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Jakarta Post

Next government must address labor productivity : Experts

  • The Jakarta Post

    The Jakarta Post

Jakarta   /   Fri, February 28, 2014   /  10:39 am

Worker productivity must be improved if Indonesia is to retain its status as the darling of investors in the Asia-Pacific region, an expert with Jakarta-based think tank the Centre for Strategic and International Studies (CSIS) said.

'€œThis must be a concern for the next government as many employers expect wage increases to be in line with a rise in productivity,'€ CSIS senior researcher Haryo Aswicahyono said on Thursday at the launch of a book entitled Untuk Indonesia 2013-2019: Agenda Ekonomi (For Indonesia 2014-2019: An Economic Agenda) published by CSIS.

 The 133-page book highlights several key economic issues that the new government, expected to take office in October, must address to spur or maintain economic growth.

Haryo, one of the book'€™s authors, said that labor productivity was a key issue in the book as it would be one of investors'€™ main considerations before pouring their money into the country.

'€œIndonesia'€™s labor productivity only grew by 2.8 percent per year from 1980 to 2012, while Thailand grew by 3.6 percent,'€ he said.

According to combined data from the World Bank and the International Labor Organization (ILO), Indonesia'€™s average minimum wage rose by 5.5 percent between 2000 and 2011 but its productivity only increased by 3.4 percent, while in China the figures were 7.2 percent and 10.1 percent, respectively.

Minimum wages across Indonesia increased by 30 percent from 2010 to 2013, the highest compared to Thailand (14.2 percent), China (8.4 percent), Vietnam (6.7 percent), Cambodia (5.2 percent), Malaysia (3.3 percent) and the Philippines (3.1 percent), the data shows.

There were two things that the new government could do to overcome the problem: improve the education system and make the labor market more flexible, he said.

Haryo said that Indonesia applied a high severance pay obligation on employers, discouraging them from offering permanent jobs or training to employees. '€œOn the other hand, employees also think that they needn'€™t perform well because they don'€™t get training or an offer of a permanent job,'€ he said, adding that the new government had to provide a set of rules to deal with the problem.

CSIS economic department head Djisman Simanjuntak, one of the book'€™s writers, said that infrastructure bottlenecks were a challenge that need to be addressed by the new government. According to data from the CSIS, dwelling time in most of Indonesia'€™s ports was between seven and eight days, compared to four days in Malaysia. In addition, sailing costs accounts for 52 to 62 percent of the total shipping cost.

Investment Coordinating Board (BKPM) chairman Mahendra Siregar said, however, that Indonesia would remain attractive despite all the hurdles, saying that the strong domestic market had attracted foreign investment.

 '€œThe challenge is how to sustain demand. One way is by boosting manufacturing in other cities outside Jakarta,'€ he said at the same event.

BKPM recorded that realized investment stood at Rp 398.6 trillion (US$34.16 billion) last year, a 27 percent increase from Rp 313.2 trillion in 2012.

The government expects investment to slow in 2014, as companies may hold off during an election year, providing less stimulus to an economy grappling with weaker growth and a current-account deficit. Total investment in 2014 is expected to grow 15 percent to about Rp 456 trillion.

'€œFrom the total investment, Japan'€™s total investment has surged by six times over the last three years, from $713 million in 2010 to $4.7 billion last year, particularly due to stronger automotive demand,'€ Mahendra said.

Auto sales surged by 9 percent to 1.2 million units last year from 1.1 million in 2012, according to data from the Association of Indonesian Automotive Manufacturers (Gaikindo).

Meanwhile, motorbike sales reached 7.7 million or a 10 percent increase from 7 million in 2012, data from the Indonesian Motorcycle Industry Association (AISI) shows.

Sluggish investment, weaker external demand and higher interest rates mean Indonesia'€™s economic growth will slow to between 5 percent and 5.5 percent this year and next, the International Monetary Fund projected in an annual assessment on Dec. 16. The Southeast Asian nation is relying on investment to make up for flagging exports as it seeks to narrow a current-account gap that led the rupiah to be Asia'€™s worst performing currency in 2013. (koi)

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