Aceh’s demographic dilemma: getting old before getting rich

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Aceh’s demographic dilemma: getting old before getting rich

By: Marthunis (Head of DPMPTSP Aceh)

The term “getting old before getting rich” describes a situation where a region fails to take advantage of the opportunity from the demographic bonus. The demographic bonus is a period when the dependency ratio is low, that is less than 50 percent. This ratio means that the number of people with productive/working age is 2 (two) times more than the number of people with non-productive age. In other words, 1 non-productive person is supported by 2 productive people.

The demographic bonus is a period when the proportion of working-age population is high and the proportion of dependent population (children and elderly) is low. This creates a window of opportunity for economic development, as more people can contribute to production and savings. But this window does not last forever. As fertility rates decline and life expectancy increases, the population structure shifts to an aging society, where the burden of supporting the elderly falls on a shrinking workforce.

With the assumption that productive people have jobs with decent income, their welfare will increase. They can also meet their needs and have financial ability to save or invest for their prosperous old age (read: rich).

Aceh has now entered the period of demographic bonus. According to the 2020 population census, Aceh’s dependency ratio was 48.71%, which means that there were about two working-age people for every dependent person. The peak of the demographic bonus is expected to occur between 2025 and 2030. This is a golden opportunity for Aceh to accelerate its economic growth and achieve its long-term development plan (RPJP) target of reaching the level of acceleration of developed countries by 2045.

But this opportunity also requires a strategic response. Aceh’s current economic and employment situation is not very promising. Aceh’s per capita income was Rp. 39.16 million in 2022, ranking 30th out of 34 provinces in Indonesia. Aceh’s poverty rate was also high, reflecting the low quality of life of many people. Aceh’s unemployment rate was 5.75% in March 2023, higher than the national average of 5.45%. Aceh also had a low labor force participation rate of 65.12%, which means that one-third of its working-age population was not working or looking for work. Moreover, Aceh had a high proportion of informal and part-time workers, who were more vulnerable and less productive than formal and full-time workers.

The main reason for this poor performance is the lack of investment in Aceh. Investment provides capital and creates jobs for the working-age population, as well as opportunities for partnership with SMEs in Aceh to produce higher economic output. Investment is also essential for improving human capital development, which is the key to enhancing productivity and competitiveness.

But investment does not come automatically or easily. It requires a conducive environment that attracts and retains investors. This environment consists of several factors, such as bureaucracy reform, infrastructure availability, human resource quality, security and stability, market access, and incentives.

Aceh needs to make some fundamental changes in these factors to create a more investment-friendly environment. This should be the priority for the first period of RPJP Aceh (2025-2030), which coincides with the peak of the demographic bonus. This period should be used to build the foundation for investment by providing the basic prerequisites for investors to enter Aceh.

One example of bureaucracy reform is deregulation of land that allows long-term lease of government land for investment. This solves the complaint of investors who are interested in investing on government land but are only given a maximum of five years.

Another example is infrastructure development, which is vital for connecting markets and reducing costs. If it is difficult to build with regional budget, alternative financing such as PPP should be realized.

A third example is human resource quality improvement, which involves reducing stunting rate, enhancing education quality at all levels, and providing skills training for workers.

These examples are based on the identification of investment barriers in Aceh by DPMPTSP Aceh (the regional agency for investment services). By interviewing 321 companies, the main findings from the investment barriers besides infrastructure in Aceh are related to labor productivity and illegal levies, including from communities such as donations for social activities.

By fulfilling these basic conditions that are friendly to investment, Aceh can leverage its demographic bonus and transform itself into a prosperous and developed region. But if these conditions are not met in a transformative and significant way, Aceh might face the risk of getting old before getting rich in 2045, when its population structure will start to enter the aging stage. This would mean that Aceh would have wasted its demographic opportunity and failed to achieve its development goals.

The choice is clear. The time to act is now.

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