Commodity Wealth, But No Jobs: Indonesia's Economic Dilemma

Indonesia is one of the world’s largest exporters of natural resources, boasting vast reserves of coal, palm oil, nickel, and natural gas. This commodity wealth has fueled economic growth, making Indonesia a key player in global trade. However, despite the country’s resource abundance, its middle class is shrinking, and well-paying jobs remain scarce.

The disconnect between economic growth and job creation raises a pressing question: Why hasn’t Indonesia’s commodities boom translated into sustainable employment and middle-class expansion? This article explores the factors behind Indonesia’s job crisis and the structural challenges preventing the country from fully capitalizing on its resource wealth.

The Role of Commodities in Indonesia’s Economy

Indonesia as a Resource Powerhouse

Indonesia’s economy is heavily reliant on the extraction and export of raw materials. Key commodities such as coal, palm oil, and nickel contribute a significant portion of government revenue and GDP. The global demand for these resources has allowed Indonesia to maintain steady economic growth, with billions of dollars flowing in from exports.

Nickel, for example, has become a strategic asset due to its role in battery production for electric vehicles. Similarly, palm oil remains a dominant agricultural export, making Indonesia a critical supplier to global food and biofuel industries.

Short-Term Gains vs. Long-Term Sustainability

While commodities bring significant revenue, they do not offer long-term economic stability. The sector is highly volatile, subject to price swings influenced by global demand, trade policies, and environmental concerns. Over-reliance on commodities leaves Indonesia vulnerable to economic shocks when prices fall, as seen during previous downturns in the coal and palm oil industries.

Additionally, the focus on raw material exports rather than developing value-added industries means that Indonesia misses out on higher-paying jobs in manufacturing and technology. Instead of refining its own nickel or producing finished palm oil products, the country primarily exports raw materials, allowing other nations to capture the most profitable segments of the supply chain.

The Jobs Crisis: Why Growth Hasn’t Led to Employment Gains

Limited Job Creation in the Commodities Sector

Despite being a major driver of economic growth, the commodities sector is not a significant employer. Mining and plantation industries are capital-intensive rather than labor-intensive, meaning that they rely more on machinery and automation than on human workers.

For example, large-scale mining operations use advanced equipment to extract resources with minimal labor. Palm oil plantations employ more workers, but wages are often low, and conditions can be harsh. This limits the ability of the sector to create sustainable middle-class jobs.

Decline of Manufacturing and Industrial Jobs

In contrast to countries like Vietnam and Thailand, Indonesia has struggled to develop a strong manufacturing base. Industries such as electronics and automotive manufacturing, which could provide stable, well-paying jobs, remain underdeveloped due to infrastructure challenges, regulatory issues, and competition from neighboring countries.

Foreign investors looking for low-cost manufacturing often choose Vietnam, where labor laws are more flexible, or Malaysia, which has a more advanced industrial ecosystem. As a result, Indonesia remains stuck as a raw material exporter rather than a diversified industrial economy.

Informal and Low-Wage Work on the Rise

The decline of stable industrial jobs has led to a rise in informal and low-wage employment. Many Indonesians now rely on gig work, small-scale entrepreneurship, or unregulated service sector jobs. While these roles provide some income, they lack benefits such as healthcare, job security, and pension contributions—key elements of a strong middle class.

The Impact on the Middle Class and Consumer Spending

Stagnant Wages and Rising Costs

While Indonesia’s economy has grown, wages have remained largely stagnant. Inflation, rising housing costs, and increasing education expenses have eroded purchasing power, making it harder for families to maintain middle-class lifestyles.

Even skilled workers in urban centers like Jakarta are finding it increasingly difficult to save money or invest in property. The gap between economic growth and wage increases has created frustration, particularly among younger Indonesians entering the workforce.

Declining Consumer Confidence

A shrinking middle class directly impacts businesses that depend on consumer spending. Retailers, real estate developers, and financial service providers are all seeing slower growth as fewer Indonesians can afford discretionary purchases. Businesses that once bet on Indonesia’s emerging middle class are now scaling back their expansion plans.

Government Policies: Are They Addressing the Problem?

Investment in Infrastructure and Industry

The Indonesian government has recognized the need to shift away from commodity dependence and has invested in infrastructure projects to attract foreign investment in manufacturing and technology. Industrial parks and Special Economic Zones (SEZs) have been established to encourage value-added production.

However, bureaucracy, corruption, and inconsistent policies have made it difficult to attract sustained investment in high-tech industries. While some progress has been made, Indonesia still lags behind regional competitors in industrial development.

Job Creation Initiatives and Education Reform

To address the jobs crisis, the government has launched skill development programs aimed at preparing workers for higher-value industries. Education reform efforts seek to improve vocational training and technical skills.

Despite these initiatives, the transition has been slow. Many Indonesians lack the specialized skills needed for modern manufacturing, and companies still face difficulties in hiring a workforce that meets international standards.

Protectionist Policies and Their Downsides

In an effort to encourage domestic industrialization, Indonesia has implemented protectionist policies, such as banning raw nickel exports to force companies to refine materials locally. While this has led to some investment in smelters, it has also deterred some foreign investors who prefer more open markets.

Striking a balance between promoting local industry and maintaining investor confidence remains a challenge for the government.

Conclusion: Can Indonesia Break Free from the Commodities Trap?

Indonesia’s reliance on commodities has generated substantial wealth, but it has not translated into widespread prosperity. The country faces a structural challenge: its economy grows, but without the corresponding creation of stable, well-paying jobs that would sustain a thriving middle class.

To break free from the commodities trap, Indonesia must invest more aggressively in industrialization, workforce development, and policy reforms that attract long-term investment. Without these changes, the nation risks remaining stuck in a cycle of resource dependency, where economic growth benefits only a small elite while leaving the majority of its citizens behind.

The question now is whether Indonesia can make the necessary shifts to create an economy that works for its people—or if it will continue to ride the boom-and-bust cycle of commodity dependence.

Author: Gerardine Lucero