Indonesia`s Urban Story

The role of cities
in sustainable economic development
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Printed in June 2016
Indonesia’s Urban Story is a product of
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ACKNOWLEDGEMENTS
This publication was prepared
by a World Bank team consisting of
Taimur Samad (Program Leader), Thalyta
E. Yuwono (Senior Urban Economist),
Marcus J. Lee (Senior Urban Economist),
Tuo Shi (Urban Economist), Adri Asmoro
Laksono Poesoro (Urban Economist), Matt
Steele (Consultant) and Fandi Nasution
(Consultant). Design and visualization
for much of the data were performed by
Andrés Barragán and Mateo L. Zúñiga of
Puntoaparte, with additional design work
by Budy Wirasmo.
This publication benefited from
valuable inputs from a broader World
Bank team, including Dini Sari Djalal
(Senior Communications Officer), Suryo
Utomo Tomi (Communications Officer),
Iwan Gunawan (Senior Disaster Risk
Management Specialist), Bambang
Suharnoko (Economist), Indira Maulana
Hapsari (Research Analyst), Suryani
Amin (Consultant), Chandan Deuskar
(Consultant), and Astrid Rengganis Savitri
(Consultant). The team is grateful for
the support received from World Bank
management, particularly Rodrigo A.
Chaves (Country Director for Indonesia) and
Abhas Kumar Jha (Practice Manager).
The team would like to express
its gratitude to the Ministry of Public
Works and Housing of Indonesia, for the
insights and support that enabled this
publication, including Dr. Andreas Suhono
(Director General for Human Settlements),
Mr. Dwityo A. Soeranto (Director for
Integration of Settlement Infrastructure),
and Mr. Edward Abdurrahman (Head of
Subdirectorate of Integration on Planning
and Partnership).
This publication builds on key
findings from the Indonesia Urbanization
Review “Indonesia - The Rise of
Metropolitan Regions: Towards Inclusive
and Sustainable Regional Development”
published by the World Bank in 2012. It
also draws on a series of publications
by the World Bank and other sources as
specified in the references.
Preparation of this publication was
funded by the Department of Foreign
Affairs and Trade (DFAT) of Australia
through the Indonesia Infrastructure
Support Trust Fund (INIS-TF), and by the
Cities Alliance.
The role of cities
in sustainable economic development
INDONESIA'S URBAN STORY
INTRODUCTION
Indonesia is undergoing a major and
rapid structural transformation, from a
predominantly rural and agriculture-based
economy, to an urban and services-based
economy. This is a significant structural
shift. Cities increase formal employment
and productivity—these gains can
strengthen Indonesia’s ability to generate
and share prosperity. But challenges lie in
the way of future growth and prosperity:
a large urban infrastructure deficit, slow
gains in labor productivity, and rising
inequality.
Cities in Indonesia are growing
faster than in other Asian countries.
Between 2000 and 2010, Indonesia’s
urban population increased at an average
annual rate of 4.1 percent, compared to
3.8 percent in China, 3.1 percent in India
and 2.8 percent in Thailand (World Bank
2012). In 2012, cities accounted for over
52 percent of Indonesia’s total population.
By 2025, an estimated 68 percent of
Indonesians will live in urban areas
(World Bank 2014).
This is a positive development.
In Indonesia, as in other countries,
urbanization has occurred in tandem with
economic growth, rising incomes and
poverty reduction. In 2010, over 44 percent
of Indonesia’s non-petroleum GDP was
produced in cities (Lewis 2014). Of the
21 million jobs that were created from
2001 to 2011, 18 million were in urban
areas and 17 million were generated in the
services sector, marking a major shift of
the employment base toward cities. This
job creation has helped Indonesia to halve
its poverty rate from 24 percent of the
population in 1999 to 12 percent in 2012
(World Bank 2014).
3
The returns from rapid urbanization,
however, have fallen short of potential
compared to the experience of other
countries. For every 1 percent of urbanization, Indonesia achieved only 2 percent
GDP growth. In contrast, the gain for
China was 6 percent GDP growth, and
Vietnam and Thailand gained 8 percent
and 10 percent respectively (World Bank
2012). Increases in labor productivity
have been modest, and income inequality
has worsened. On average, poverty rates
are lower in cities, but still significant in
absolute terms. If current trends continue,
by the year 2030 the urban poor are
expected to outnumber the rural poor
(World Bank 2003).
Why is Indonesia not benefiting fully
from urbanization? Many Indonesian cities
suffer from ‘diseconomies of scale’, such
as severe traffic congestion, pollution and
disaster risks, which lead to high costs. In
Jakarta, congestion is estimated to cost
approximately US$6.5 billion annually
(JICA and Bappenas 2004). Recurrent
flooding takes its toll; in 2014, floods in
Jakarta affected 17 percent of the city
and displaced 64,000 people (Ika 2014).
Air pollution also creates substantial
health costs. Estimates indicate that, as
of 2011, 58 percent of all illnesses among
people living in Jakarta were related to air
pollution (Haryanto and Franklin 2011).
A deficit in urban infrastructure is
constraining Indonesia’s cities. The quality
of urban infrastructure is poor in Indonesia,
and access to basic services, such as
clean water, sanitation, electricity, and
transportation, has remained generally
limited and not well distributed. In real
terms, the infrastructure stock grew by
only 3 percent annually over 2001 to
2011 (World Bank 2013a). In 2009, only
50 percent of the urban population had
access to safe water. Sewerage coverage
only existed in 11 cities. Only 2 percent of
city residents have access to centralized
sanitation systems (World Bank 2014).
4
JAKARTA IS ONE OF THE WORLD’S LARGEST
METROPOLISES page 6 / INDONESIA AND
ITS MAJOR CITY JAKARTA, WILL BECOME
INCREASINGLY SIGNIFICANT GLOBALLY page 7 /
INDONESIA HAS URBANIZED ON AVERAGE MORE
RAPIDLY SINCE 1960 THAN MOST ASIAN
COUNTRIES page 8 / INDONESIAN POPULATION
IS CONCENTRATED IN MAJOR CITIES page 9
INDONESIA'S URBAN STORY
5
Indonesia has the
01. INDONESIA'S URBAN CONTEXT
JAKARTA IS ONE OF THE WORLD’S LARGEST METROPOLISES
THE PRIMACY OF JAKARTA WITHIN INDONESIA IS SIMILAR TO THAT
OF PRIMATE CITIES IN OTHER ASIAN COUNTRIES, EXCEPT CHINA AND INDIA.
Ulaanbaatar
1,334 (65%)
ASIA'S LARGEST CITIES
IN 2012
KOREA,
DEM. REP.
Beijing
19,520 (3%)
Kabul
16,126 (54%)
KOREA, REP.
CHINA
Pyongyang
2,856 (19%)
Seoul
9,775 (24%)
JAPAN
Tokyo
37,833 (32%)
AFGHANISTAN
Lahore
8,500 (12%)
Yangtze River
Delta
22,991 (3%)
Kathmandu
1,142 (22%)
It was the
It is expected to be the
largest economy
largest economy
of the population lived
in cities producing
will live in cities
and produce
of the GDP in the country
of the country's GDP
16th 7th
NEPAL
PAKISTAN
BHUTAN
Delhi
24,953 (6%)
Karachi
16,126 (23%)
Taipei
2,667 (71%)
MYANMAR
BANGLADESH
PACIFIC
OCEAN
INDIA
LAO PDR
Mumbai
20,741 (1%)
Calcutta
14,766
(4%)
Bay of Bengal
Dhaka
16,982
(32%)
Bangkok
9,098 (28%)
Pearl River Delta
7,260 (1%)
THAILAND
VIETNAM
Metro Manilla
12,764 (29%)
CAMBODIA
PHILIPPINES
Ho Chi Minh City
7,100 (24%)
SRI LANKA
Colombo
0,704 (19%)
50.000
30.000
10.000
METROPOLITAN
POPULATION
thousands of people
+
POPULATION DENSITY
concentration of people
Source: WorldPop. United Nations, Department of
Economic and Social Affairs, Population Division (2014).
6
IN 2030
MONGOLIA
Population of metropolitan areas,
and urban population share
-
4th
largest population
in the world
INDIAN
OCEAN
BRUNEI
Kuala Lumpur
6,629 (30%)
MALAYSIA
SINGAPORE
5,517 (100%)
PAPUA
NEW GUINEA
Jakarta
30,241 (23%)
INDONESIA
Surabaya
2,834 (2%)
TIMOR-LESTE
Port Moresby
0,338 (35%)
Source: McKinsey Global Institute 2012
AT CURRENT RATES OF GROWTH,
JAKARTA'S POPULATION IS SET TO OVERTAKE TOKYO BY 2028
POPULATION IN
THE LARGEST
METROPOLITAN AREAS
Tokyo
38 M
2000-2015, 2015-2030 projection
(in Millions of people)
Jakarta
Shanghai
Mumbai
Delhi
Beijing
Dhaka
23 M
Karachi
Cairo
Mexico City
Lagos
São Paulo
01. INDONESIA'S URBAN CONTEXT
INDONESIA AND ITS MAJOR CITY JAKARTA,
WILL BECOME INCREASINGLY SIGNIFICANT GLOBALLY
Indonesia’s major urban area,
Jakarta, which makes up a 11 percent
share of the country’s population, figures
prominently internationally, servicing a
population on par with other megacities
like Shanghai, Delhi and Tokyo. In fact,
if Jakarta’s current levels of growth
Source
United Nations, Department
of Economic and Social
Affairs, Population Division
(2014). World Urbanization
Prospects: The 2014
Revision, custom data
acquired via website.
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
continue, it is expected to overtake Tokyo
and become the largest metropolis in the
world by 2028.
Other major cities operate as
economic engines for their respective
countries. As such, Jakarta will play a
critical role in helping Indonesia achieve
2022
2023
2024
2025
2026
2027
its stated target of a sustained 7 percent
growth rate. However, Indonesia’s current
national development policies are framed
with the intention of moving development
away from Jakarta.
2028
2029
2030
7
100%
01. INDONESIA'S URBAN CONTEXT
REP. OF KOREA
INDONESIA HAS
URBANIZED ON
AVERAGE MORE
RAPIDLY SINCE
1960 THAN MOST
ASIAN COUNTRIES
80%
60%
MALAYSIA
40%
20%
CHINA
URBAN POPULATION SHARE
urban population (% of total population)
INDONESIA
MYANMAR
INDIA
THAILAND
PHILIPPINES
VIETNAM
Source: World Development Indicators; The World Bank,
0%
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2012
10%
REP. OF KOREA
MALAYSIA
INDIA
VIETNAM
8%
INDONESIA
CHINA
PHILIPPINES
6%
4%
2%
ANNUAL RATE OF CHANGE
OF THE URBAN POPULATION
Source: World Development Indicators; The World Bank,
MYANMAR
0%
1960
8
THAILAND
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2012
01. INDONESIA'S URBAN CONTEXT
INDONESIA'S POPULATION IS
CONCENTRATED IN MAJOR CITIES
The island of Java has more than
half of Indonesia’s population, and most of
Indonesia’s urban land. Java’s cities have
a huge potential for growth, given the
large population base and high population
density. The island’s more than 50 million
South China
Sea
Malaysia
rural residents will continue to be attracted
by the opportunities that cities offer.
Elsewhere in Indonesia, sizeable cities are
found in Sumatra and Kalimantan, with
significantly fewer and smaller cities in
eastern Indonesia.
Celebes
Sea
Malaysia
REGIONS, PROVINCES
AND DISTRICTS
2
1
Molucca
Sea
4
Java Sea
50.000
10.000
POPULATION BY
ISLAND GROUP
thousands of people
+
Arafura
Sea
Metropolitan
TOTAL, URBAN AND
RURAL POPULATION
AND TIER
PROPORTION
2010
Source: Bappenas
Timor
Sea
POPULATION DENSITY
concentration of people
TIER 1
TIER 2
Large City
TIER 3
Medium City
TIER 4
Small City
>1,000,000
500,000 - 1,000,000
Papua New
Guinea
3
INDIAN
OCEAN
5
-
6
Banda
Sea
30.000
1
2
4
3
5
6
SUMATERA
KALIMANTAN
JAVA
SULAWESI
BALI AND NUSA TENGGARA
MALUKU AND PAPUA
51,697,225 PEOPLE
14,105,730 PEOPLE
138,311,286 PEOPLE
17,663,879 PEOPLE
13,327,280 PEOPLE
11,972,106 PEOPLE
39.1% URBAN / 60.9% RURAL
42.2% URBAN / 57.8% RURAL
58.6% URBAN / 41.4% RURAL
33.6% URBAN / 66.4% RURAL
39.2% URBAN / 60.8% RURAL
29.4% URBAN / 70.6% RURAL
100,000 - 500,000
< 100,000
URBAN
URBAN
URBAN
URBAN
URBAN
URBAN
Source: INDO
DAPOER
9
URBANIZATION IS STRONGLY ASSOCIATED WITH
INCOME LEVEL GLOBALLY page 11 / INDONESIA
HAS NOT EXPERIENCED THE LEVEL OF GROWTH
THAT WOULD BE EXPECTED WITH ITS RAPID
URBANIZATION page 12 / CITIES CONCENTRATE GDP,
BUT NATURAL RESOURCES ALSO CONTRIBUTE A LOT
TO GDP IN RURAL AREAS page 13 / JOB CREATION HAS
BEEN STRONGER IN URBAN AREAS page 14 / INDONESIA
HAS EXPERIENCED A MAJOR STRUCTURAL SHIFT IN
ITS ECONOMY page 15 / THE SERVICE SECTOR IS THE
LARGEST/FASTEST GROWING BUT LEAST PRODUCTIVE
SECTOR OF THE INDONESIAN ECONOMY page 16
INDONESIA'S URBAN STORY
10
URBANIZATION AND GDP PER CAPITA
2014
Percent of urbanization
Singapore
Japan
Source
World Development Indicators; The World Bank,
Republic of Korea
Asian countries
Other countries
Brunei Darussalam
INDONESIA
Malaysia
Mongolia
URBANIZATION RATE
52%
$3,475
China
Thailand
02. INDONESIA'S URBAN ECONOMIC POTENTIAL
Philippines
Maldives
GDP PER CAPITA
Bhutan
Lao PDR
Bangladesh
Timor-Leste
India
Vietnam
Cambodia
Nepal
Sri Lanka
URBANIZATION IS STRONGLY ASSOCIATED
WITH INCOME LEVEL GLOBALLY
The concentration of economic activity rises with development: no country has
developed without the growth of its cities.
As countries become richer, economic
activity becomes more densely packed
into towns, cities, and metropolises. The
share of a country’s population settled
in towns and cities rises rapidly with its
development from low to middle income
(World Bank 2009: 48–49).
Papua New Guinea
GDP per capita
11
MALAYSIA
Urban 0.04
R2 0.98
02. INDONESIA'S URBAN ECONOMIC POTENTIAL
INDONESIA HAS NOT EXPERIENCED THE LEVEL OF GROWTH
THAT WOULD BE EXPECTED WITH ITS RAPID URBANIZATION
URBANIZATION
AND GDP PER CAPITA
By country, 1970 - 2012.
Source: World Development Indicators; The World Bank
From 1970 to 2012, every 1 percent
increase in urban population correlated
with an average per capita GDP percentage
increase of 13 percent for India, 10 percent
for China, 8 percent for Vietnam, and 7
percent for Thailand. On the other hand,
the multiplier effect of urbanization for
Indonesia has been less strong, as a
1 percent increase in urbanization has
only resulted in a 4 percent increase in per
capita GDP.
THAILAND
INDONESIA
GDP per capita (constant 2005 US$)
Urban 0.07
R2 0.79
CHINA
Urban 0.09
R2 0.98
EVERY 1% INCREASE
IN URBANIZATION
HAS ONLY RESULTED
IN A
4%
2012
INDIA
Urban 0.13
R2 0.94
INCREASE
IN PER CAPITA GDP
IN INDONESIA
1970
PAKISTAN
Urban 0.07
R2 0.97
Urbanization
12
02. INDONESIA'S URBAN ECONOMIC POTENTIAL
CITIES CONCENTRATE GDP,
BUT NATURAL RESOURCES ALSO CONTRIBUTE
A LOT TO GDP IN RURAL AREAS
Agriculture and natural resources
contribute a significant share of
Indonesia’s GDP, particularly in rural areas.
As Indonesia urbanizes and develops
further, the share of these sectors can be
expected to decline. Larger cities are more
economically productive and competitive
than smaller cities and rural areas.
Large cities create opportunities for the
establishment of localization economies
through the clustering of related activities.
Urbanization economies may emerge in
dense urban areas where the transaction
costs of doing business are lower, and
opportunities for knowledge spillover are
high. Businesses within such economies
tend to be more economically productive,
as demonstrated by faster rates of
economic growth compared to smaller
cities and rural areas (World Bank 2012:
ix–x).
TIER 1
Metropolitan
DEFINITION OF TIERS
BASED ON NUMBER
OF POPULATION
TIER 2
Large City
millions of people
TIER 3
Source: Bappenas
Medium City
TIER 4
Small City
KALIMANTAN
>1,000,000
500,000 - 1,000,000
100,000 - 500,000
< 100,000
PAPUA
SULAWESI
SUMATRA
MALUKU
JAKARTA
JAVA
GDP CONCENTRATION
3D Extrusion for GDP (Indonesia),
displaying Kota and Kabupatan.
Source: INDO-DAPOER, via BPS, the
Indonesian National Statistics Agency.
SURABAYA
GDP
$300,000
$200,000
$100,000
13
5%
02. INDONESIA'S URBAN ECONOMIC POTENTIAL
EMPLOYMENT
GROWTH
4%
JOB CREATION HAS BEEN
STRONGER IN URBAN AREAS
Year on year employment
growth, percent.
3%
2%
Employment in urban areas grew by
45 percent since 2001, against 6 percent
growth in rural areas. Urban employment
growth has gradually outpaced rural areas’
over the last decade. Since 2008, jobs in
urban areas have been growing faster than
the working age. Importantly, urbanization
has been associated with the rise in
formality, with 72 percent of jobs created
in urban areas being formal (World Bank
2013b: 34)
1%
Source: World Bank staff
Calculations using the
Sakernas data, World
Bank 2013b: 34
0%
Feb
2006
Feb
2007
Feb
2008
Feb
2009
Feb
2010
Feb
2011
Feb
2012
Feb
2013
124
PERCENT OF EMPLOYMENT THAT IS
INFORMAL, SELECTED COUNTRIES
22
Source: LaborSTA, International Labor
Organization, Department of Statistics
72.5%
20
OF EMPLOYMENT
IN INDONESIA IS
IN THE INFORMAL SECTOR
14
20%
40%
Employment in 2001=100
Informal Employment growth since 2001 (%) (LHS)
120
Formal Employment growth since 2001 (%) (LHS)
18
India
Mali
Bolivia
Honduras
Madagascar
Pakistan
Philippines
INDONESIA
El Salvador
Zambia
Ecuador
Liberia
Uganda
Colombia
Nicaragua
Mexico
Tanzania
Egypt
Sri Lanka
Argentina
Peru
Dominican Rep.
Costa Rica
Vietnam
Brazil
Zimbabwe
Paraguay
Venezuela
Lesotho
Uruguay
China
Panama
West Bank and Gaza
Armenia
South Africa
Macedonia
Russian Fed.
Ukraine
Moldova Rep.
Serbia
0%
CUMULATIVE EMPLOYMENT
GROWTH BY FORMALITY
Total Employment growth since 2001 (RHS)
116
16
14
12
112
10
8
108
6
4
104
2
0
100
2001
60%
80%
100%
-2
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: World Bank
staff calculations
using Sakernas, World
Bank 2013b:34
02. INDONESIA'S URBAN ECONOMIC POTENTIAL
INDONESIA HAS
EXPERIENCED A
MAJOR STRUCTURAL
SHIFT IN ITS
ECONOMY
INDONESIA
THAILAND
CHINA
PHILIPPINES
MALAYSIA
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
THE MANUFACTURING SHARE
OF GDP INCREASED BY 19
PERCENTAGE POINTS WHILE
THE AGRICULTURAL SHARE FELL
BY 35 PERCENTAGE POINTS
Rapid economic growth is highly
correlated with structural change in a
nation‘s economy. Typically, as a country’s
economy develops, the proportion of
contribution from the agricultural sector
declines relative to the contribution of
the manufacturing and services sectors.
While the growth of the services sector
in Indonesia has been slower compared
to other countries in the region and
manufacturing contributes proportionately
less to the economy, overall trends indicate
that the country is becoming less reliant
on agricultural activities. Manufacturing
and services play an increasingly important
role. This can be expected to result in
an increased rate of urbanization, since
both manufacturing and services tend to
be based in urban locations (World Bank
2012: 32).
MANUFACTURING AND
AGRICULTURAL OUTPUT
share of nominal GDP
Services
Industry
0%
0%
1965
2014
1965
2014
1965
2014
1965
2014
1965
2014
Agriculture
Source: World Development Indicators;
The World Bank, OECD.
15
LABOR
PRODUCTIVITY
Value added per worker
(constant 2000 Rp Billion)
300,000,000
Mining and quarrying
Construction
Finance, insurance, real estate
Total
Electricity, gas and water
Wholesale, retail and trade
Transport, storage and communications
Social & personal services
Manufacturing
Agriculture
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
0
1990-1996
2000-2003
2005-2008
Source: World
Bank calculations
based on CEIC and
Sakernas data
2009-2012
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
EMPLOYMENT
COMPOSITION
by sector
Services
Industry
Agriculture
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source:
Sakernas
2015
02. INDONESIA'S URBAN ECONOMIC POTENTIAL
THE SERVICE SECTOR IS THE LARGEST/FASTEST GROWING BUT
LEAST PRODUCTIVE SECTOR OF THE INDONESIAN ECONOMY
16
In 2008, the service sector overtook
agriculture as the sector accounting
for the largest proportion of jobs in the
Indonesian economy, excluding transport,
communication and financial services.
However, labor productivity for these
new jobs is rather low: workers living in
cities have not had access to productivityenhancing infrastructure, general internet
connectivity and/or efficient mass rapid
transport, while facing inflated prices due
to transport and logistical inefficiencies.
INFRASTRUCTURE INVESTMENT AS SHARE OF
GDP HAS BEEN DECLINING, WHILE SUBNATIONAL
GOVERNMENTS HAVE BECOME THE LARGEST
SOURCE OF INFRASTRUCTURE SPENDING page 18 /
INDONESIA HAS SEEN A LARGE EXPANSION IN
URBAN LAND AND URBAN POPULATION OVER
THE PAST DECADE page 19 / METROPOLITAN
JAKARTA’S URBAN GROWTH page 20 /
URBAN FLOODING CHALLENGE page 21
INDONESIA'S URBAN STORY
17
Average (1995-97)
Average (2008-11)
INFRASTRUCTURE
INVESTMENT AS
SHARE OF GDP,
PERCENT
8.8
by source, average 1995-1997
and 2008-2011
2.9
2.5
0.8
0.8
CENTRAL GOVERNMENT
1.6
2.5
1.2
SUB-NATIONAL GOVERNMENT
SOE
Source: Infrastructure investment
data as detailed in Box 5 and
World Bank staff calculations
from World Bank Indonesia
Economic Quarterly March 2013
3.8
0.4
PRIVATE
TOTAL
03. INDONESIA'S URBAN GROWTH CHALLENGES
Indonesia (World Bank 2014). At present,
the total value of capital spending by
provinces, districts, and cities amounts
to approximately 1.5 to 2 percent of total
GDP. Expenditure by such governments
and their agencies represents around
half of the total value of public capital
spending in Indonesia. Infrastructure
expenditure by subnational governments is
also approximately 39 percent of the total
infrastructure spending.
Capital spending by urban local
governments is limited. In fact, the
amount of per capita spending by
local governments steadily decreases
INFRASTRUCTURE INVESTMENT AS SHARE OF GDP HAS BEEN
DECLINING, WHILE SUBNATIONAL GOVERNMENTS HAVE BECOME
THE LARGEST SOURCE OF INFRASTRUCTURE SPENDING
Total infrastructure investment in
Indonesia declined from an annual average
of 7 percent in the mid-1990s to around 3
to 4 percent of GDP in recent years. The
figure is much lower than in neighboring
countries such as Thailand and Vietnam,
where it has exceeded 7 percent of GDP.
economic growth, regional development
and productivity (World Bank 2012). The
recent uptick in Indonesia’s infrastructure
investment ratio reflects a rapid rise in
investments by subnational governments.
Subnational governments are now the
largest source of infrastructure spending in
In China, infrastructure investment has
averaged 10 percent of GDP over the past
decade. Spending by both the public and
private sector needs to increase substantially to a value equivalent to more
than 6 percent of GDP to make up for
past under-investment and to bolster
as districts become more urbanized.
Intergovernmental transfers fund the
vast bulk of subnational spending. As of
2015, transfers account for two-thirds of
total subnational revenues, whereas local
own-source revenues comprise around 24
percent.
Transfers to subnational governments
have almost doubled in real terms since
decentralization began in 2001. However,
the effectiveness of decentralized
service delivery and finance has fallen
short of initial expectations. Although
Indonesia has made some progress
in most areas of local public service
INFRASTRUCTURE TO TOTAL
CAPITAL STOCK
25.2%
delivery, many provinces and districts see
little improvement or even deterioration
in the quality of local public services.
Indonesia lags behind its regional peers
in health, education, and infrastructure
indicators. For example, road conditions
have deteriorated since 2001, with 40
percent of district roads currently in bad
condition, compared to 35 percent in the
early years of decentralization. Access
to water services has also declined
since decentralization; only 48 percent
of households now have access to safe
water, compared to 50 percent more than a
decade ago.
CAPITAL AND INFRASTRUCTURE
STOCK GROWTH
Source
World Bank 2013a:38
percent
9.8%
1996
18
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
REP. OF KOREA
PHILIPPINES
LAO, PDR
TAIWAN, CHINA
INDONESIA
9,421
SINGAPORE
10,000
CHINA
VIETNAM
THAILAND
MALAYSIA
people/km2
7,500
CAMBODIA
CHINA
REP. OF KOREA
39
URBAN SPATIAL
EXPANSION PER
ADDITIONAL URBAN
INHABITANT
2000-2010, m / person
2
Source: World Bank
2015: 146-147
VIETNAM
m/
person
2
JAPAN
5,000
SINGAPORE
PHILIPPINES
JAPAN
2,500
DPR KOREA
THAILAND
MYANMAR
INDONESIA
URBAN POPULATION
DENSITY
MALAYSIA
population per km2
Source: World Bank 2015: 146-147
0
2010
2000
SUMATRA
JAKARTA
Zoomed area
BANDUNG
1,600
1,200
800
400
Java Sea
0
SEMARANG
0
400
800
0
URBAN LAND IN JAVA
SURABAYA
400
800
0
400
800
JAVA
Source: Schneider and others 2015
Urban land 2000 (km2)
Urban land 2010 (km2)
03. INDONESIA'S URBAN GROWTH CHALLENGES
INDONESIA HAS SEEN A LARGE EXPANSION
IN URBAN LAND AND URBAN POPULATION
OVER THE PAST DECADE
Indonesia has the third-largest
amount of urban land in East Asia, after
China and Japan.
Between 2000 and 2010, the amount
of urban land in Indonesia increased from
about 8,900 square kilometers to 10,000,
an increase of 1.1 percent each year.
Whereas this represented among the
slowest average annual rates of increase
in the region, it was still the second largest
increase in absolute amount of urban land,
after China.
BALI
Yet much of Indonesia’s urban land is
compact. During the 2000 to 2010 period,
the amount of new urban land added per
new urban resident was less than 40
square meters, the smallest amount of any
country in the region (World Bank 2015:
81).
During the same period, urban population density increased in 80 out of 83
urban areas (World Bank 2015: 81). Total
urban population density also increased
sharply, from 7,400 people per square
kilometer to 9,400—the largest increase
in urban population density of any country
in the region during the period. Urban
population density in Indonesia is among
the highest in the region, more than double
that of Malaysia or Thailand, though lower
than that of the Republic of Korea and the
Philippines (World Bank 2015: 81).
19
25,000
03. INDONESIA'S URBAN GROWTH CHALLENGES
23,431
Metropolitan Jakarta
20,000
METROPOLITAN
JAKARTA’S URBAN
GROWTH
URBAN LAND IN
METROPOLITAN JAKARTA
Between 2000 and 2010, the population growth of metropolitan Jakarta was
higher than in any other urban area in East
Asia excluding China—the greater Jakarta
region added 7 million people during that
period. By comparison, Ho Chi Minh City,
the largest urban area in Vietnam, has a
total population of 7.8 million people. At this
rate of growth—3.7 percent per year—the
population of metropolitan Jakarta would
double between 2000 and 2020.
Metropolitan Jakarta is also very
dense. It is the second-densest urban area
in East Asia, after Hong Kong. Its density
increased from 12,200 persons per square
kilometer of urban land in 2000 to more
than 14,600 in 2010. Metropolitan Jakarta
is also much denser than other urban areas
in Indonesia. It has about 12 percent of the
country’s built-up land, but 20 percent of its
urban population (World Bank 2015).
15,000
Metropolitan Surabaya
Metropolitan Medan
10,000
Metropolitan Malang
5,000
thousands of people
Source: World Bank 2015: 150-157
0
2000
Metropolitan Surakarta
Source: Schneider and others 2015
2000 urban extent
2010 urban extent
20
POPULATION GROWTH IN
INDONESIA’S LARGEST
METROPOLITAN AREAS
(POPULATION ABOVE 2
MILLION)
Metropolitan Bandung
Zoomed area
2010
JAKARTA FLOOD MAP 2007 & 2013
Source: Jakarta Disaster Management Agency (BPBD), World
Bank/GFDRR, OpenStreetMap, University of Indonesia
Flooded area 2007
Flooded area 2007 & 2013
Flooded area 2013
Sub-Kota Boundary
Kelurahan Boundary
Kota Boundary
Provincial Boundary
Coastal Line
03. INDONESIA'S URBAN GROWTH CHALLENGES
Zoomed area
THE URBAN FLOODING
CHALLENGE
Flooding has troubled Jakarta since
its early years in the 1600s. In more recent
years, floods have occurred annually in
some areas of Jakarta. Some years are
worse than the others. For example, the
floods that occurred in 2007 and 2013 are
remembered for inundating large areas
of the city. The underlying factors of
Jakarta’s vulnerability to floods are linked
to geographical conditions, infrastructure,
environmental damage, and low public
awareness about safeguarding the
environment.
Jakarta has 13 rivers that pass
through the city and end in Jakarta
Bay. Any environmental damage and
deforestation around the river banks
in Jakarta and Bogor, the satellite city
where the upper-rivers are located, will
lead to overflowing of rivers. Jakarta
also has an inadequate drainage system,
which is worsened by poor solid waste
management practices that lead to large
quantities of waste ending up in rivers.
Most of the major floods in Jakarta,
including in 2007, were inland floods
due to heavy rainfall upstream in Bogor,
resulting in the overflowing of the Ciliwung
and Cisadane rivers into Jakarta.
Around 40 percent (24,000 ha) of
Jakarta’s area is below sea level, due
to pressure from infrastructure and
over-exploitation of groundwater. This
leads to coastal flooding or intrusion of sea
water, which is due to the topography of
the land exposed to flooding, especially in
the area of North Jakarta. Once a serious
flood occurs, the entire city is paralyzed,
on occasion for several days. The impact
can be crippling. A flood forces business,
government offices, and health and
education facilities to shut down entirely.
The February 2007 floods cost Indonesia
some IDR 5.16 trillion (BPBD Provinsi DKI
Jakarta, 2012). The 2013 Jakarta floods
cost the private sector IDR 6.3 trillion, and
the government IDR 1.2 trillion (Word Bank
2016).
21
INDONESIA'S URBAN STORY
CONCLUSION
The opportunity for Indonesia today
is to leverage urbanization for socioeconomic development to a much greater
extent than it has done so far. Compared
to India, China, Vietnam and other Asian
countries, Indonesia has not managed to
reap the full ‘urban dividend’. Despite its
significant rate of urbanization, Indonesia
has not yet achieved all the potential
benefits associated with urbanization to
the same extent that other countries have
(World Bank 2012).
Clearly, some of Indonesia’s
challenges are unique to the country.
For example, Indonesia’s geography: the
country covers more than 2 million square
kilometers across a 5,000 kilometer span
and consists of more than 14,000 islands.
At the same time, other challenges faced
by Indonesia are familiar to most Asian
countries. These challenges include multijurisdictional metropolitan management;
land and housing markets; strategic
infrastructure and regional economic
development; and local government
capacity and decentralization (World Bank
2012).
Meeting these challenges requires
a clear focus on urbanization as part of
the national development agenda. A longterm vision for urban development in
Indonesia would need to be underpinned
by a comprehensive approach that
cuts across sectors. Priority areas for
Indonesia to pursue a path of sustainable
urbanization would include: enabling
domestic solutions for the financing of
urban infrastructure; enhancing urban
management capabilities at the local level
among city governments; and national
programs for critical urban infrastructure
sectors to channel capital investment
subsidies and support sector reforms as
needed.
Photo: Harvard GSD City Form Lab
22
INDONESIA'S URBAN STORY
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23
The role of cities
in sustainable economic development