Automation could add billions of dollars to Indonesia’s economy and raise average incomes but the gains will not come effortlessly.

Advances in technology such as automation and artificial intelligence are transforming the way the world works. Economies that embrace these changes are set to see large gains in productivity and prosperity.

Automation added Rp1,700 trillion (A$170 billion) to Indonesia’s GDP between 2000 and 2015, according to a new study by Prospera and AlphaBeta Advisors, a consulting firm. People who gave up routine and repetitive work to move into complex high-value activities saw their incomes increase almost twice as fast as those who did not.

If it continues at its current pace, automation will add Rp3,200 trillion to Indonesia’s GDP and raise annual per-capita income by Rp10.8 million on average by 2030. If automation accelerates to the pace of the leaders elsewhere in Southeast Asia, then Indonesia’s GDP will be Rp5,000 trillion larger and per-capita income Rp16.9 million higher in 11 years’ time.

But the study, which draws on the Indonesia Family Life Survey that covers 30,000 people and their occupations since the early 1990s, warns that the gains from automation will not come effortlessly.

For automation to lift productivity, workers must fill the hours freed up by machines doing tasks previously performed by humans with alternative employment. Otherwise the result is more unemployment and underemployment.

Training workers in the skills they need to prosper in a fast-changing economy will be pivotal to realising the potential productivity gains.

“Indonesia’s skills system has been slow to respond to the demands of an expanding and automating economy,” the study says. Workers with the skills to perform complex interpersonal and technological jobs are scarce.

“Unless this challenge is addressed…Indonesia will miss out on the full return from its automation investments.”

Robots and machines
Twenty-eight percent of Indonesian firms—from automotive factories using robots to assemble cars, to shopping malls using point-of-sale terminals to restock their shelves, and farms using tractors to plough their fields—are currently investing in new technology.

But other countries are automating faster. The proportion of firms automating manual processes in India is 52%, in the Philippines it is 41%, and in Vietnam it is 36%.

According to the study, the major obstacles to faster automation in Indonesia include restrictions on foreign trade, investment and skilled labour, limited access to finance, tax incentives that are too complex, and social pressure to preserve old-fashioned jobs.

Moreover, the benefits of automation are not being shared evenly in Indonesia. Between 2007 and 2014, high-skilled workers with a university degree and younger workers aged below 30 saw their annual income rise by 10% as a result of automation-related changes to their jobs.

By contrast, the income of low-skilled workers increased by 4% and that of workers aged over 50 by just 1%. Women older than 50 actually saw a fall in their income.

Older low-skilled workers, the study says, may miss out on the economic benefits made possible by automation.

“To ensure that automation’s dividends are well distributed, government and business will need to increase the skills resilience of the workforce and improve the social protection offered to older workers.”

Download the full report here and for further information contact Paul Bartlett, Prospera Lead Adviser, Markets, paul.bartlett@prospera.or.id