Moving towards sustained inclusive growth in East Java

April 11, 2011

Surabaya, April 11, 2011- The World Bank today launched the East Java Growth Diagnostic report, which looks at the constraints to private investment and growth in East Java, and highlights the need to create inclusive growth that benefits the majority of the population. This entails focusing on greater productivity of labor and improving the quality of human resources.

“A high level of growth is not the end goal, but having the benefits of growth enjoyed by a large share of the population is what is most important," says East Java Governor's Assistant for Economy and Development, Ir. Hadi Prasetyo, ME. "With a majority of labor employed in the agriculture sector, it is important for local governments to increase the agricultural productivity and promote rural employment industries”.

As the second largest province in Indonesia, East Java offers investors many economic advantages, such as its strategic location, abundant labor, stable security conditions, and an overall robust macroeconomic condition. However, the East Java Growth Diagnostic report says infrastructure remains one of the most binding constraints to attracting investment.

“Prioritizing and effectively addressing infrastructure such as the sea ports and district roads could optimize East Java’s role as a regional hub. This is an opportunity for the province to become a benchmark for economic development in Indonesia," says Cut Dian Agustina, World Bank economist and  lead author of the growth diagnostic report. 

Like other provinces, growth in East Java is also characterized by leading and lagging regions. Economic growth is mostly concentrated in Surabaya and its surrounding districts, like Gresik and Sidoarjo. The report sees this not as a problem, but more as an opportunity for  other districts to start connecting to East Java's main growth driver. This in turn would stimulate their own economies.

"Labor and capital can move quite freely in East Java so there's no need for any specific intervention to move economic activities to the lagging regions. Instead, the government should concentrate on enhancing access to education and health services in these areas, and also build spatially connective infrastructure to increase the flow of goods, people, and information to the economic centers" says Shubham Chaudhuri, World Bank  lead economist for Indonesia.

The East Java Growth Diagnostic's  findings are also relevant for other provinces in Indonesia, particularly those working to achieve sustainable inclusive growth, as well as those that have not yet realized their full potential to become regional growth poles. 

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