A short response to the recent viral South Korea-Indonesia GDP talk
Some of you might have seen the viral video as below.
It has only been uploaded about a week ago yet it has intrigued quite a lot of Indonesian Youngsters on the country. Since this is meant to be a short answer, I am not commenting the moral nor attitude part of both people involved in this video, nor do I actually have any interest of supporting any of them. We’re here to talk mostly on the specific content mentioned inside the Video, which is GDP, as you have seen in the title above.
Most of you probably would be already familiar with GDP and how it is usually used to be used as a numerical judge towards a nation’s prosperity, in which that I probably do not 100% agree on that, since we also have Gini coefficient, GDP per capita, Human Development Index, this and that, quite a lot of other indicators which could easily tell if not all of your nation’s prosperity is well-distributed to 100% of the people. But on the other hand, having a considerably lower GDP does not always mean you are completely damned though. Looking at China in the early 60s, 70s, their GDP is considerably low, even to neighboring smaller countries such as Japan. China had a GDP of less than USD 100 B while Japan has more than double of that in 1970 (Source: World Bank). Fast forward to now, China has a GDP of almost 3x of Japan. Why is that? The secret lies inside of the compounding effect of GDP growth, in which China has succeeded to consistently exceeded a growth of more than 10% in most years in the last few decades. The country has successfully grown from a developing country to a prosperous country in less than a generation’s lifetime. Aside of that, we also have Singapore, South Korea, etc that has successfully reached a similar goal in a short amount of period. The key summary is that: Initial GDP is not a good reasonable judge that a country will not succeed, consistent compounding GDP growth is the key.
On the Video, the South Korean boy is constantly mocking the Indonesian girl that South Koreans are better in terms of GDP and economy, is it true?
To speak based on facts alone and not based on the stigma of racism or any of that, Yes, the South Korea GDP at USD 1.647 Trillion is higher than the Indonesian GDP of USD 1.119 Trillion, as of 2019 (Source: World Bank). As of today, World Bank did not have access to the final GDP data of both countries in 2020, even though we both know on the news which country actually has fallen more in Q1 & Q2 of 2020 in terms of % GDP contraction due to Covid19. Assuming that Covid19 did not happen in 2020 will be a slight overestimation for both Indonesia & South Korean GDP growth %.
In terms of GDP growth per year, South Korea did have decent growth in the last few decades, especially at the 70s, 80s, and 90s, capping at 11.5% in 1999 and the average curvature declines gradually to 2–3% in the last 5 years. South Korea as of today has reached its modern utopia where it has provided its people decent standards of living as long as national prosperity, hence a 2–3% annual growth is considered good enough. A simple google search on ‘South Korea GDP Growth’ will do the job. You could try it as well on google search.
Looking at the curve, the growth seemed to have a declining curvature, hence it could go even lower if the country did nothing spectacular. However, I do believe that the Government ideally would not just do nothing and would still do their best trying to obtain at least 3% growth each year. The below figure shows a predicted growth of South Korea GDP over the years and it turns out that it averages somewhere at 2.45%~3.11% within the next 5 years. It will be safe to say that 2.85% is a slight overestimated growth % of GDP forecast, since as mentioned, its line is in a declining curvature trend.
Indonesia on the other hand is a developing country which has lots of homework to do in order to reach a certain level of developed country, but because of that we still have room for growth for GDP. Within the last 20 years, Indonesia’s GDP growth has been somewhat ‘stagnant’ at 5%, which could both be a good & a bad thing. The bad thing is, well, we’re stagnant on growth. The good thing is that we could maintain a decent steady growth.
Unlike South Korea, the curvature of Indonesia’s GDP growth line is very flat. Which means that if the Government did nothing spectacular, at least the GDP would not fall down easily, while if the Government actually did something amazing, it will only go up. The below figure shows Indonesia’s forecasted GDP growth for the next 5 years, ranging at 5.07%~6.11%.
Okay, so where does this lead to? Assuming that both countries started with 2019 GDP (even though South Korea got a harder hit at -1.8% vs Indonesia at only -1.5%), with a linear constant GDP growth (even though the curvature for South Korea is actually declining), we can run the numbers to forecast the future GDP of both South Korea & Indonesia within the next few decades. GDP growth of South Korea is a bit overestimated at 2.85% (following the above-mentioned data). GDP growth of Indonesia will be underestimated at 5.1% even though we do have room for more. The resulting numbers will look as follows. This linear GDP growth method forecasting is of course a very ‘stupid’ method of forecasting since actually that’s not how statistics works, a lot of things need to be factored in and the growth will less likely look so constant. I am not a finance guy, nor do I study economics or stuffs, hence this graph might not necessarily represent the ‘real’ forecasted GDP since you might have to use higher level statistic methods for that. However, as a concerned citizen, I am merely using a stupid method to illustrate the importance of compounding growth rate.
As mentioned above, this is not a professional study which is probably quite far from being accurate, however this merely illustrates that just having a ‘stagnant’ growth at about 5%, we will eventually have the same GDP of South Korea by 2038, which is only 17 years from now. Which means that if you have kids born today, by the time they finish high-school, we have the potential to attain a similar condition with South Korea at that year as well. By the time your kid goes to college their South Korean friends do not have the right to mock your kids as coming from a country with less GDP, but we’re already at equal state. It could be seen also that by 2028, 7 years from now, we will reach a GDP of USD 1.6 Trillion, which is the same as today’s South Korean GDP, which is really not that far after all. By 2055, Indonesia’s GDP is higher 45% compared to South Korea. Our grandkids will eventually have the ‘right’ to mock those other kids, even though I agree that it’s not a good thing to do.
Of course, GDP growth will not always be flat for Indonesia, but the same also goes for South Korea. Looking at the example of China, a developing country has around 20 years of maturing itself before its GDP actually goes to a declining trend. In that case, it is actually a big underestimation for assuming our GDP will be constant at 5% for the next few decades. There are also quite some other potentials that we need to consider:
(1) 66% of Indonesia’s population is still unbanked (World Bank 2017 Data), while South Korea is at 5% (Source: Theglobaleconomy.com),
(2) Middle class population in Indonesia is constantly rising, currently still at 80 Million out of 270 million people or about less than a third of the population (2020 prediction, kemenkeu.go.id), while the South Korean middle class is at 63.8% dropping to 58.3% (2017 data, koreaherald.com), by the time Indonesia gets to 60% or double of today’s middle class population, so grows the number of taxpayers in the country, resulting in higher government income and expenditure,
(3) Indonesia’s Tax-to-GDP ratio is slightly above 1/3 or South Korea’s at 11.5% vs 28.4% (OECD Data),
(4) Only 16% of Indonesia’s young adults population had Tertiary education in comparison with 46% in South Korea (OECD Report),
(5) Unemployment rate in Indonesia is at almost 5% compared to South Korea at 3.8% in 2019 (Statista.com),
(6) Gini Coefficient in Indonesia is at 0.38 while South Korea is at 0.34 (Statista.com),
(7) Indonesia’s population growth is 5x of South Korea at 1.1% vs 0.2%,
(8) Home ownership % is higher at 58% in Seoul (Tradingeconomics.com) and only 48% in Jakarta (World Bank), and even though the number is not so low, Indonesia is faced with 20% of houses that are in poor condition and about 40% of housings lack access to sanitation (World Bank), and and so on.
This list could go on and on, showing that Indonesia is only merely at its early stage before even going rising towards a similar macro-economic conditions as in South Korea.
The current President, Mr. Joko Widodo, or also known as ‘Jokowi’, did mentioned in his 2014 campaign that the target aim GDP growth for Indonesia is at 7%, which is going to be far exceeding 5% if done consistently in the long run. Oxford Economics predicted that GDP growth in 2021 shall be at 6%. Looking at above facts, if one day, our nation suddenly thrived and took the leap, consistently at just 0.5% above the previous 5.1% prediction which is going to be equal to 5.6%, we will reach equal GDP with South Korea at 2035, which is 14 years from now. And if somehow our government successfully reached 6% consistent GDP growth, we will reach that target by 2033, which is only 12 years from now. Going by that rate, by 2055, our GDP shall be almost 2x of South Korea and grandkids will have even more bragging rights at that time. However, please note that achieving 6% consistently might not be an easy task though, unless something bright suddenly happens, yet it is not impossible, especially in the future where our economic indicators are getting closer towards the developed countries of today. Doing the numbers of 7% according to Jokowi’s promise, we will get to have the same GDP with South Korea at 2030, only 9 years from now, with a GDP 3x of South Korea at 2055, however this might be the less likely scenario in the short run. I would not want to ‘overpromise’ people with it, not saying also that it’s really impossible though.
Even KB Kookmin Bank from South Korea is trying its attempt to enter the Indonesian Banking Market by buying a second/third-tier Bank with a P/E ratio of less than 15 (as of Mid-2020), PBV of less than 0.5 (as of Mid-2020), declining Revenue trend in the last 5 years, thin single-digit net profit margin (less than 5%, last 3 years), had a debt that is almost half of its equity in 2019 (was even worse at 98% in 2017 and 77% in 2018), had a negative revenue in 2020 (measured up to 3Q20), which is actually a good bargain though from an investing point of view, but still, look at the things that this Big 4 Bank in South Korea have to get through just to get a slice of cake of the Indonesian Banking Market.
So, as the Young Generations of Indonesia, what should we do when some other boy from another nation ‘mocks’ our GDP?
The right answer should not just be “Okay just wait for us in 8, 10, 15 years,” but we should really take action, voting the right candidates for our future leaders who could commit towards increasing GDP growth, reduce our Gini coefficient, develop our nation as a whole with Infrastructure, Tertiary or even Post-Grad Education, Research, etc, and the most important thing, doing all of those abovementioned items with high cost efficiency, meaning that more outcomes are expected with same or even less amount of funding, and Singapore is a good example of a government with good efficiency.
Good housing, Public Transport, and Public Utilities should be well-distributed towards majority of the population. Car-ownership in Indonesia is only at 8% and building more toll roads might not better solve the traffic problems in comparison towards building rail-based & rapid transit, or at least bus systems all over the metropolitan areas. At least where I live, even though I am located in the Jabodetabek/Greater Jakarta metropolitan area region, I am about 16 km apart from the nearest TransJakarta station (Indonesian Public Bus System), in which I have emailed to them about 2 or 3 times already (to: naiktjie@transjakarta.co.id) to open one route to me yet they have declined it on email as well, such a shame. Well, I am not aiming to complain in this post but at least you kind of get a feel of how our government is doing right now. Basically it is just whether or not the government wants to solve the problem in a collective approach (which is going to cost less due to ‘bulk purchase’ approach) or they would throw this problem to the people (costs more, people will suffer), and they have chosen the latter.
The government sector should reform entirely from the traditional approach towards a corporate-styled merit-based performance-review and hiring, or even hijacking approaches. This should go both ways also that the bottom performing 20% should be evaluated each year.
One of the most important things are that, in order to transform the generation, Education and Healthcare has to be almost ‘free.’ We are doing well with BPJS and all that, but it has not been so efficient, since a lot of the processes are still heavily relying on Physical Doctor visits, and Paper-Based Documents that are far from efficient and not utilizing 100% capability of the Mobile JKN app. The hospitals should be ‘blessed’ with 0 man-hours requirement for cashier, registration, documentation, medical records, verification, etc due to the availability of your App, which could hold any data integrated within all government and private sector available, hence providing incentives for hospitals who are joining the program. Education also needs to be almost ‘free’ and ‘competitive’ as the students with highest accomplishments get more incentives such as free tuition than others, if not, the ‘free’ education would not be well-appreciated by the population, as they would just skip class and nothing goes wrong, they still get free tuition. Okay we are not here to talk about education and healthcare but they are still one of the big things that the government needs to tackle.
In short, bombing the comment section of some Instagram accounts of the boy could probably ‘relieve’ your pain for the short term but you need to do a bit more than that in order to obtain the ‘mocking rights’ to ‘mock-back’ the foreign boy. So what we should do for now is to vote correctly in 2024. Treat candidates (city-level, regency-level, state-level) as management/employee candidates, and what you need to take a look is the CV, qualification, attitude, program, etc. Make sure he’s promising to add bus, train station, free education, free healthcare with 100% digitalization, or whatever that benefits you and your family, as well as the citizens of your town/city/village. How if we do not yet have the right candidate? Well that is why good tertiary and post-grad education is even more needed, so one day we will have the right candidate with good education and experience, as how our HR conducts selections to find good CEOs/Managers. An Engineering background in terms of education and experience would be a good selection point, since believe it or not, quite a lot of CEOs out there are Engineers, whether it is a tech or non-tech company, even Fortune 500 companies, it does help with providing the basic engineering logic and data behind every strategic decision needed. Of course, it will be even better to find an Engineer who can speak in Revenue, EBITDA, RoI, RoE, and so on, so that we could have somebody capable of doing great things efficiently to not waste the people’s hard-earned taxes. Again, this is why good Tertiary & Post-Grad education & career is needed, to produce the next-generation leaders in case of any absence of good supply of candidates. Got something to complain? Just be an Engineer and solve things.
Noticed how often did I mention “South Korea” specifically instead of just plain “Korea” even though everybody gets which Korea do I specifically mean, this is to actually also indicate that probably at some point in the future, North Korea could also be a thing, if they suddenly managed to make 10% or more in terms of GDP growth.
