,000 30,000 40,000 50,000

CambodiaLao PDRVietnam

IndiaPhilippinesIndonesiaThailand

South AfricaMexico

MalaysiaBrazil

RussiaTaiwanKorea

Hong KongSingapore

Sources: World Bank, World Development Indicators.

High income

Gross national Income per Capita, Current US$, 2012

≥ US$ 12,616

0

2

4

6

8

10

First semester (Jan-Jun)Source: BPS.

Non-tradable

GDP

Tradable

Low quality of growth, 2000-2013Low quality of growth, 2000-2013Percent

FocusFocus

Agriculture Maritime IT

Thank YouTerima Kasih

Email: faisal.basri@gmail.comTwitter: @faisalbasri

Infografis: visuallyconomic.comBlog: kompasiana.com/faisalbasriBlog: faisalbasri01.wordpress.com