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Jakarta Post

Govt prepares incentives for labor-intensive industry

  • Linda Yulisman

    The Jakarta Post

Jakarta   /   Thu, February 12, 2015   /  07:41 am

The government is preparing specific incentives to spur growth in the labor-intensive industry to help create 2 million new jobs each year.

The incentives may comprise fiscal incentives, such as exemption of import duties for raw materials, and non-fiscal incentives, according to Investment Coordinating Board (BKPM) chairman Franky Sibarani.

'€œThe most important point is that we'€™ve lost the momentum to boost exports and investment in the labor-intensive industry. The trend shows that in the past three years, the number of workers absorbed by the industry has declined,'€ Franky said Tuesday on the sidelines of an investment forum at his office.

Apart from providing the much-needed incentives, the government also wants to improve the labor climate and industrial relations by revising rules on fixed-term contracts and sub-contracts of seasonal output as well as assuring certainty in minimum wage arrangements, according to National Mid-Term Development Plan for 2015-2019.

The labor intensive industry is defined as that which employs at least 200 workers with labor costs making up at least 15 percent of total production costs. The industry comprises the manufacturers of food and beverages, tobacco, textiles and garments, leather and leather products, footwear, toys and furniture.

Main issues center on minimum regional wages, business licensing at the regional level, business energy and utility, logistics and supply of raw materials. Despite the obstacles, the number of investment projects in the labor-intensive industry followed an upward trend from 2010 to 2014, surging by between 20 and 40 percent each year with 1,528 projects registered in 2014, contributing 15 percent to overall domestic and foreign investment. However, the same trend did not apply in terms of labor absorption. The number of workers have tumbled, down from 337,305 workers in 2011 to 203,732 workers last year.

A number of business groups representing the labor-intensive industry have requested the government guarantee certainty in minimum wage policy to enable them to design long-term business plans.

Indonesian Footwear Association (Aprisindo) chairman Eddy Widjanarko said at the forum that certainty in labor wage arrangements would allow footwear manufacturers to boost investment and exports significantly. Footwear exports reached US$4.5 billion last year and 68 firms poured investment into the sector.

'€œIf the regional minimum wage problem can be resolved, I'€™m sure 200 new firms would inject investment. If a firm has 10,000 workers on average, the sector will take up 1 million workers,'€ said Eddy.

The BKPM has been supporting the government in tackling this issue, which is by way of a certain formula that takes inflation as a component to determine annual wage increases.

Indonesia has applied a cheap-labor policy to lure foreign investment to accelerate development and lower high rate of unemployment since the New Order regime under the late former president Soeharto.

In addition to the wage issue, the business groups also demanded the government provide special incentives to increase expansion in the labor-intensive sector to enable them to compete with fellow producers in other Southeast Asian countries.

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