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RI should avoid commodity price ‘rollercoaster’
Thomas Lembong (JP/Donny Fernando)Investment Coordinating Board (BKPM) head Thomas Lembong has said Indonesia needs to boost investment in the downstream industry in the next five years in order to free itself from an intergenerational reliance on raw commodity-based exports that are prone to price swings
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Thomas Lembong (JP/Donny Fernando)
Investment Coordinating Board (BKPM) head Thomas Lembong has said Indonesia needs to boost investment in the downstream industry in the next five years in order to free itself from an intergenerational reliance on raw commodity-based exports that are prone to price swings.
“We have to get off the commodity price rollercoaster,” Thomas said in an interview with The Jakarta Post at his office on Tuesday.
He said Indonesia needed to promote the downstream industry so that it could export processed products from both the mining and agriculture sectors in order to achieve more price stability and gain greater added value from its exports. By doing so, Indonesia could reduce its current account deficit, which has continued to widen because of the country’s weak exports, he added.
Indonesia’s current account deficit reached US$7 billion in the first quarter of this year, 2.6 percent of gross domestic product (GDP). The figure was larger than the 2.01 percent of GDP in the first quarter of last year. Analysts are worried that with the weak performance of the country’s exports and low foreign capital inflows, the current account deficit could further widen in the coming months.
The government has launched a series of programs not only related to the simplification of licensing procedures but also tax holidays for certain business sectors in order to attract foreign investment into the downstream and manufacturing sectors.
In the mining sector, the government has required mining companies to process their mineral production in local smelters before being exported. They can use their own smelters or other companies’ smelters to process their production when the government’s ban on the export of raw minerals takes effect in 2022.
Publicly listed diversified mining company PT Aneka Tambang has recently announced a multibillion-dollar investment plan to produce cathodes and ferronickel in partnership with two Chinese companies.
Apart from the downstream sector, Thomas said the government would also attract investment to further promote the country’s service sector, particularly tourism. With the improvement of the road infrastructure such as toll roads and railways, the country’s tourist industry will thrive in the next few years.
For instance, he predicted the Jakarta-Bandung high-speed train railway, which is currently under construction, will promote business activities in smaller towns between the two large cities.
Indonesia also needs to develop more tourist destinations beyond Java and Bali in order to attract more foreign tourists he said, adding that the tourist sector would enable Indonesia to earn more foreign exchange, which would not only help empower the local economy but also reduce the current account deficit.
The government aims to increase the number of foreign tourists to 20 million this year from 15.8 million in 2018.
Thomas said the government would also continue to pay close attention to the booming e-commerce industry, the growth of which Bank Indonesia has forecast at between 100 and 150 percent a year. Global management consulting firm McKinsey & Company has also estimated that e-commerce sales will reach $65 billion annually by 2022, eight times the $8 billion recorded in 2017
Meanwhile, the BKPM has set a modest 8.4 percent growth target in total investments to Rp 792.3 trillion ($55.67 billion) this year after a slow performance in 2018, when investments grew by a mere 4.1 percent compared to 13.1 percent in 2017.
With the encouraging growth during the January to March period, however, Thomas said he was optimistic the annual growth would reach as high as 13 percent at the end of this year
Total investment rose 5.3 percent to Rp 195.1 trillion by the end of March this year from Rp 185.3 trillion in the same period of last year.
Foreign investments, which made up over 55 percent of the figure, declined by 0.9 percent to Rp 107.9 trillion, but this was in contrast to the 11.6 percent slump in the previous quarter.
