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ven though Indonesia will overtake Germany and the UK to become the world’s seventh-largest economy by 2030, McKinsey & Company says that the nation faces notable challenges that might stop it from punching at its weight.

In a report titled “The Archipelago Economy: Unleashing Indonesia’s Potential”, the global consulting firm said that Southeast Asia’s largest economy was “at a critical juncture” and had to boost labor productivity so domestic industries could meet increasing demand from a growing consumer class.

The report said that Indonesia must boost its labor productivity by 60 percent over the level recorded between 2000 and 2010 if government wants to meet its target of 7 percent annual economic growth.

Despite Indonesia’s progress, the nation’s productivity across several sectors has still been only half that of Malaysia’s.

In the report, the consultants suggested that policymakers invest in building skills, saying that the nation’s demand for skilled workers would increase from 55 million in 2012 to 113 million by 2030.

Rising inequality was also mentioned in the report, which said that Indonesia should ensure that its economic growth was inclusive as possible.

The report also called attention to infrastructure and resource constraints that might hinder its continued consumer-driven expansion.

“The major expansion of Indonesia’s consuming class is expected to put pressure on energy, food, and water resources as well as available capital at a time when capital may well be scarce,” the report said.

At least 90 million people will comprise the nation’s consumer class — defined as those with annual net income of more than US$3,600 — by 2030, providing new business opportunities valued at $1.8 trillion, McKinsey Indonesia president director Arief Budiman said.

“New consumers will add more consumption in the economy, so it is important for Indonesia to handle its natural resources well so that it can cope with increasing demand in the future,” Arief said on Tuesday.

To feed a growing population, Indonesia must take urgent action to transform its consumer services and boost productivity in agriculture and fisheries.

“Indonesia is not only able to meet self-sufficiency in the agriculture and fisheries sector, but also has the potential to develop itself as a hub in Southeast Asia,” Arief said.

Indonesia’s consumption-driven economy has proven resilient to the global economic slowdown, surpassing expectations by expanding 6.4 percent in the second quarter, the second highest rate among G-20 members, after China.

Indonesia had the most stable economy in the world, and had experienced the least volatile economic growth over the last 10 years, according to McKinsey.

“The Indonesian economy is larger, more stable, and more advanced than many companies and investors around the world realize,” the report stated.

McKinsey attributed Indonesia’s success to a distinctive economic model that focused on consumption rather than exports, the opposite of its regional peers Singapore, Malaysia and Thailand.

McKinsey Indonesia chairman Raoul Oberman said that Indonesia did not have to follow strategies taken by other Asian export powerhouses, suggesting that policymakers focus on domestic consumption — a crucial, but “underappreciated” sector.

“We are an economy where 60 percent of the GDP comes from consumers, so we should focus on leveraging that,” Oberman said.

On the report, Deputy Finance Minister Mahendra Siregar agreed that domestic consumption would play an important role in Indonesia’s future economic growth. To meet the consumption needs of the middle class, the government would develop value-added industries, he said.

“In the past, there was no market in Indonesia to sell our value-added goods, so industries preferred to export them. But, thanks to the country’s growing middle class, now we have a huge domestic market that should be seen as an opportunity to expand our value-added industry,” he said. (sat)