TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
RI manufacturing ‘could boost global market share ‘
Indonesia needs to improve the cost and value-based competitiveness of its manufacturing industry to enable the sector to make a greater contribution to the economy, the World Bank says
Change Size
I
ndonesia needs to improve the cost and value-based competitiveness of its manufacturing industry to enable the sector to make a greater contribution to the economy, the World Bank says.
In its latest report titled “Picking up the Pace, Reviving Growth in Indonesia’s Manufacturing Sector”, the bank said that as demand for manufactured goods grew and inflows of foreign direct investment accelerated in recent years, the domestic industry had reached “a positive momentum”.
Domestic demand has been remarkably resilient since the start of the global financial crisis, growing by 6.4 percent in the first quarters of 2012 on the back of investment and private consumption.
At the same time, foreign direct investment in Indonesia’s manufacturing sector is also on the rise. Recent data issued by the Investment Coordinating Board (BKPM) suggests that in the second quarter of 2012, foreign direct investment in manufacturing activities reached $1.2 billion, up by more than 62 percent year-on-year.
“Indonesia could potentially boost its global market share in manufacturing, create millions of new jobs and facilitate structural transformation. But riding on the back of domestic and international demand is not enough. To improve overall competitiveness and sustain growth, the government and private sector need to overcome the main challenges in the manufacturing sector,” says Stefan Koeberle, World Bank country director for Indonesia.
The bank’s senior economist for Indonesia, Sjamsu Rahardja, said at the launch of the report on Wednesday that easing barriers to access loans for working capital, for example, could help transform small enterprises, the largest part of the country’s business entities, to middle-scale enterprises.
At present, Indonesia faces a “missing middle”, a term coined by the bank to refer to a large proportion of small and unproductive manufacturing firms that prevent the manufacturing industry from providing a larger share to economic growth and job creation.
“The huge number of small enterprises creates an opportunity loss for us, therefore we expect them to climb up to the higher level,” he said.
Lower transportation costs could also bring positive impacts by facilitating non-exporting firms to become exporters, and aiding exporters to expand market shares overseas, Sjamsu said.
Indonesia’s manufacturing industry coped with serious challenges after the financial crisis in 1997 that saw the depreciation of the rupiah and surging labor costs.
Between 1990 and 1996 before the crisis, the domestic manufacturing industry grew 12 percent per year, contributing one-third of real GDP growth.
Although it bounced back after the crisis, growth, which stood below two-digits, was slower compared to that of regional peers in Asia, such as Malaysia, Thailand and South Korea. Major bottlenecks at the macro-level, a shift to commodities and resource-intensive sectors and surging labor costs have been identified as part of the problem.
Commenting on the World Bank’s recommendations, Bank Mandiri chief economist Destry Damayanti said that local banks had begun to channel more funds to small enterprises in recent years.
“We aim to tap into the segment because there are a huge number of entities there and we see that they are still resilient amid economic uncertainties,” she told reporters after the launch.
Indonesian Employers Association head Sofjan Wanandi said policymakers should make better policies on labor issues, including those regarding outsourcing that might facilitate more efficient production.
