8 Percent Growth Needs to be Supported by Economic Complexity

JAKARTA, KOMPAS - The government is optimistic that public policies accommodating the need for cross-sectoral synergy with the private sector can support the acceleration of economic growth to meet the target of 8 percent by 2029. However, to achieve sustainable growth, economic complexity also needs to be increased.

This was revealed on the first day of the Indonesia Economic Summit (IES) 2025 held in Jakarta, Tuesday (18/2/2025). The international economic forum organized by the Indonesian Business Council brought together policymakers, business actors, and global thinkers to jointly build a resilient and competitive business ecosystem to support long-term economic growth.

Coordinating Minister for Economic Affairs Airlangga Hartarto, while speaking, stated that the government understands that the key to accelerating economic growth is the flexibility of the private sector in conducting business maneuvers.

Therefore, the government is trying to ensure that Indonesia has a friendly investment climate, one of which is through various forms of fiscal incentives, such as tax exemptions for a certain period (tax holiday) and tax reductions (tax allowance).

”We are also trying to mitigate the implementation of the 15 percent global minimum tax and we are quite positive because (the administration of US President Donald) Trump 2.0 does not want this to be implemented,” Airlangga said.

He acknowledged that various global challenges such as geopolitical tensions in Europe and Asia, semiconductor export restrictions, and high inflation in the US will become obstacles to accelerating Indonesia's economic growth, which is targeted to reach 8 percent by 2029.

However, domestically, political stability marked by 80 percent legislative parliamentary support for the executive government, continued Airlangga, can be a positive sentiment in formulating various policies that align with the needs of economic actors.

”With government support reaching more than 80 percent in parliament and popularity of more than 82 percent, we have higher economic growth aspirations, namely in the range of 7 to 8 percent,” said Airlangga.

At the same event, Harvard economist and the originator of the economic complexity index, Ricardo Hausmann, stated that Indonesia could accelerate economic growth by increasing economic complexity. A country can only grow by 8 percent if it diversifies into more areas and becomes more complex.

Simply put, economic complexity is measured by how varied a country's export products are (diversity) and how unique they are (ubiquity). The higher the variety and uniqueness of export products, the higher its economic complexity ranking (Economic Complexity Index/ECI).

"In pursuing sustainable economic growth, Indonesia requires very rapid export growth, very rapid urbanization growth to cities that become more efficient, as well as an increase in human resource capacity and the number of experts," he said.

To achieve this, more systematic and organized efforts are needed to build a diverse and competitive industrial chain ecosystem. The government needs a detailed derivative strategy regarding the supporting industrial ecosystem, funding, and supporting regulations.

"If capital continues to be directed to less innovative sectors, the result is that other more innovative sectors will lack capital," he said.

At the same event, Dean and Chair Professor of China Business and Globalization, Cheung Kong Graduate School of Business (CKGSB), Xiang Bing, said that to increase economic complexity, a country’s industrial sector can become a “copycat” first before moving further as an innovator.

For example, Shenzhen City, which is currently a special economic zone, has been able to gain a reputation as a center for high-tech innovation. Previously, Shenzhen was only considered an assembly industrial area for foreign companies.

”Investment and technology transfer have fueled China’s rapid economic growth. Innovation and manufacturing dominance have made it a global leader in trade and technology,” he said.

Meanwhile, while delivering a keynote speech, Chairman of the National Economic Council (DEN), Luhut Binsar Panjaitan, said the private sector will play a key role in achieving the economic growth target of 8 percent in 2029.

”Especially through sharingthe expertise and experience of the private sector in management so that the Indonesian economy is more efficient,” said Luhut.

The government has built a conducive investment ecosystem, one of which is through the establishment of the Danantara Investment Management Agency (BPI).

Luhut said that making the economy more efficient is the government's top priority, considering that Indonesia's Incremental Capital Output Ratio (ICOR) is currently at 6.6. This means that every 1 percent growth in gross domestic product (GDP) requires 6.6 percent investment growth.

To suppress the high-cost economy in the country, Luhut continued, the government has built a conducive investment ecosystem, one of which is through the establishment of the Danantara Investment Management Agency (BPI) as an attraction for private capital into the country.

Special Advisor to the President for Economic Affairs, Bambang Brodjonegoro, added that achieving high economic growth needs to be in line with poverty alleviation.

"Therefore, the government's strategy is to attract private sector investment to create economic opportunities and jobs, as well as public sector investment to improve people's quality of life and reduce the cost of basic necessities," he said.