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Focus on Java holds back Indonesia’s manufacturing industry
The fact that manufacturing industries in Indonesia are still heavily concentrated on the island of Java is preventing the sector from reaching its full potential, experts believe.
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Rolled steel is arranged at JFE Steel Galvanizing Indonesia in Cikarang, West Java. The contribution of the manufacturing sector to the country’s GDP is still below the targeted 20 percent. (Antara Photo/Risky Andrianto)
The manufacturing sector is the largest contributor to Indonesian exports as well as the country’s GDP, but the fact that the sector is heavily concentrated on one island of the archipelago has been holding it back, experts believe.
Indonesia’s Java-centric industrial development reflects in Statistics Indonesia (BPS) data from June, which show that Java alone accounted for 47.62 percent of national exports. From January to June, 55 percent of new investment projects were located in Java.
Edi Prio Pambudi, an expert staff member at the Office of the Coordinating Economic Minister, said the centralization had led to high costs of the country’s manufactured products.
“Our manufacturing industries are mostly located on the island of Java, so we create all our logistics plans based on that location, which raises logistics and transactional costs,” Edi said during a seminar on the manufacturing industry at Bank Indonesia (BI) headquarters on Monday.
The manufacturing sector’s contribution to the country’s GDP is still below the ideal standard of 20 percent, and it has even shown a slight decline. In the second quarter of 2019, the manufacturing sector’s GDP share declined to 19.52 percent from 19.8 percent last year.
The sector’s growth is also declining and has fallen behind overall economic growth, which was recorded at 5.05 percent in the second quarter. In the same period, the manufacturing sector grew by a mere 3.54 percent, down from 3.88 percent in the first quarter and a far cry from the Industry Ministry’s target of 5.4 percent for this year.
Another problem the government should address was the lack of skilled trainers to share their knowledge with the future workforce, especially in remote regions of the country. Today’s labor force had to master many a skill, Edi said, and it would take them years to acquire those skills.
