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Improving innovation with omnibus bills
It is far from too late for both the government and the House of Representatives to use the golden opportunity presented by the omnibus bill’s momentum to establish Indonesia’s first-ever coordinated innovation policy.
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Workers who are members of the Confederation of Indonesian Trade Unions (KSPI) held an action to reject the Omnibus Law Cipta Karya in front of the Parliament Building, Senayan, Central Jakarta, Wednesday (02/12/2020). (JP/Dhoni Setiawan)
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ndonesia looks set to boost foreign investment and economic growth through the so-called omnibus bills on job creation and taxation. These long-awaited bills aim to revise several dozen laws in an effort to reduce overlapping and inconsistent rules in the current jungle of laws and regulations. Indonesia needs to maintain 5 percent or higher growth in order to join the high-income countries club. To achieve such a feat, Indonesia has to break through US$12,055 in per capita gross domestic product (GDP).
Markets and investors understand that the tax, regulatory and labor reforms through the omnibus bills are directed to grow Indonesia’s manufacturing base and boost exports by increasing the ease of doing business and inward investment. Therefore, obviously most provisions in the bills tackle issues on cutting red-tape and protectionism in addition to more flexible and liberal labor regulations. These measures will certainly help boost labor-intensive and resource-driven economic activity.
Another, less-anticipated dimension of the bills is the set of measures aimed at supporting knowledge-intensive economic activities. This dimension features more obviously in the job creation omnibus bill under the special cluster titled “research and innovation”.
This is to be welcomed. It is high time for Indonesia to prioritize the link between investments for economic growth and investments in research and development (R&D) activities. By looking at these variables of economic complexity, labor force productivity and innovative capabilities, Indonesia needs an innovation policy that supports its transition from a middle-income economy to a high-income economy with a higher share of knowledge-intensive production.
Indonesia ranked 71st in the Economic Complexity Index of the Harvard Center for International Development (2013-2017), lagging behind Thailand (in 32nd place), Malaysia (in 25th) and Singapore (in 4th). This shows that Indonesia’s products and exports are more factor-driven in contrast to its neighbors, who have more innovation-driven products. In terms of labor productivity, using 2018 World Bank Data, Indonesia also ranks behind Singapore, Malaysia and Thailand.
With regard to innovative capabilities, despite many important variables such as education and infrastructure, an important variable that Indonesia lags behind most countries on is its R&D expenditure. The latest data from the World Bank shows that the world’s average R&D expenditure as a percentage of GDP is 2.3 percent. Indonesia, a member of the Group of 20, only spends 0.08 percent of GDP on R&D. This number is not only way off compared to the world’s average but is also dwarfed by other neighboring countries such as Vietnam (0.44 percent), Thailand (0.62 percent), Malaysia (1.30 percent) and Singapore (2.18 percent).
This is why the omnibus bills’ inclusion of attention to research and innovation is something to be celebrated. The bills, however controversial, present the government with the golden opportunity to establish a well-coordinated Indonesian innovation policy, which is almost nonexistent today.
