These two groups are the Javanese (41 percent of the total population) and Sundanese (15 percent of the total population). Both groups originate from the island of Java, Indonesia's most populous island, which contains almost sixty percent of the country's total population. When the island of Sumatra is included, this figure rises to approximately eighty percent of Indonesia's total population, indicating a significant population concentration in the western part of the country. The most populous province is West Java (with more than 43 million people), while the least populous province is that of West Papua in the far eastern region of Indonesia (having around 761,000 people).

Map of Indonesia

Map of Indonesian Provinces Indonesia Investments

Five Most Populous Provinces (in millions)

     Province     Population
1.  West Java          43.1
2.  East Java          37.5
3.  Central Java          32.4
4.  North Sumatra          13.0
5.  Banten (Java)          10.6

Source: Statistics Indonesia Population Census 2010

This section discusses a number of important aspects regarding Indonesia's demographic composition. Topics that are discussed include Indonesia's population growth, age structure and urbanization. Each of these topics is linked to Indonesia's (potential) economic performance.

Indonesia's Population Growth

Indonesian Population GrowthThe annual national population growth rate of Indonesia between 2000 and 2010 was an average of 1.49 percent. This growth was highest in the province of Papua (5.46 percent), while the lowest figure came from Central Java (0.37 percent). Family planning is coordinated by the National Family Planning Coordinating Board (NFPCB), a government institution. Under president Suharto an effective family planning program was initiated in 1968 and - up to the present - continued by his successors. This program is a key strategy in the country's economic development as a low population growth rate translates into a higher per capita Gross Domestic Product, which translates into higher incomes, higher savings, higher investments and implies a decline in the poverty rate among the population. The national population growth rate in 2012 is estimated at 1.04 percent. 

According to projections by the United Nations (UN) with regard to the future absolute population, Indonesia is expected to have a population that exceeds 250 million inhabitants by the year 2015, exceeds 270 million by 2025, exceeds 285 million by 2035 and exceeds 290 million by 2045. After 2050 Indonesia's population is estimated to decline. The UN also projects that by 2050 two thirds of Indonesia’s population will live in urban areas. Over the last forty years the country has experienced a process of rapid urbanization, resulting in the current situation in which over half of Indonesia's total population resides in urban areas (see table below). For the economy this constitutes a positive development as urbanization and industrialization are necessary to grow into the ranks of a middle income country.

     1995    2000    2005    2010    2050
 Rural Population
 (percentage of total population)
     64      58      52      46      33¹
 Urban Population
 (percentage of total population)
     36      42      48      54      67¹

Source: World Bank
¹ Forecast by the United Nations (UN)

Age Structure of Indonesia

One important strength of Indonesia's demographic composition in relation to its economy is that the country has a young population. This young population implies a - potentially - large workforce (thus making it of vital importance that this workforce is absorbed by employment opportunities). Indonesia's total median age is 28.2 years (2011 estimate). This indicates that one half of the population is older than 28.2 years, while the other half is younger than this number. When divided in sexes the female median age is one year older (28.7 years) as compared to the male one (27.7 years).   

Below we present a table that indicates the percentage shares of the Indonesian people categorized in three age groups and the corresponding division in sexes (in absolute numbers):

 
Percentage share of total population Male    (absolute) Female  (absolute)
0-14 years          27.3  34,165,213  32,978,841 
15-64 years          66.5  82,104,636   81,263,055 
65 years and over            6.1   6,654,695   8,446,603

Source: CIA World Factbook

In 2010 around 19 percent of the Indonesian population was below ten years of age, around 37 percent was below twenty years of age, and around half of the population was below thirty years of age. Such numbers indicate that - from a demographic perspective - there is great potential for both productivity and creativity in Indonesia.

Demographics and Economic Waves

General Outline

A temper in population growth caused by decreases in fertility (which can be brought on by matters such as more access to birth control, rising incomes, urbanization and higher levels of education for women) helps to stimulate a significant shift in the age distribution of the population towards those of the working age (but at a later stage decreases in mortality and fertility will cause an aging population). This shift is able to accelerate economic growth as the working age population increases while the (relative) number of dependent children declines. This process can be thought of as constituting a series of waves. The first wave begins when this working age population is employed which results in increased production. Employment also implies higher incomes and consequently causes households to consume more products. Households might also save more due to the reduced number of child dependents which subsequently leads to increased investments, as well as rising capital stock and further increases in economic production. The second demographic wave occurs when large portions of the population approach the end of their working lives and begin to save and invest for their retirement. Thus, the resulting increased capital accumulation may help to drive economic growth further. After this stage concern for the economy can arise because of a stagnating population growth and an aging population.

The Indonesian Case

Currently Indonesia is positioned somewhere in the middle stage of that first wave. Both child mortality and fertility are declining quickly and the working age population is growing at a relatively fast rate while the total population is growing at a relatively slow rate. This has resulted in a large population group (around half of the total population, thus 120 million Indonesians) that is below the age of thirty years old, which -potentially- is productive and therefore can function as the engine of the national economy. Robust domestic consumption has already had its impact on Indonesia's continuously strong GDP performance as it forms one of the key drivers of this growth. The country's reliance on domestic consumption was actually one of the reasons why Indonesia weathered the global financial crisis of 2008-2009 relatively smooth with an average GDP growth of 5.6 percent in the years 2008-2010. Moreover, solid economic growth has resulted in an influx of Indonesians into the country's middle class. Annually, around seven million Indonesians join the ranks of this middle class according to a World Bank report.

A critical note, however, is that there are currently millions of (educated) unemployed Indonesians that cannot be absorbed by the Indonesian labour market. One characteristic of Indonesia is that the unemployment rate is highest for people between the age of 15 and 24, far above the country's national average. For a detailed account regarding unemployment in Indonesia, please visit our Unemployment page.