WHY South Africa should take a leaf out of Indonesia’s book

South Africa isn’t the only emerging economy saddled with a thinly stretched fiscus. We’re talking mass youth unemployment (47%), deep poverty and a burdensome social wage (28-million on SASSA grants). Indonesia, like South Africa, faced a strikingly similar economic profile a quarter of a century ago. The only difference is what happened next …

In 2000, Indonesia was just another emerging economy recovering from the 1997 Asian financial crisis. By 2024, World Bank data shows unemployment had fallen to just 5%, and poverty had been cut to around 9%. The South East Asian juggernaut formally crossed into upper-middle-income status in 2023 as a result.

WHAT CAN SOUTH AFRICA LEARN FOR INDONESIA?

Two deliberate strategies stand out in Indonesia’s quarter-century turnaround:

• First, it embarked on manufacturing-led growth, rather than commodity dependence. Therefore, it deliberately built out its textile, automotive and electronics manufacturing. This created the kind of large-scale, labour-absorbing youth workforce that commodity exports alone never could.
• Second, and most directly relevant to South Africa: Indonesia used a clever tax policy to pull the private sector into solving youth unemployment. In 2006, a new policy pushed vocational education toward 60% of secondary institutions. This converted general schools into technical and vocational training centres aimed squarely at industry-specific skills. And to fund it, the Ministry of Finance introduced a ‘Super-Deduction Tax’ that rewarded companies which invested in the scheme.

CONTINUED WELFARE SPENDING

Like South Africa, Indonesia still has a large social welfare spending programme. Current President Prabowo Subianto’s Free Nutritious Meals programme feeds 83-million school children and pregnant mothers. Much like our SASSA R580 Child Support Grant, it is explicitly designed to tackle childhood nutrition. At the same time, it stimulates local agricultural production in Indonesia, too.

What South Africa should learn is that Indonesia’s formula wasn’t a single grant or grand gesture. It combined industrial policy to create jobs at scale and tax incentives to make private employers partners in solving youth unemployment. All without ignoring the need for targeted social assistance where necessary. As we debate whether a Basic Income Grant can fix the economy, Indonesia’s example suggests there are more durable paths to sustained economic reform. And they need the requisite time and leadership to pull together …

But what do you think? Do you think South African can learn from Indonesia? Please share your thoughts in the comments section below …