Indonesia on track to become electronics production base

This is the third part of four stories on Indonesia as an emerging hot spot for foreign direct investment.

With increased labor costs in China, Indonesia is quickly becoming the destination of choice for electronic producers to relocate their factories and make the country their global production basis, the Electronic Producers Association (Gabel) says.

Gabel deputy secretary-general Yeane Keet said Friday that labor wage increases in China had made Indonesia more competitive in the global market. He said the minimum salary of a worker in Southeast China reached US$220 per month.

The Beijing municipal government has since June increased the local minimum wage to $141 from $117 per month. In comparison, the minimum wage in Indonesia hovers around $90 per month.

“We hope that electronic factories in neighboring countries [in Southeast Asia] relocate soon to Indonesia,” Yeane told The Jakarta Post.

She said that several internationally renowned electronic brands including Panasonic, Sanyo, Epson, Sharp, and LG, had made Indonesia their global production base for several of their products.

Panasonic promised earlier that the company would soon relocate more factories to Indonesia. Its latest relocation was a lithium coin battery factory from Japan earlier this year. The company expects to start production at the facility in November.

“Most electronics producers have factories in Greater Jakarta and Surabaya [East Java] because those areas are close to ports,” Yeane said.

The Industry Ministry estimated the country’s electronics production value would increase 10 percent to Rp 94.3 trillion ($10.5 billion) this year from Rp 85.7 trillion last year.

To achieve that amount, the ministry said, the country should boost investment in the sector. The ministry expects this year’s total investment value to reach Rp 15 trillion.

In 2009, the investment in the electronics sector reached only Rp 12 trillion, a drop from the Rp 17 trillion a year earlier blamed on the global financial downturn.

As of early this year, 235 electronics companies operate in Indonesia.

Industry Ministry Director General for Transportation, Telecommunications and IT Industries Budi Darmadi said the government offered several incentives that he believed could boost investment, particularly in the electronics sector.

He added that a 2008 government regulation on income tax incentives for investors stipulated that several industrial sectors, including electronics, were eligible for income tax breaks worth 5 percent of the total investment. The tax cuts would last six years. “The government also offers fiscal incentives by exempting import duties on several imported raw materials that can’t be sourced in Indonesia,” he told the Post.

Budi said Indonesia had become an attractive investment destination for the electronics industry because the country had a large committed and skilled labor pool. “We regularly train workers to increase their skills.”

Yeane confirmed Budi’s statement that Indonesia had a potentially strong labor force, adding that Indonesian workers were easy to train and worked very efficiently.

She said the Indonesian electronics industry manufactured products that did not comprise cutting edge technology, so the industry could easily employ more workers.

However, she admitted that poor infrastructure, particularly roads and electricity, were major stumbling blocks in the country’s drive to attract more investment. (rdf)