Indonesia’s Rising Middle-Class and Affluent Consumers

Indonesia’s Rising Middle-Class and Affluent Consumers

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Indonesia’s Rising Middle-Class and Affluent Consumers

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    An Expanding Opportunity

    Much has been written in the past several years about the growth of large emerging economies, but there has been little focus on Indonesia. This country, however, represents a more compelling opportunity than many others. Indonesia has the world’s fourth-largest population, with approximately 248 million people; highly favorable economic conditions; a rich base of natural resources (including crude oil, metals, and coal); and a strong investment climate. Moreover, the country has a stable political landscape. Indonesia is the third-largest democracy in the world (after the U.S. and India) and has repeatedly held smooth and successful parliamentary and presidential elections.

    In addition, Indonesia’s demographics are attractive. More than 60 percent of its residents are currently aged 20 to 65—the principal working years. In fact, its working-age population is almost twice that of Vietnam and nearly three times the size of South Korea’s entire population. Another 27 percent of Indonesia’s population is below age 15, giving the country a large incoming workforce and a low dependency ratio.

    The country’s large working-age population also results in a large domestic market; more than half of Indonesia’s GDP is derived from domestic demand, which makes the country resilient to external shocks. This big local market has fostered the development of financial institutions and markets, and it offers significant growth potential for nonbank financial institutions such as insurers, mutual funds, and finance companies. Because of these factors, Indonesia’s economy is expected to grow at 6.4 percent over the next five years. And over the next two decades, Indonesia is poised to become one of the fastest-growing economies in the world.

    Individual Indonesians seem to have internalized this promise of growth. A recent survey by The Boston Consulting Group’s Center for Consumer and Customer Insight (CCCI) found that 91 percent of Indonesians feel financially secure—a higher percentage than every other country in the world, including all of the BRIC economies (Brazil, Russia, India, and China). (See Exhibit 1.) More broadly, Indonesians are very optimistic about an improving quality of life for the foreseeable future. Some 66 percent of those surveyed believe that they have lived a better life than their parents did, and 71 percent believe that this trajectory will continue for the next generation. This is a striking contrast to the mood in developed economies such as the United States (where 44 percent believe they have lived a better life than their parents, and only 21 percent believe their children will have a better life than they), or Japan (21 percent and just 8 percent, respectively).


    To date, there is scarce detailed analysis regarding the middle class in Indonesia. As a result, companies that wish to target this audience have limited insight into these consumers and their regional expansion, attitudes, consumption patterns, and spending behavior.

    To address this, CCCI has developed a holistic picture—at both a macro and micro level—of the MACs in Indonesia. Our proprietary population expenditure model forecasts the size of different wealth segments (poor, aspirant, emerging middle, middle, upper middle, affluent, and elite) through 2020 for urban and rural Indonesia in all of the country’s 99 cities (kota) and 398 regencies (kabupaten). In addition to quantitative analytics, CCCI also conducted comprehensive consumer interviews to uncover the characteristics, consumption behaviors, and attitudes of Indonesian consumers. The results from this proprietary model, together with substantial primary consumer insight, will provide local and multinational businesses with a comprehensive view of MACs as well as behavioral triggers and other factors that have an impact on their purchasing decisions. (See “Appendix: Methodology.”)

    Despite the conditions that make Indonesia an important opportunity, the country will need to overcome several challenges if it is to deliver on its economic potential. For example, it has clear infrastructure bottlenecks, including the quality and availability of airports, highways, railways, seaports, and power plants. Development of these features over the past decade has not kept pace with expectations. In addition, while the sheer size of the working-age population is attractive, a large part of that labor force will need upgraded training to become fully effective. Both of these issues require significant investment—from public and private entities—in order to sustain the country’s long-term economic growth.