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Navigating Indonesia’s manufacturing challenges
Data from the World Bank shows that the manufacturing industry contributed only 18.3 percent to the national economy in 2022, a significant drop from the 32 percent it accounted for in 2002. This data vividly illustrates the magnitude of the challenge and the urgency for addressing it.
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Manufacturing growth, productivity and job creation by subsector (average 2011-2019). (Indonesian Manufacturing Industry Statistics, Statistics Indonesia (BPS)/-)
I
ndonesia has performed well in developing downstream industries in recent years. However, the natural resource-based manufacturing that the government has been pursuing will not create enough jobs.
It is important to note that the window of opportunity in 2030-2035 will be viable only if there is sufficient job creation. Therefore, in addition to downstream industries, Indonesia should also enhance other manufacturing sectors and improve workforce access to finding suitable jobs in manufacturing.
Indonesia possesses comparative advantages over other nations, such as its abundance of natural resources and its massive workforce. The government has been successful in adding greater value to its natural resources, and this downstream focus should continue.
However, Indonesia still faces challenges in creating enough jobs to secure a demographic dividend in the next five to 10 years, especially in manufacturing. Jobs are crucial to this industry, as they lead to a more productive workforce compared to the less productive, labor-intensive services sector.
Unfortunately, Indonesia’s manufacturing industry is facing several challenges. Many have noted that manufacturing is experiencing premature deindustrialization. This means that the economy is shifting away from manufacturing before realizing its full potential.
Data from the World Bank shows that the manufacturing industry contributed only 18.3 percent to the national economy in 2022, a significant drop from the 32 percent it accounted for in 2002. This data vividly illustrates the magnitude of the challenge and the urgency for addressing it.
Additionally, the manufacturing industry is undergoing significant changes. Its fastest-growing subsectors are those reliant on natural resources and substantial capital investment.
