Indonesia’s Urban Development Towards Inclusive and Sustainable Economic Growth

1Peter D. EllisSenior Economist

Robust Economic GrowthRobust Economic Growth

Recent patterns of economic growth are expected to continueece t patte s o eco o c g o t a e e pected to co t ue

• Real GDP growth 6.0% for 2010

• Driven by strong domestic consumption and investment

P dil d li i• Poverty rates are steadily declining

• Increased local government authority

2009 2010 2011Gross domestic product (Annual per cent change) 4.5 6.0 6.2

Consumer price index (Annual per cent change) 4.8 5.1 6.4

Budget balance* (Per cent of GDP) -1.6 -1.5 -1.7

Major trading partner growth (Annual per cent change) 0 8 6 5 4 3Major trading partner growth (Annual per cent change) -0.8 6.5 4.3

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Urbanization Growth RatesUrbanization Growth RatesCompound Annual Growth Rates of Urban Population,

1970‐2010

4.5% 3.8% 4.2%

3.0%

3.5%

4.0%

3.1%3.4%

2.8% 3.1%

1 0%

1.5%

2.0%

2.5%

0.0%

0.5%

1.0%

China India Indonesia Philippines Thailand Vietnam

• Source: United Nations World Urbanization Prospects, 2009

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Indonesia is Rapidly UrbanizingIndonesia is Rapidly Urbanizing

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Source: Indonesia Statistical Bureau (BPS) Proyeksi Penduduk, 2005

High Economic Density in Java Economic activity and 

population are concentrated in majorconcentrated in major urban areas and in non‐oil Provinces. 

Major metropolitanMajor metropolitan areas, such as Jakarta and Surabaya, experience economic growth of 6% p.a. 

Urban population in West Java (including Jakarta) is expected to increase from currently 60% to 80% bycurrently 60% to 80% by 2025. 

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Java‐BaliJava Bali

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SulawesiSulawesi

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Geographical Distance between Major Citiesin Indonesia and Singaporein Indonesia and Singapore

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Economic Distance within IndonesiaB d t t tBased on sea transport costs

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Urban Population is De‐ConcentratingUrban Population is De Concentrating

City 1990 1995 2000 2005 2010

Jakarta 15.1% 12.2% 9.7% 9.3% 8.9%

Surabaya 4.5% 3.7% 3.0% 2.8% 2.4%

B d 3 8% 3 1% 2 5% 2 4% 2 3%Bandung 3.8% 3.1% 2.5% 2.4% 2.3%

Medan 3.2% 2.7% 2.2% 2.1% 2.0%

Semarang 2.3% 2.0% 1.7% 1.4% 1.3%

Makassar  1.5% 1.3% 1.2% 1.2% 1.2%

Palembang 2.1% 1.9% 1.7% 1.4% 1.2%

Other Urban 67.6% 73.1% 78.0% 79.3% 80.6%Other Urban 67.6% 73.1% 78.0% 79.3% 80.6%

Total Urban 100.0% 100.0% 100.0% 100.0% 100.0%

Source: World Urbanization Prospects: The 2009 Revision.

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Economic Development is Expanding in ll bSmaller Urban Areas

M dGRDP non oil & gas (2008)

Medan3%

Jakarta 28%RuralRural43%

Bandung2%

Semarang 2%

Surabaya 7%

Makassar 1%Oth bOther urban

14%

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Compound Annual Growth Rate of population f diff i i 1996 2007for different city sizes 1996 ‐ 2007

14.00%

11.61%

10.00%

12.00%

6.96%

4.65%

6.00%

8.00%

3.00%3.40%

2.00%

4.00%

2 93%

‐2.00%

0.00%

> 10 million 5 ‐ 10 million 1‐5 million 0.5 ‐ 1 million < 0.5 million TOTAL URBAN

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‐2.93%‐4.00%

% CAGR  

Indonesia’s Largest Metropolitan AreasIndonesia s Largest Metropolitan Areas

Jakarta Metropolitan Area (Jabotabek) Surabaya Metropolitan Area (Gerbangkertosusila)

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Jakarta Metropolitan Area (Jabotabek) Surabaya Metropolitan Area (Gerbangkertosusila)

Population of 8 Metro AreasPopulation of 8 Metro AreasMetro name

2005 CAGR 1995 ‐ 2005

Core Periphery Metro Core Periphery Metrop y p y

Jakarta 8,820,603  12,799,559  21,620,162  0.44% 2.47% 1.56%

Surabaya 2,611,506  5,974,090  8,585,596  0.33% 1.46% 1.10%y , , , , , ,

Bandung 2,270,969  5,079,430  7,350,399  0.66% 3.13% 2.26%

Semarang 1,446,533  4,335,017  5,781,550  0.97% 1.15% 1.10%

Medan 2,029,797  1,812,196  3,841,993  1.07% 0.10% 0.59%

Palembang 1,369,239  1,122,731  2,491,970  1.20% ‐2.67% ‐0.85%

Makassar 1,194,583  1,106,362  2,300,945  1.58% 1.58% 1.58%

Denpasar 574,610  1,208,004  1,782,614  3.97% 1.07% 1.87%

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Source: Indonesia Bureau of Statistics (BPS)

Opportunities and Challenges

• Cities accommodate half of Indonesia’s population and are responsible for a major share of national GDP

– Urbanization rate to support economic growth

– Rising middle class and demand

– Rapid motorization

• Substantial public investment is required to address infrastructure demand

Increasing investment needs Infrastructure Spending as a share of GDP– Increasing investment needs

– Greater demand for basic services

– Local government coordination

Mass transit 6

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8Private

SOE

Sub-national government

Percent of GDP

Infrastructure Spending as a share of GDP

Mass transit

Flood and other disaster control

2

3

4

5

6 Sub-national government

Central government

150

1

2

1994-1997 1998-2000 2001-2008

Thank YouThank You

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