Indonesia’s economy stands on diverse sectors that contribute to its steady growth, yet each faces unique challenges that could hinder progress in the years ahead. Understanding these challenges and the emerging trends helps policymakers, investors, and communities navigate risks and seize new opportunities.
This guide expands on our main Economy of Indonesia pillar by diving deeper into sector-specific obstacles, cross-cutting issues like governance and sustainability, and key trends such as digitalization, smart farming, and the green economy. By exploring these factors, we can see how Indonesia is transforming economic hurdles into pathways for inclusive, resilient development.
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Sector-Specific Challenges
Each key sector in Indonesia’s economy—agriculture, manufacturing, and services—faces unique hurdles that could limit its potential if not addressed strategically. By understanding these challenges, stakeholders can identify where policy reforms, technology upgrades, and investments are most needed.
In this section, we break down the main obstacles for each sector, from low technology adoption in farming to the digital divide in the rapidly expanding services industry. Exploring these specifics helps us see the broader picture of what must change to secure balanced, resilient growth.
Agriculture – Limited Tech Adoption & Climate Risks
The video above shows how Indonesian farmers are beginning to adopt smart farming technologies and climate-smart practices to improve productivity and resilience. By visualizing real examples from the field, the video reinforces why expanding access to affordable agri-tech solutions is vital for smallholders to cope with changing weather patterns and remain competitive in the long run.
Despite agriculture being a cornerstone of Indonesia’s economy, smallholder farmers frequently lack access to modern technology—such as drones, sensors, or automated irrigation—primarily due to high upfront costs and limited digital literacy. This gap in technology adoption undermines productivity, resilience, and the overall modernization of the sector. As climate change intensifies—with increasingly erratic rainfall, extreme temperatures, and pest outbreaks—these vulnerabilities are magnified, threatening food security and farmer livelihoods.
Research highlights these issues clearly: Agussabti et al. (2022) found that “farmers have a relatively lower readiness level than extension workers due to their low capacity and age factor,” indicating a significant barrier to adopting smart farming techniques in regions like Aceh Province (DOI: 10.1515/opag-2022-0145). Without targeted training, financing models, and infrastructure investment, the sector may struggle to cope with both current production inefficiencies and future climate pressures.
Indonesia is starting to address these gaps through pilot projects integrating IoT-enabled irrigation, drone mapping for precision planting, and mobile apps for crop monitoring. However, coverage remains inconsistent, particularly in remote or under-resourced regions.
To bridge the digital divide in agriculture, policymakers and agritech startups must collaborate—offering affordable tech solutions, farmer training programs, and climate-smart incentives. For more context, read our article on Indonesian Agriculture: A Pillar of Global Food Security and National Economy.
Manufacturing – Competitiveness & Industry 4.0
The video above explains the “Making Indonesia 4.0” roadmap, showing how advanced manufacturing technologies and digitalization are being promoted to boost the sector’s competitiveness. By visualizing government strategies and pilot initiatives, the video helps illustrate the opportunities and challenges in transforming Indonesia’s manufacturing industry toward Industry 4.0 standards.
The manufacturing sector has been a major growth engine for Indonesia, contributing significantly to employment and export earnings. However, many local companies struggle to keep pace with global standards due to outdated machinery, weak digital integration, and a fragmented domestic supply chain. Such barriers limit competitiveness and reduce the appeal of Indonesia as a production hub for high-value manufacturing.
To address these gaps, the Indonesian government launched the “Making Indonesia 4.0” roadmap in 2018, aimed at accelerating Industry 4.0 adoption through enhanced automation, digital skills training, and supply chain optimization. A public–private partnership approach has enabled localized pilot programs in automotive, electronics, and textile sectors—though uptake remains uneven, and SMEs often lack the capacity or resources to participate fully.
For more context on Indonesia’s manufacturing sector transformation, watch the video above or read our article on Indonesia’s Manufacturing Sector: Powering Economic Growth and Global Competitiveness.
Boosting sector competitiveness will require scaling pilot initiatives to nationwide programs, expanding financing for SME digitalization, and strengthening local supplier networks. Collaboration between government, industry associations, and tech partners will be essential to accelerate Indonesia’s move toward high-tech manufacturing.
Services – Digital Divide and Skills Gap
The video above highlights the persistent digital divide in Indonesia, showing how gaps in internet access and digital literacy affect people in remote areas. By visualizing real challenges faced by communities, the video reinforces why bridging this divide is essential to expand equitable access to online services, improve workforce readiness, and unlock the full potential of the services sector.
The services sector—ranging from fintech and e-commerce to digital health and education—has expanded rapidly in Indonesia. Yet, the benefits are unevenly distributed due to the country’s persistent digital divide. While urban areas enjoy high-speed internet and widespread digital literacy, rural and remote regions lag significantly, limiting access to essential services and economic opportunities.
For example, in 2019 only around 21% of Indonesians aged 15–49 were internet users, despite Southeast Asia being highly mobile‑dependent. This gap not only affects individual access to online services, but also hinders human capital development and workforce readiness—exacerbating the skills gap in an increasingly digital job market.
The government’s Palapa Ring undersea fiber‑optic project has made progress, but coverage remains uneven, especially in outer islands. Complementary initiatives—from private telecom investments to satellite solutions—are beginning to address infrastructure shortfalls. However, scaling digital skills training remains crucial to ensure the population can meaningfully engage with these services and fill the talent needs of the evolving digital economy.
Policymakers and service providers must prioritize blended strategies: expanding infrastructure while integrating digital literacy programs and partnerships with educational institutions. For a deeper look, read our article on The Service Sector in Indonesia: Contribution, Challenges, and Future Outlook.
Cross-Cutting Issues and Risks
Beyond sector-specific hurdles, Indonesia’s economy confronts challenges that span industries and regions. Cross-cutting issues—such as policy fragmentation, environmental degradation, and geopolitical volatility—must be addressed in a coordinated manner to support sustainable, inclusive growth.
Understanding these structural factors helps policymakers see that reforms must accompany sector-level innovation. The following sub-sections explore three major cross-cutting risks that demand urgent attention.
Policy and Regulatory Barriers
Businesses in Indonesia often face overlapping permit requirements, unclear regulations, and bureaucratic delays across jurisdictions, which raise costs and deter investment. This mismatch between national and local rules adds to operational uncertainty.
According to the World Bank Enterprise Surveys (2015 dataset), a significant portion of firms report licensing and permit issues as major obstacles to doing business, underlining the need for regulatory streamlining and harmonization.
Improving outcomes requires simplifying licensing processes, aligning regulations between national and regional governments, and strengthening institutional capacity. Policies like the Omnibus Law on Job Creation are steps forward but must be backed by consistent local-level enforcement. A more detailed breakdown of these reforms will appear in an upcoming article.
Commodities Dependence and Environmental Pressures
The video above illustrates how large-scale oil palm expansion has driven significant deforestation in Indonesia’s key commodity regions, such as Kalimantan and Sumatra. This visual example helps explain why overreliance on raw commodity exports can create severe environmental pressures, threatening biodiversity and community livelihoods. By connecting these real-world scenes with research findings, the video strengthens the case for balancing commodity growth with stronger sustainability commitments.
Indonesia’s heavy reliance on raw commodities—such as palm oil, timber, coal, and minerals—sustains GDP and export earnings but poses significant ecological and economic risks. Commodity dependence exposes the economy to global price swings while accelerating environmental degradation.
Palm oil expansion is a principal driver of deforestation. In their 2019 study, Austin et al. found that nearly 40 % of forest loss from 2001–2016 resulted from oil palm and timber plantation development. These findings highlight the need to balance economic growth with conservation efforts.
In response, Indonesia has enacted forest moratoriums, promoted downstream processing, and initiated sustainable finance measures. A deeper exploration of how the nation balances commodity growth and sustainability will appear in our upcoming feature on green economy transitions.
Global Geopolitical Risks and Supply Chain Disruptions
Geopolitical tensions—like the US–China trade war, the Russia–Ukraine crisis, and pandemic-era supply chain shocks—have exposed weaknesses in Indonesia’s reliance on imported inputs for sectors such as electronics, automotive, and critical minerals.
Arini & Ardi (2021) developed a conceptual model for automotive supply chain resilience in Indonesia, highlighting strategies such as supplier diversification, logistics flexibility, and digital monitoring to mitigate disruption risks.
To strengthen supply chain resilience, Indonesia is diversifying trade partners, investing in infrastructure, and expanding regional cooperation within ASEAN. A deeper dive into these supply chain strategies will feature in our upcoming logistics competitiveness article.
Emerging Trends and Opportunities
Amid structural challenges, Indonesia’s economy is also shaped by forward-looking trends that offer fresh growth prospects. From rapid digitalization and smart city development to green finance and an innovation-driven workforce, these shifts are transforming how industries compete and create value.
Understanding these trends helps policymakers, businesses, and communities align their strategies with evolving market demands and global sustainability goals. The sections below explore key opportunities driving Indonesia’s future economic resilience.
Digitalization & Smart Economy
Indonesia is rapidly embracing digital transformation across industries, from e-commerce and fintech to public services and smart city developments. This shift is enabling greater efficiency, broader market access, and improved service delivery.
A recent study by Valeriani & Sah (2024) finds that digitalization—driven by mobile adoption, internet penetration, and foreign direct investment—has a significant positive impact on Indonesia’s long-term economic growth, even if short-run effects remain mixed. (If the DOI link is temporarily inaccessible, you can read the abstract and download the PDF via the publisher’s site at E3S Web of Conferences.)
The video above showcases how Indonesia’s economy benefits from rapid digital growth, providing context for why investments in digital infrastructure and skills development are key to sustaining this momentum.
Businesses and policymakers must now focus on bridging the rural–urban digital gap, fostering public-private partnerships in ICT, and ensuring inclusive access to digital services. A more detailed guide to digital infrastructure strategies will be featured in an upcoming article.
Green Economy & Sustainability
Green economy initiatives—focusing on low-carbon growth, sustainable infrastructure, and eco-friendly industries—are becoming vital pillars of Indonesia’s emerging economic resilience. These trends promote environmental stewardship while unlocking new job markets and investment opportunities.
A recent sentiment analysis by Putri et al. (2025) found strong public support (79%) for green economic policies like carbon taxes and renewable energy, though around 21% of respondents expressed skepticism about potential short-term economic impacts. This indicates growing acceptance mixed with concerns over implementation costs.
The video above captures insights from the Sustainable Finance Conference, illustrating how public and private sectors collaborate to scale up green capital in Indonesia. This visual context reinforces why sustainable financing—and not just policy frameworks—is central to driving a successful green economy shift.
To scale these initiatives, Indonesia needs to strengthen green credit facilities, Islamic finance instruments, and circular economy policies. A more detailed analysis of these sustainable development pathways will be available in our upcoming green investment deep dive.
Human Capital & Innovation
Developing a digitally skilled workforce and fostering innovation ecosystems are essential for Indonesia’s long-term economic transformation. Initiatives like the “Digital Talent Scholarship” are training young professionals in programming, cybersecurity, and data analytics to support the nation’s need for a competitive, future-ready workforce.
A recent report by Rizka & Dharmawan (2023) in Sustainability highlights a widening digital workforce gap in Indonesia, projecting critical deficits in advanced tech skills by 2025 if current training scales aren’t expanded. This underscores the urgency of scaling digital education initiatives nationwide.
The video above shows how the 2025 Digital Talent Scholarship program intensively introduces micro digital skills to the public, especially the younger generation. It highlights classes in coding, graphic design, and data analytics as essential competencies, reinforcing that investment in digital talent training is a foundation for building a broader innovation ecosystem in Indonesia.
Policymakers and education providers must extend these programs to underserved areas, while private sector collaboration can help scale up content and infrastructure. A full exploration of Indonesia’s innovation landscape—covering incubators, R&D hubs, and policy incentives—will be included in our upcoming human capital & innovation feature.
Frequently Asked Questions
What are the biggest sector-specific challenges in Indonesia’s economy?
Agriculture struggles with low tech adoption, manufacturing needs Industry 4.0 upgrades, and services face a digital divide and skills gaps.
What cross-cutting issues affect Indonesia’s growth?
Cross-sector challenges include policy fragmentation, environmental pressures like deforestation, and global supply chain risks.
How is Indonesia addressing sustainability in its economy?
Indonesia promotes green finance, low-carbon infrastructure, and renewable energy investments to shift towards a more sustainable economy.
What are the emerging trends shaping Indonesia’s economic future?
Digitalization, smart city development, green economy transitions, and human capital innovation are key trends to watch.
How can human capital development boost Indonesia’s competitiveness?
Upskilling programs and digital talent scholarships build a stronger workforce, which supports innovation, startups, and economic resilience.
Conclusion
Indonesia’s economic landscape is marked by sector-specific hurdles, cross-cutting challenges, and dynamic trends that demand thoughtful action from all stakeholders. Recognizing these issues is the first step toward building resilience and competitiveness in a rapidly changing global market.
Through digitalization, sustainability efforts, and human capital development, Indonesia has a real chance to transform structural risks into long-term opportunities. Continuous innovation, effective policy coordination, and inclusive growth will shape how the nation navigates its next phase of development.
If you’d like a broader perspective on how these factors fit together, read our main guide on the Indonesian economy for deeper context on key sectors, policies, and future growth.
Trusted References
Agussabti, A., et al. (2022). Smart Farming Readiness among Farmers and Extension Workers in Aceh Province, Indonesia. Open Agriculture. https://doi.org/10.1515/opag-2022-0145
Austin, K. G., et al. (2019). What Causes Deforestation in Indonesia? Environmental Research Letters. https://doi.org/10.1088/1748-9326/aaf6db
Arini, S. N., & Ardi, R. (2021). Conceptual Model of Automotive Supply Chain Resilience in Indonesia. Indonesian Journal of Supply Chain and Logistics. https://doi.org/10.48529/wqkm-8265
Valeriani, D., & Sah, T. (2024). Digitalization and Economic Growth in Indonesia: Insights from Short and Long-Run Perspective. E3S Web of Conferences. https://doi.org/10.1051/e3sconf/202459407004
Putri, S., et al. (2025). Exploring Public Sentiment on Green Economy Policy in Indonesia. International Journal of Energy Economics and Policy. https://doi.org/10.32479/ijeep.18360
Sudjono. (2023). Green Economic Transformation: Opportunities and Challenges for Sustainable Development. International Journal of Social Science and Humanities Research. https://doi.org/10.54783/ijsoc.v5i5.947
Rizka, R., & Dharmawan, R. (2023). The Indonesian Digital Workforce Gaps in 2021–2025: Issues and Solutions. Sustainability. https://doi.org/10.3390/su15010754