P

olicymakers need to start focusing more on the development of the services sector and high-skilled manufacturing to reduce dependence on commodities, which have seen prices slump in recent years, economists have said.

Services such as healthcare and insurance are touted to be among the fastest growing in the industry, with the number of young people outpacing that of the elderly, Center for Economics and Business Research (Cebr) senior economist Danae Kyriakopoulou and former Indonesia Stock Exchange (IDX) chief Ito Warsito both said.

'€œMoving toward high-end manufacturing or services sector is more sustainable because it allows competition in other matrix ['€¦] and the services, in particular, make the economy less dependent on exports,'€ said Kyriakopoulou.

She said that economic growth that was based on commodities was not very sustainable for economies in emerging markets because commodities could be quite volatile in terms of outlook and prices.

Cebr has noted that Southeast Asian countries'€™ exports to major export markets like the US, Japan and Europe have slumped, with only 31 percent of the region'€™s exports going to the markets last year compared to almost half in 2000.

Indonesia alone has seen a slump of 18 percent in its coal exports this year. Indonesia, which according to the Institute for Development on Economics and Finance (Indef) relies on commodities for more than 70 percent of its exports, saw a 20.98 percent slump in its exports value during the first 10 months of the year, Central Statistics Agency (BPS) data show.

Meanwhile, Ito said that two prominent sectors that had good potential were healthcare and financial services as the country'€™s growing young, rising middle-class consumers would propel demand for the services.

'€œThe growing number of the country'€™s productive age population has high potential for both sectors,'€ he said.

Indonesia'€™s annual premiums have reached more than US$15 billion, but its insurance penetration rate remains low at below 2 percent of its more than 250 million population.

Both Ito and Kyriakopoulou also mentioned that Indonesia needed to develop high-end manufacturing that would produce added-value products.

HSBC Indonesia country manager and CEO Sumit Dutta also mentioned that there was a need for the country to shift its heavy reliance on commodities as commodity downturns had squeezed the growth of a number of provinces.

Finance Minister Bambang Brodjonegoro said previously that the country was leaning toward its manufacturing industry to reduce the excessive reliance on commodities, and in turn export more added-value goods.

The Finance Ministry has issued new fiscal incentives, extending the period of tax holiday from between five and 10 years to between five and 15 years with the possibility of an extension of up to 20 years.

The facility also extends its coverage to nine sectors from the previous five. Among new industries covered are manufacturing related to agriculture, forestry and fisheries, marine transportation, manufacturing within special economic zones (KEKs) and economic infrastructure not part of the government-to-business program.