H

owever commended the House of Representatives should be for approving the government-proposed bill on the manufacturing sector last week, new legislation is not the most urgent thing needed to develop a wide variety of industries to bring our natural resources higher up on the value chain.

Manufacturing has indeed been one of the laggards among our various economic sectors, growing by merely 6 percent a year, compared to about 20 percent before the 1998 Asian economic crisis. But the biggest barrier to developing competitive manufacturers is the acute lack of basic infrastructure that has made logistical costs in the country the highest in the region. Added to this handicap are inefficient port handling and customs clearance, which make inventory costs of basic materials unusually high, and a pervasively corrupt bureaucratic system.

We see any clear-cut provisions in the law designed to make breakthroughs with these problems. Except for the articles requiring the establishment of a financing agency for manufacturers, which will function as a development bank and compulsory procurement of domestic products for projects financed by the state budget and state companies, most of the stipulations are normative statements on how vital the development of the manufacturing sector is to lift the country to a high-income nation.

True, industrial manufacturing is vital to our economic development because historically no economy has reached high-income status without achieving an at least 20 percent share of manufacturing in its total output and employment for a sustained period of time.

Such middle-income economies as Indonesia that still depend heavily on labor intensive sectors should focus on upgrading their industrial base and quality of education to meet the increasing demand for skilled workers. But not many components of this strategy are covered by the law, which is supposed to outline the whole grand design and strategy for manufacturing development over the next 25 years.

Also glaringly missing from the law are references to the 25-year Master Plan for the Acceleration and Expansion of Indonesia'€™s Economic Development (MP3EI), which was launched in 2011 and designed to make Indonesia one of the world'€™s 12 largest economies by 2025.

The plan includes US$470 billion in private and public investments to develop connected economic corridors across the major islands with clusters of manufacturers based on the comparative advantages provided by the natural resources (commodities) in the various regions.

We think the development of an economic corridor featuring clusters of industries based either on single or many commodities would enhance economies of scale and an efficient supply chain.

We nevertheless expect the Industry Ministry to enact as soon as possible implementation regulations to enforce the law, notably the articles regarding the compulsory use of domestic products for projects financed by the state budget and state companies and the compulsory siting of manufacturing plants in industrial estates.