This is a cause to celebrate, but that does not mean that the road ahead will be easier for Indonesia. To join the high-income club, Indonesia has to break through $12,055 GDP per capita. That means an average of 5 percent economic growth has to be maintained until 2045. Otherwise, it will join many developing countries in the middle-income trap, where it can no longer compete internationally both in labor-intensive low-value added activities (because wages are too high) as well as in knowledge-intensive high-value added activities (because productivity is too low).

In its China 2030 report, the World Bank highlights that out of the 101 economies classified as middle income in 1960, only 13 (including Singapore and South Korea) joined the high-income club by 2008, while the rest were stuck in the middle-income trap (including Argentina, Brazil and South Africa).

If one wonders what the chances are for Indonesia in facing the middle-income trap, one could calculate Indonesia’s odds by analyzing at least three variables: economic complexity, labor force productivity and innovative capabilities.

For economic complexity, we can use the Economic Complexity Index (ECI) of Harvard’s Center for International Development. The index is a measure of the knowledge and innovation in a society that is translated into the products it makes and exports. Among 127 countries, Indonesia’s rank has improved from 87 in 1995 to 59 in 2016. However, Vietnam performed better, from 114 in 1995 to 56 in 2016. Among other ASEAN economies, Indonesia also lags behind with Thailand, Malaysia and Singapore at 27, 22 and 5 respectively. This shows that Indonesia’s products and exports are more factor driven in contrast to its neighbors with more innovation driven products.

Next, in line with International Labor Organization’s method for computing productivity, we can borrow World Bank data of GDP per person employed as an indicator for labor productivity. For 2018, Indonesia sits behind Singapore, Malaysia and Thailand, but higher than Vietnam. This shows that Vietnam is relatively more competitive in the world economy with its labor force cheaper than Indonesia’s while its ECI ranking is higher than Indonesia.

Regarding innovative capabilities, although there are many important variables such as education and infrastructure, an important variable that Indonesia lags behind most countries is its research and development (R&D) expenditure. The latest data from the World Bank shows that the world’s average for R&D expenditure as a percentage of GDP is 2.3 percent. Indonesia, a member of the G20, only spends 0.08 percent of GDP on R&D. This number is not only way off compared to the world’s average, but is also dwarfed by other neighboring countries such as Vietnam (0.44 percent), Thailand (0.62 percent), Malaysia (1.30 percent) and Singapore (2.18 percent).

This is why Indonesia should be aware of complacency and start gearing up for strategies to escape the middle-income trap. One thing that might be useful to serve as a constant reminder is the hard fact that Indonesia’s economy is large (a member of the trillion dollar economy club), but it does not change the fact that it’s not rich with per capita income hovering around $4,000.

The unveiling of the “Making Indonesia 4.0” roadmap by President Joko “Jokowi” Widodo and the Industry Ministry in 2018 is a strategic move that deserves to be applauded. The roadmap aims to propel Indonesia as a high-income country by achieving 10 percent GDP contribution from net export value (which will be challenging if its economic complexity does not improve), increasing labor productivity and to achieve R&D expenditure to 2 percent of GDP (25 times higher than today).

The roadmap gets all the questions right and is ambitious in its goals. However, the roadmap needs to be more ambitious by involving all government agencies and stakeholders in Indonesia. Just to mention a few challenges: It would be challenging to push industries and economic actors to spend on R&D if there is no fiscal or tax incentives, if investment policies only care about the flow of foreign capital while being lenient on technology transfer but neglect domestic firm competitiveness.

It would be challenging to excel in cutting edge sectors such as biotechnology, artificial intelligence, big data, agricultural innovation and the internet-of-things if policies on education, innovation and technology are not coordinated well enough between different agencies and actors. It would be challenging to promote the importance of intellectual property for economic growth, if Indonesia’s IP office is still at the level of directorate general under the Law and Human Rights Ministry.

Reaping the opportunity of the coming 4th industrial revolution cannot be driven by industrial policies alone. Sustained growth toward high-income must be characterized by deep internalization of innovation-based activities on a broad scale. This in turn needs to be supported by domestic productive capabilities and maintained by proactive government policies in advancing structural transformation involving policy strategies ranging from education, intellectual property, the creative economy, investment policy to fiscal policy.

In short, the middle-income trap is the inability to take a long strategic view of the best way forward for the nation as a whole. It is time for Indonesia to change course. The first step would be to apply the “Making Indonesia 4.0” roadmap nationwide. To avoid the middle-income trap, Indonesia should not miss the opportunity brought by the 4th industrial revolution to become a global powerhouse for ideas, knowledge, innovation and progress.

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The writer is an economic and intellectual property policy expert at the Indonesian permanent mission to the UN, WTO and other international organizations in Geneva, Switzerland.

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