Indonesia has benefited from global production sharing but is still lagging behind its neighbors, an expert said.

Prema-Chandra Athukorala, a professor of economics in the Crawford School of Public Policy in Australian National University (ANU), revealed compiled data from the United Nations Comtrade database — which is customs-based data — that shows Indonesia lacks integration with global production networks.

“Global production sharing has been a prime mover of export dynamics in East Asia, and the emerging opportunity for international exchange [was] reflected in Indonesia’s export patterns as well, but Indonesia has lagged behind the other East Asian countries,” Athukorala said in his speech during the 2018 Hadi Soesono Policy Forum. The forum was held by the Centre for Strategic and International Studies (CSIS) in Jakarta on Monday.

The share of global production network products accounted for 57.1 percent of total Indonesian exports from 2015 to 2016, the data revealed, lower than Thailand and Malaysia, at 64.6 percent and 68.9 percent, respectively, of its exported products used in global production networks.

Indonesia’s share of its global production network products represented US$40 billion worth of goods during the period, while Thailand and Vietnam exported goods worth $99.8 billion and $108.5 billion, respectively, of global production network products.

Athukorala defined global production networks as the interfirm relationship that binds a set of firms engaged in global production sharing, which is a dispersion of separate stages of an integration production process across national boundaries.

The same data revealed that the share of Indonesian exported products of information, technology and communication (ITC) — which he said was one of the prime movers of export dynamism in other high-performing Asian economies — accounted for only 18.3 percent.

Athukorala said there were three things that were important for a country in participating in the global production network, namely availability of trainable labor, service link cost — which is the cost incurred in coordinating production processes across borders — as well as proactive investment promotion campaigns.

He suggested Indonesia combine further reforms to cut service link cost, with proactive investment promotion campaigns to attract multinational companies that are engaged in global production networks. CSIS senior researcher Haryo Aswicahyono said continuing reform would be key for Indonesia to eventually join global production networks.

“If we don’t solve [the problems], we risk lagging behind more and not being [considered] part of [global production networks],” he said.

He added that other countries, such as Thailand in the automotive sector, have been consistently reforming their regulations to attract investment.

However, Haryo was upbeat that several of Indonesia’s manufacturing sectors, such as automotive and petrochemical, could be ready to join the global production network.

“The automotive sector has a long history. We already have the experience, and the companies are already here. So the potential to move forward are big as our domestic market is strong and our export markets remain open, particularly in ASEAN,” he said.

Industry Minister Airlangga Hartarto previously said boosting the export output of the automotive industry was among the quick ways in which the country could reduce its current deficit in the trade balance.

He, however, emphasized the need for fiscal incentives in the form of the exemption of luxury tax (PPnBM) for exported sedans to be able to effectively boost the industry’s export output.

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