Indonesia Pins Recovery Hopes on Mass Vaccination of Workers and Reduced Regulation
The COVID-19 pandemic has hit Indonesia very hard, killing about 24,000 people. Some 800,000 have tested positive for the virus, which the country has yet to bring under control. The economy has been battered, shrinking by 2.2% in 2020 according to the Asian Development Bank (ADB). Remittances fell last year by an estimated $1.5 billion as more than 170,000 Indonesian migrant workers were repatriated from the Middle East, Hong Kong, Singapore and elsewhere.
The jobs of 29 million people — more than the entire population of Australia — were impacted by the crisis through a loss of livelihood or reduced working hours. Up to 20 million people may have been plunged into poverty. The country fell into recession for the first time in 22 years.
The World Bank reports that contact-intensive sectors which rely more on face-to-face interactions — including transport, hospitality, wholesale and retail trade, construction, manufacturing — were hit particularly hard. Tourism suffered, with Bali, Sumatra, Lombok and other popular destinations experiencing a sharp decline in visitors. The Indonesian Hotel and Restaurant Association reported that the crisis slashed Rp trillion ($5.8 billion) from the country’s tourist revenue by July 2020, with additional losses mounting as the year progressed.
Though the overall economic picture was dark last year, there were a few positives for growth. Trade in textiles, pharmaceuticals, electronics and computer products grew over the past twelve months. In addition, the lockdown gave a strong boost to domestic digital services and e-commerce. Approved government stimulus spending to address the pandemic’s negative impacts totalled the equivalent of $53 billion.
In October 2020, the People’s Representative Council approved the Job Creation Law, which trims regulatory requirements for business permits and acquisition of land. The government’s hope is that the law will boost domestic and foreign direct investment, thereby speeding recovery. However, concerns remain over the environmental impact of continued palm oil production and of the Job Creation Law, which simplifies environmental impact assessments.
The arrival of COVID-19 vaccines brings hope for the eventual lifting of government restrictions on mobility and commerce, which would open the door to a significant rebound in 2021. Indonesia has already received 3 million doses of COVID-19 vaccine from China’s Sinovac Biotech. The government has chosen to take a different course than most other countries by inoculating working age adults ahead of the elderly and other vulnerable populations.
The aim is to quickly reach herd immunity and lift the economy out of recession. Because the targeted group tends to be more mobile than older populations, vaccinating them should reduce community transmission of the virus. Budi Gunadi Sadikin, the country’s health minister, said Indonesia needs to vaccinate 181.5 million people, or roughly two-thirds of its population, to reach herd immunity.
Recovery in Indonesia’s leading export markets in Asia, and the United States, will rejuvenate sectors dependent on foreign sales. ADB anticipates that stronger household discretionary spending and rising investment spurred by the new legislation will contribute to a 5.3% increase in gross domestic product this year.
Joseph Incalcaterra, HSBC’s Chief Economist for ASEAN, makes the case that Indonesia could outperform its Southeast Asian neighbors over the coming years. He points to the government’s likely return to an infrastructure-heavy model of investment, and opportunities presented by a $35 billion pipeline of projects related to a nickel supply chain consisting of smelters, steel plants, and battery plants and assembly plants for electric vehicles.
In the digital technology arena, HealthTech and EdTech have played a critical role during the pandemic, with impressive adoption rates to match. The increasing take-up of these technologies, combined with more investment, will propel innovation in this space over the coming years.
However, all progress depends on the successful, timely distribution of vaccines.