Reindustrialization and the Middle Class as Key Drivers of 8% Economic Growth

JAKARTA, investortrust.id – Achieving Indonesia’s ambitious 8% economic growth target hinges on a coordinated effort between the government, monetary and financial authorities, and the business sector. Strengthening the manufacturing industry through reindustrialization, expanding the middle class, and attracting foreign direct investment (FDI) are critical drivers of this growth.

A well-coordinated strategy, supported by strong collaboration between monetary and financial authorities, effective inter-ministerial coordination, and optimized fiscal management, will enhance the likelihood of success.

These were the key takeaways from the Investortrust Economic Outlook 2025 seminar, held at Hotel Sultan in Jakarta on Thursday, Feb. 13, 2025. The event featured high-profile speakers, including Raden Pardede, Senior Economist and Advisor to the Coordinating Minister for Economic Affairs; Arief Wibisono, Special Staff for Financial Services and Capital Markets at the Ministry of Finance; and Rakhmat Yulianto, Director of Investment Promotion Development at the Ministry of Investment/BKPM;

Also present at the seminar were Subani, President Director of PT Central Finansial X (CFX); Adie Rochmanto Pandiangan, Special Staff for Domestic Industry Enhancement at the Ministry of Industry; Ary Santosa, Special Staff to the Head of the National Nutrition Agency (BGN); and Haryo Bekti Martoyoedo, Director of Housing Finance System Development at the Ministry of Housing and Settlement Areas (PKP). The seminar was moderated by Primus Dorimulu, CEO of Investortrust.

The Middle Class as an Economic Engine

Raden Pardede emphasized that the middle class plays a crucial role in economic growth due to its strong purchasing power, particularly in high-multiplier sectors such as housing and automotive.

"For Indonesia to achieve 8% growth, we must expand the middle class," Raden stated. He pointed out that only 18% of Indonesia’s population currently qualifies as middle class, a figure that has declined over the past five years. "This decline is a warning sign. Ideally, the middle class should comprise 70-80% of the population," he added.

Indonesia’s gross domestic product (GDP) is heavily driven by consumption, making wage adjustments crucial to improving labor productivity and demand for high-skilled workers. “Productivity and wages must go hand in hand," Raden explained, stressing that creating more high-skilled jobs is essential to middle-class expansion and long-term economic growth.

Learning from the Past: The Role of Manufacturing

Historically, Indonesia has achieved economic growth above 8% five times, particularly during President Soeharto’s administration, with a peak of 10.9% in 1968. These periods of high growth were driven by commodity booms—such as oil and gas in the late 1960s and 1980s—and by a strong manufacturing sector in the 1980s and 1990s.

From 1988 to 1996, Indonesia’s manufacturing sector grew at an average of 10.8% annually, contributing to an average GDP growth rate of 7.1%. In contrast, from 2000 to 2003, manufacturing growth slowed to 4.3%, leading to lower GDP growth of 4.9%.

Raden lamented Indonesia’s missed opportunities in the recent semiconductor industry boom, which benefited countries like Vietnam and Malaysia. “Malaysia and Vietnam have nearly exhausted their capacity to absorb industrial relocation. This presents a golden opportunity for Indonesia," he said.

Transforming Indonesia’s Industrial Sector

Adie Rochmanto Pandiangan, from the Ministry of Industry, underscored the need to revitalize the manufacturing sector to achieve 8% economic growth. He cited downstream industrialization, investment growth, and ecosystem optimization as key strategies.

In 2024, Indonesia’s non-oil and gas manufacturing sector contributed 17.16% to GDP, with 4.75% growth. The Industrial Confidence Index (IKI) in January 2025 stood at 53.10, signaling expansion. Additionally, 74.3% of exports came from the industrial sector, with 40.69% of total investment directed toward manufacturing.

To support industrial transformation, the government aims to accelerate downstream processing in agro-industries, mineral mining, and high-tech manufacturing, strengthen research and innovation to boost workforce productivity and industrial competitivenes and, address regulatory bottlenecks, such as lengthy environmental impact assessments (AMDAL), which currently take up to two year. 

The government is also targeting 8.58% growth in the non-oil and gas manufacturing sector from 2025 to 2029. “We must adopt modern technology and automation to remain competitive," Adie stated, noting that Indonesia’s industries still rely on outdated machinery compared to China’s highly advanced factories.

Foreign Investment Trends and Opportunities

Rakhmat Yulianto, from the Ministry of Investment/BKPM, expressed confidence in Indonesia’s ability to attract FDI, particularly as companies seek alternative production bases amid US trade tensions with Mexico and Canada.

“Increasingly, firms from Mexico and Canada are looking at Southeast Asia as a production hub to bypass tariffs," Rakhmat said.

In 2024, Indonesia’s total realized investment reached $114.3 billion (Rp 1,714.12 trillion), up 20.8% from the previous year. Of this, 24% was directed toward downstream industries, covering not only mineral processing but also forestry, agriculture, and oil and gas refinement.

Expanding Affordable Housing

The government is also prioritizing affordable housing, with a target of 3 million new homes under the subsidized mortgage scheme (FLPP).

Bank Indonesia (BI) has allocated Rp 80 trillion ($5 billion) in liquidity incentives to double the number of subsidized home loans. This initiative follows discussions between Minister of Housing and Settlement Areas Maruarar Sirait, Minister of State-Owned Enterprises Erick Thohir, and BI Governor Perry Warjiyo.

"BI estimates this funding could finance 220,000 additional homes for low-income families," said Haryo Bekti Martoyoedo, from the Ministry of Housing and Settlement Areas. The government plans to increase the target to 800,000 homes in 2025.

The Role of the Free Nutritious Meal Program (MBG)

As part of its priority initiatives, the Indonesian government is actively expanding the Free Nutritious Meal Program (MBG) to stimulate economic growth. Ary Santosa, Special Staff to the Head of the National Nutrition Agency (BGN), believes that the program will play a significant role in supporting economic development.

To empower local businesses, BGN does not centrally procure raw materials for the MBG program. Instead, it focuses on infrastructure development for 1,542 Nutrition Fulfillment Service Units (SPPG) or free meal distribution centers.

The government also plans to engage village-owned enterprises (BUMDes), cooperatives, and micro, small, and medium enterprises (MSMEs) as aggregators for the MBG program. However, Ary noted that these entities are still in the process of preparing to integrate into the ecosystem.

Furthermore, the government aims to establish 5,000 SPPG units in 2025, with additional funding that could reach Rp 100 trillion ($6.4 billion) by the end of the year. Currently, the MBG program operates in 26 provinces, with plans for further expansion in the near future.

The Rise of Digital Assets and Blockchain

Subani, President Director of PT Central Finansial X (CFX), highlighted blockchain’s growing role in financial services, supply chains, and carbon credit trading.

“Blockchain technology offers transparency, security, and efficiency, making it a viable solution to economic challenges,” he said. Indonesia’s crypto asset taxation, introduced in 2022, has already contributed Rp 1.1 trillion ($71 million) in tax revenue. In 2024 alone, crypto-related tax revenue reached Rp 620 billion ($40 million), a 182% increase from 2023.

A Call for Economic Collaboration

Investortrust CEO Primus Dorimulu emphasized that strong collaboration between Indonesia’s monetary and fiscal authorities is essential to achieving 8% economic growth.

He also noted that US monetary policies—driven by Donald Trump’s ‘America First’ agenda—are affecting global capital flows. "The strong US economy and high Treasury yields (close to 5%) are attracting global funds away from emerging markets," he said.

Meanwhile, domestic fiscal efficiency remains critical to ensuring government initiatives, including infrastructure development, can be fully funded.

Indonesia stands at a pivotal moment. With strategic reforms in manufacturing, investment, and financial policy, the country has a real opportunity to achieve its 8% economic growth goal and become a stronger player in the global economy.