Author: An Hodgson
Date published: 5 Jun 2007
Home to 3.5% of global inhabitants, Indonesia is the world's 4th most populated nation. Key consumer statistics are rising and despite pressures on its resources, Indonesia represents an attractive prospect for consumer marketers.
IssueIndonesians aged 20-54 are an important segment of the labour and consumer markets, as they account for 75% of the total gross income. A burgeoning population, population density in urban areas and the age structure are encouraging news for foreign firms interested in the Indonesian market. However, these are also leading to rising urban poverty, rising unemployment and sluggish GDP growth.
Young and urban Indonesians make up an important segment in the Indonesian population:
- Indonesia's total population stood at 227 million in 2006, growing at an average 1.6% year-on-year since 1980. Nearly half of the population (49.1% in 2006) live in urban areas, concentrating mostly on the island of Java, which is one of the most densely populated regions in the world;
- Although the median age has risen from 19.5 in 1980 to 26.4 in 2006, the share of the 20-54 age group in the population has been rising steadily. People aged 20-54 accounted for over 50% of the country's population in 2006, a share that has increased from 40% in 1980. This age group is of particular significance because of their high earning and purchasing power;
- People aged 20-54 accounted for 77.8% of the total employed population in 2006, up from 75.7% in 1996;
The total gross income of the population aged 20-54 accounted for 74.8% of the total gross national income in 2006.
Age structure of the population: 1980 – 2015
Source: Euromonitor International from national statistics/UN
Note: Data for 2007-2015 are forecasts.
A large and rising population strains Indonesia's resources but increases its consumption capacity:
- Rising population has made Indonesia one of the densest regions in the world. Population density in 2006 was at 125 people per square kilometre, up from 82 per square kilometre in 1980;
- Overcrowding in urban areas has increased urban poverty and has also put a strain on urban infrastructure, transport services and access to basic facilities. In 1990, 92% of the urban Indonesian population had access to an improved water source, in 2004 (the latest available year) that share had fallen to 87%;
- Economic growth has been sluggish. Real GDP grew 5.7% in 2005 over a year earlier but slowed to 5.5% in 2006. In the wider context, the annual real GDP growth rate for the ASEAN countries averaged 5.9% in 2006;
- With pressures on the economy's carrying capacity, Indonesia has contributed the 3rd largest number of migrants globally in 2006. Latest data from the World Bank show that over 1,700,000 Indonesians migrated out of the country in 2005 in search of jobs and better economic opportunities. Remittances from overseas workers in 2006 are estimated at US$1.9 billion, contributing to boost consumer spending;
- The number of people moving from rural to urban regions is also increasing. During 1996-2006, the urban population grew at an average 4.3% per year whilst the rural population declined at an average annual rate of 0.8% largely due to rural-urban migration;
- Indonesia's large and rising population offers an abundant and inexpensive labour supply to both domestic and foreign firms. However, it also leads to rising unemployment as the economy has not been able to expand fast enough to absorb a rapidly-rising number of labour force entrants. Unemployment rose to 4.3% of the economically active in 2006 from 2.7% in 1991;
- The growth in the population of younger age groups – particularly working people who have relatively high income and spending power – is an important driver of the manifold increase in a number of consumer usage statistics. The number of internet users has increased to 22.6 million in 2006, at an average annual rate of 50% since 2001. The growth rate in mobile phone usage was similar, at an average 49.4% per year from 2001, with 60.8 million mobile users in 2006.
Average gross income by age: 1990-2006 (Rp per capita)
Source: Euromonitor International from national statistics
Future scenariosConsumer markets stand to gain overall with the economy gaining momentum in the coming years:
- Annual real GDP growth is expected to accelerate to 6.0% in 2007 and 6.3% in 2008 (from 5.5% in 2006), driven mainly by private consumption and exports;
- The annual inflation rates (at 13% in 2006) are expected to taper down to 6.2% in 2007 and 6.3% in 2008. Lower inflation will effectively increase disposable incomes and purchasing power for most consumers. It will also lead to the likelihood of declining interest rates, which will encourage credit growth and further boost consumer spending in 2007 and 2008;
- The government aims to attract a massive US$22 billion worth of FDI annually during 2007-2009 (compared to total FDI inflows of US$2.0 billion in 2006) in an effort to upgrade the country's infrastructure (especially urban infrastructure in the face of rapid urbanisation) and generate jobs for the growing labour force. This goal is not unrealistic but it requires a better legal and regulatory framework that helps to improve the business environment and enhance investor confidence;
- The Indonesian population is forecast to grow to 260 million in 2020. The proportion of the population aged 20-54 will by then rise to 52.0%, compared to 50.3% in 2006.
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