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Jakarta Post

Manufacturing less dominant in economy, but not shrinking

  • Rachmadea Aisyah

    The Jakarta Post

Jakarta   /   Thu, April 18, 2019   /   01:21 pm
Manufacturing less dominant in economy, but not shrinking A worker is seen at an auto assembly plant in Bekasi, West Java. (Kompas/Totok Wijayanto)

The government is not buying arguments that the manufacturing sector is shrinking even though its percentage contribution to the economy has declined over the past few years. 

The manufacturing sector remains the largest contributor to GDP. However, its percentage contribution to GDP reached 19.86 percent last year after struggling to remain at the 20-percent mark.  

Vice President Jusuf Kalla has sought to shed light on the situation, saying the declining percentage should not be prematurely perceived as a sign the country was experiencing deindustrialization. 

“Our [manufacturing] sector is growing at 5 percent per year. It is growing, not contracting,” Kalla said during the 2019 Indonesia Industrial Summit (IIS) recently. “Between 2014 and 2017, [its contribution to GDP] was 21.3 percent on average.”

The term “deindustrialization” has garnered more attention following claims made by presidential candidate Prabowo Subianto, who argued the country’s manufacturing sector was in decline and was being left behind by its peers.

Kalla added that the government was committed to boosting manufacturing through the implementation of President Joko “Jokowi” Widodo’s road map on the fourth industrial revolution, titled Making Indonesia 4.0. 

He said technology and data control were the keys to getting ahead in today’s industrial race with the rise of automation, but that people would remain the backbone of the economy.

“We are not like those developed but aging countries, as we have a large workforce thanks to our demographic bonus [...] Physical work will remain relevant, as we need workers who can ensure [our] consumption [continues],” said Kalla. 

Indonesia’s working age population, or those aged 15 to 44, was projected to reach just over 200 million in 2030, or approximately 68 percent of the population, giving the country the highest number of productive aged citizens in Southeast Asia, the National Development Board (Bappenas) said. 

At the same time, global consulting firm Mckinsey has estimated that Industry 4.0. would contribute an additional US$121 billion to GDP by 2025 if implemented properly. 

Industry Minister Airlangga Hartarto said the Making Indonesia 4.0 road map would promote the manufacturing sector and boost its contribution to GDP to 25 percent.

In addition, he said the sector would provide jobs to more than 11.5 million people and increase economic growth by 1 to 2 percent by 2030. 

“We can develop manufacturing through technological advancement, increased investment, human resources development and providing fiscal incentives to encourage research and development,” Airlangga said. 

To encourage local manufacturers to implement Industry 4.0, his office has rolled out the Indonesia Industry 4.0 Readiness Index (INDI 4.0), a self-assessed measurement that determines the scale of Industry 4.0 implementation by companies. 

The INDI 4.0 is measured from a scale of zero to four, with four indicating that a company has fully incorporated Industry 4.0-related technologies in its production. 

“More than 300 companies have participated and assessed themselves for INDI 4.0 [...] On average, most companies scored 2.5 to 2.6, so we hope that some of them will hit 4.0 in the future,” said Airlangga. 

Coordinating Economic Minister Darmin Nasution said the declining percentage contribution of manufacturing to GDP was understandable given the increased contribution of more progressive sectors. 

“We are living in an era where the elements of service, tourism, digitization and so on have deeply impacted our lives, so it is no problem if the manufacturing sector [contribution to GDP] never reaches 30 percent again,” Darmin said on the sidelines of the IIS. 

He cited Bank Indonesia’s latest Prompt Manufacturing Index (PMI), which measured the manufacturing sector to be at an “expansive” level of 52.65 percent in the first quarter of 2019, owing to increases in demand in preparation for April’s elections and the Idul Fitri holiday in June.  

“This index also foresees that our manufacturing sector will still be perceived positively in the next [second] quarter [...] so the PMI will improve,” said Darmin.