JAKARTA: International Finance Corp (IFC), the World Bank’s private sector arm, has urged Indonesia to prioritise the growth of more productive, high-value businesses through regulatory reforms.
Keiko Miwa, IFC division director for South-West Asia and Pacific Islands, said on Tuesday that corporate growth in Indonesia was “increasingly driven by market power rather than productivity, with dominant players absorbing resources even as efficiency declines”.
She cited the World Bank Group’s recent flagship report, Indonesia Country Growth & Jobs Report (CGJR), which found that South-East Asia’s largest economy still grapples with “growing pains” typical of middle-income countries.
“Against this backdrop, we need to focus on fostering the growth of more productive, high-value firms and industries,” she noted.
Keiko pointed out that government reforms were critical to such a shift, emphasising “a more predictable regulatory environment, stronger competition, streamlined firm entry and exit, and fewer trade restrictions”.
These measures were key to unlocking private sector potential in Indonesia, she said, noting that the private sector could serve as the main engine of employment and income growth, as it accounted for over 90% of jobs in the country.
Multilateral development banks, such as the IFC, could also support the efforts by implementing measures aimed at reducing barriers, strengthening markets and attracting more investors, Keiko added.
The IFC has designated Jakarta as its new sub-regional hub to anchor its work across Indonesia, Cambodia, Fiji, Lao PDR, Myanmar, the Pacific Islands, Papua New Guinea and Timor-Leste.
“Being closer to client countries allows us to identify opportunities more effectively, respond faster to market needs, deepen partnerships, share knowledge and mobilise investment at scale,” said Keiko, who was appointed to her newly created Jakarta position in January.
However, attracting capital, including foreign direct investment (FDI), would depend on “strengthening the investment environment, maintaining a stable and predictable regulatory regime and building a strong pipeline of bankable opportunities”.
Indonesia recorded stagnant FDI, with just a 0.1% increase last year.
Keiko said that, as seen in many emerging markets, global FDI flows were becoming more selective.
Meanwhile, she estimated that emerging markets needed about US$7.5 trillion annual investment opportunities to reignite growth, create jobs and reduce poverty, much of which must come from private finance.
“Indonesia has set ambitious goals, and achieving them will require a steady path of increasing investment. This is where IFC comes in,” she said.
Keiko added that IFC had invested nearly US$10bil in more than 250 private sector projects across multiple sectors in the archipelago since 1971.
After progress in reducing poverty, Keiko explained Indonesia’s next challenge was to create more productive, formal jobs that enabled upward mobility and long-term prosperity, as the economy struggled with a “missing middle”, too few medium and large firms capable of growing, investing and creating quality jobs at scale.
According to Keiko, 1.2 billion young people in developing countries will enter the workforce over the next 10 to 15 years, but only about 400 million jobs are expected to be created. — The Jakarta Post/ANN
