Jakarta, INTI - Indonesia cannot rely solely on emerging economic sectors such as batteries, digital technology, and artificial intelligence (AI) to absorb its large young workforce as it enters a period of demographic dividend.
Senior Analyst at the Indonesia Strategic and Economic Action Institution (ISEAI), Ronny P. Sasmita, said Indonesia will need a combination of labor-intensive industries and technology-driven sectors over the next five years. He argued that labor-intensive industries remain the most realistic option for creating large numbers of jobs because they generally have relatively lower barriers to entry.
“Labor-intensive industries such as textiles, footwear, furniture, food and beverages, electronics, and various downstream manufacturing sectors remain the most realistic for absorbing large numbers of workers,” Ronny told Kontan on Tuesday (September 29, 2026).
Meanwhile, sectors such as battery manufacturing, digital technology, and AI are considered important for creating jobs with higher productivity and wages. However, their capacity to absorb workers remains smaller than that of labor-intensive industries.
Ronny therefore said Indonesia needs a dual-track strategy: positioning labor-intensive industries as major engines of job creation while developing technology-based sectors to drive productivity.
“We should not rush to pursue high-tech industries while overlooking the fact that millions of young people need jobs today,” he said.
Revitalizing Indonesia’s Industrial Sector
Ronny also called for a more comprehensive industrial transformation toward smart and green manufacturing.
He said industrial transformation should go beyond providing incentives for companies to purchase new machinery. The government also needs to improve the broader business ecosystem, including logistics costs, energy and electricity supply reliability, licensing, access to financing, the quality of industrial estates, and workforce skills.
Incentives should also be directed toward encouraging automation and energy efficiency. For labor-intensive industries, the government should promote gradual technology upgrades so companies can improve productivity without losing their ability to absorb workers.
Ronny added that incentives such as tax holidays should increasingly focus on investments that generate tangible economic benefits.
“Incentives should increasingly be directed toward investments that create jobs, facilitate technology transfer, boost exports, train workers, and reduce emissions,” he said.
Indonesia also needs to take into account competition from countries such as Vietnam. According to Ronny, the competition is not solely about labor costs but also the overall cost of doing business.
“Vietnam is a competitor not only because of wages, but because investors see its manufacturing ecosystem as relatively integrated and export-oriented. What we need to compete on is not just the wage gap, but the total cost of doing business,” he said.
AI Workforce Faces Skills Gap
At the same time, Ronny said Indonesia’s young workforce is not yet fully prepared to capture AI-related opportunities on a large scale.
Indonesia has a large young population and a growing digital talent base. However, gaps remain in mathematics, science, engineering, advanced computing, English proficiency, and other technical skills required by the AI industry.
This situation creates a risk that Indonesia could become primarily a market for AI technologies developed by other countries.
“The risk is that Indonesia becomes a major market for foreign chips, cloud services, applications, and AI models, while most of the added value is captured elsewhere,” Ronny said.
Nevertheless, he believes the situation can be changed. Indonesia has several advantages, including its large domestic market, energy resources, data, strategic geographic position, and room for further digital infrastructure development.
The government therefore needs to increase investment in human capital through STEM education, vocational training, reskilling, and computational skills development.
Stronger collaboration among universities, industry, and government is also needed to ensure that the demand for technology-skilled workers can be met more quickly.
“We should not simply aspire to become AI users. We need to build the capabilities to become creators, developers, and owners of part of the AI ecosystem,” Ronny said.
Ronny emphasized that the demographic dividend will only translate into an economic dividend if the growing working-age population is accompanied by higher productivity.
If millions of young people enter the workforce but most can only access low-productivity jobs, the large working-age population could instead create social and fiscal pressures.
For this reason, Indonesia’s economic agenda over the next five years needs to operate on two fronts: creating large numbers of jobs through manufacturing and modern services, while increasing productivity through digitalization, AI, and stronger industrial capabilities.
“In other words, the demographic dividend must be transformed from an advantage in population size into an economic advantage,” Ronny concluded.
Conclusion
Indonesia’s demographic dividend will require a balanced approach that combines large-scale job creation through manufacturing with productivity growth driven by digitalization and AI. Strengthening industrial competitiveness while investing in technology skills and human capital will be key to turning Indonesia’s young workforce into a long-term economic advantage.
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