Time to ACT! Realizing Indonesia’s urban potential

Indonesia has been transformed by urbanization. As a new World Bank report titled Time to ACT: Realizing Indonesia’s Urban Potential shows, when its independence was proclaimed in 1945, only one in eight Indonesians lived in towns and cities, and the country’s entire urban population stood at about 8.6 million, roughly that of London today. By contrast, today about 151 million, or 56% of Indonesians live in urban areas, roughly 18 times the population of London.

As Indonesia has urbanized, it has also climbed the ladder of development and prosperity. Since 1950, average gross domestic product (GDP) per capita has increased almost nine-fold in real terms, and the average Indonesian today enjoys a standard of living far surpassing that of previous generations. In part, this progress is due to the productivity benefits that arise from urban agglomeration and the associated transformation from an agrarian society to one based more on industry and services.

However, as the report shows, that climb has been slower and more arduous than the rapid pace of urbanization. Hence, Indonesia remains a lower middle-income country. And although almost everyone has benefitted in absolute terms, the relative gains from urbanization have been uneven within cities and across the country. The unprecedented growth of urban areas has given rise to negative congestion forces, associated with the pressure of urban populations on infrastructure, basic services, land, housing, and the environment, which are undermining the livability of cities and dampening the prosperity gains from urbanization.

Put differently, urbanization has not fulfilled its potential to drive sustainable improvements in prosperity, inclusiveness, and livability in Indonesia. This, in turn, can be traced to a failure to adequately ACT:

• Augment the coverage and quality of basic services and urban infrastructure to better manage congestion forces and address large disparities in human capital outcomes both across and within places.
• Connect urban areas of different sizes with each other, with surrounding rural areas, and with international markets—and to connect people with jobs and basic services within urban areas—to enhance inclusiveness both within and among areas.
• Target places and people that may be left behind by the urbanization process to ensure that they share in the prosperity benefits of urbanization and that urban areas are livable for everyone.

To ensure that Indonesia gets the most out of urbanization, the report argues that policy makers need to undertake bold institutional reforms and implement decisive policies to ACT. This involves reforming how urban areas are managed and financed with a focus on:

1. expanding options for financing infrastructure and basic services;
2. improving coordination between different levels and sectors of government and between districts that belong to a common metropolitan area; and
3. building stronger capacities to plan, implement, and finance urban development.

Across the board, it will be necessary to tailor many of the policy actions required to ACT according to the type of place—for example, according to whether an urban area is a large metropolis, such as Jakarta or Surabaya, or a smaller, less connected urban area such as Bima.

Even though such measures provide the foundations to ACT, they are unlikely to be sufficient to connect people with jobs and services in urban areas. Additional policies and investments will be needed to facilitate the supply of well-located affordable housing, better urban public transport, and the better management of traffic within a framework of more effective urban and spatial planning. Adequately connecting urban areas with each other, with surrounding rural areas, and with international markets will also require addressing key regulatory issues in transportation markets.

Finally, making sure that no island and no place are left behind will require Indonesia to rethink its approach to place-based policies aimed at assisting lagging regions, putting a stronger emphasis on human capital in the design of those policies. A paradigm shift in urban planning and design is also necessary to ensure that all groups of society—especially women and girls, the elderly, and persons with disabilities—fully benefit from all that urban areas have to offer.

Indonesia needs to ACT now. By 2045, the centenary of its independence, approximately 220 million people—or more than 70% of the population—will live in towns and cities. Because the urban environment is difficult and costly to change once built, delays in action will risk locking Indonesia further into a suboptimal trajectory of urban development. In the meantime, policy makers can do plenty to ensure that urbanization delivers a prosperous and inclusive Indonesia of livable cities.

Read the full report and its policy recommendations here.