EKONID Insight

What to expect for Indonesia’s economy in 2022

07/01/2022

The ongoing COVID-19 pandemic, RCEP, and the country’s focus towards digital economy, green economy and the down streaming of commodities are some of the main topics revolving around Indonesia’s economy as the world’s third largest democracy moves into 2022.

The Indonesian economy remains on a path of recovery in 2021 following the setback caused by the Delta variant of COVID-19 that occurred in the middle of the year. According to the World Bank, the Indonesian economy is estimated to expand by 3.7% in 2021 and is forecasted to accelerate further to 5.2% in 2022.  

Indra Darmawan, an expert staffer at the Indonesian Invesment Coordinating Board (BKPM) or the Ministry of Investment is optimistic about the economy accelerating in 2022. As quoted by Bisnis Indonesia, Mr. Darmawan said market conditions were still heading towards a normalization phase. This is supported by the country's policy direction throughout 2021, the improvement of healthcare support and increased world confidence towards Indonesia following its appointment as the President of the G20. 

Mr. Darmawan added that, by the end of 2021, there was an increase in the mobility of people in various sectors, such as the consumption sector, telecommunications, and transportation sector. This is supported by data from a Google report on Indonesian people mobility throughout the COVID-19 pandemic. The report states that there is an increase of 11 percent in mobility trends to parks, retail & recreation places, followed by an increase of 28 percent mobility to groceries, market and pharmacy and an increase of 3 percent in mobility to workplaces and settlements as of December 19. It is notable however that mobility in public transport areas remains at -3 percent. 

COVID-19 and Omicron 

Moving towards 2022, the main issue plaguing the country’s - indeed the world’s - economic recovery will continue to be ongoing COVID-19 pandemic, and in particular, the virus’ latest variant known as Omicron. As of January 5, 2022, as many as 254 confirmed cases involving Omicron has been reported in the archipelago. Indonesia has responded by closing its border to 14 countries where Omicron cases had been widely reported, including Nigeria, France, and England, and further extending quarantine period for international travelers from only 3 days to between 7 and 10 days. 

It may be important to note that Indonesia has been experiencing record low numbers among COVID-19 infection rates in the last quarter. This may be attributed to a possible rise of antibodies among the Indonesian population. COVID-19 Task Force spokesperson Wiku Adisasmito said as much 86.6 percent of the Indonesian population have already developed antibodies to combat COVID-19. Dicky Budiman, an epidemiologist from Griffith University in Australia, warned however that natural antibodies tend to weaken between five to six months after it has developed and that Indonesia is nowhere yet near the “herd immunity” that the global community is looking to achieve.  

Having said that, the government continues to ramp up its vaccination program, having delivered over 280 million jabs to the public as of the end of 2021. Indonesian President Joko Widodo has further ordered the roll out of booster shots starting January 12, 2022. 

RCEP 

Another big topic entering 2022 for Indonesia is the Regional Comprehensive Economic Partnership (RCEP). With 15 member countries that accounts for about a third of the world’s population and a third of the global GDP, it is history’s largest trading bloc and it came into effect on January 1, 2022. For Indonesia, this is a massive opportunity to boost its exports and to expand the country’s role in the global value chain.  

Indonesia is coming late into this trade deal however as it has yet to ratify the agreement despite Australia, China, Japan, New Zealand and South Korea having already agreed to the deal. The Indonesian government is still looking for parliamentary approval to ratify the agreement, a process that is expected to conclude in the first quarter of 2022. As a result, Indonesia will likely book a trade deficit with members of the RCEP in the early period of its implementation, said Indonesian Coordinating Minister of Economic Affairs Airlangga Hartarto, as quoted by Reuters. 

He added however that the pact could boost trade surplus to US$979.3 million by 2040, further increasing the country’s GDP growth by 0.07% and raise exports and imports by $5 billion and $4 billion respectively.  

Industry focus 2022 

In accordance with President Joko Widodo's direction, the Indonesian economy in the future will focus on digitizing the economy, sustainable green economy and down streaming commodities.  

In the digital economy, e-commerce remains the driver of a digitized economy in Indonesia. According to the latest SEA e-Conomy report from Google, Bain and Temasek, online spending in the archipelago will likely double to US$146 billion by 2025. Deals for internet companies in the country in the first half of 2021 have already surpassed the full-year totals of the past four years. Indonesia in particular will become twice as big a market as the entire Southeast Asian region by 2030. As such, improving the Indonesian digital ecosystem, digital literacy, and digitization of MSMEs remains a key focus for the government.  

In regards to investment in sustainable green economy, Indonesia continues to make efforts to be less dependent on fossil fuel. The Indonesian government has stated that, by 2060, the use of coal and fossil energy will be reduced to around 15%, where until now it is still 85%. According to the Expert Staff of the Minister of Investment Indra Darmawan, as quoted by Bisnis Indonesia, efforts to attract green investment are also in line with Indonesia's commitment to the Paris Agreement and the Change Conference of the Parties (COP26). The issue here however is that large investments are required for the country to move forward with its sustainable green economy plans. In this regard, Indonesia must show its willingness to work together with foreign investors that can provide the necessary technology. 

In line with this green economy focus, the third aspect relates to the down streaming of natural resources; the latest and most talked about issue being the country’s ambition of being a production hub for electric vehicle battery. The construction of an electric battery factory has also been carried out in the context of developing the ecosystem and to optimize the potential of nickel in the country.