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Building Indonesia’s Industry 4.0: What’s really in it for us?
Industry 4
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span>Industry 4.0 is one of the newer economic terms pervading Jakarta, following other timely catchphrases like trickle-down effect in the New Order era and krismon (monetary crisis) during the 1998 Asian financial crises, all of which try to describe where the country’s economy is heading.
President Joko “Jokowi” Widodo began popularizing the term Industry 4.0 to encourage the digitalization of domestic industries late last year, after which government officials, businesspeople, economists and media outlets quickly latched on to the jargon as political rhetoric for development.
At its core, the Fourth Industrial Revolution — colloquially Industry 4.0 — is a term coined by German economist Klaus Schwab to describe four major technological evolutions in human history, which are the steam engine (first revolution), electricity (second), the internet (third) and the so-called internet of things (fourth).
Forbes contributor Jacob Morgan neatly describes the internet of things (IoT) as the concept of “basically connecting any device with an on and off switch” — such as security cameras, refrigerators, street lamps and traffic lights, among others — “to the internet [and/or to each other].”
In Indonesia, Industry Minister and Golkar Party politician Airlangga Hartarto interpreted Schwab’s ideas into the “Making Indonesia 4.0” road map, which was officially launched by President Jokowi in April last year, kick-starting the popular usage of the term.
Among political rhetoric, theory and the road map, the latter is the most concrete manifestation of the term Industry 4.0.
The road map lays out a plan to digitalize the food and beverage (F&B), automotive, chemical, textile and electronics industries, which the ministry considers the five key manufacturing industries that will push Indonesia’s GDP into the global top 10 by 2030. Indonesia was 16th last year.
Airlangga’s road map also sets forth three ambitious targets for 2030, which are boosting economic growth by up to 2 percentage points, boosting research and development (R&D) spending to 2 percent of the state budget (currently 1 percent) and creating 10 million new jobs.
Among the five key industries, the ministry emphasizes F&B as “the champion” for manufacturing sector growth, because official statistics show that F&B contributes 60 percent to the GDP, 65 percent to exports and 60 percent to employment.
It is worth noting that the implementation of Industry 4.0 has popularized more tech jargon, namely artificial intelligence (AI), cloud computing, machine learning and robotics, all of which would warrant articles of their own.
A major concern is the number of jobs that will be replaced by automation. Business consultancy Mckinsey & Company estimates that machines will displace 800 million jobs worldwide by 2030, while consulting firm Deloitte writes that technological efficiency will create more demand and thus, create more jobs.
Another concern is the growth of the manufacturing industry in the country. Many have pointed out that Indonesia suffered deindustrialization as a consequence of the commodity boom. The share of the manufacturing industry in the country’s GDP has been steadily decreasing since 2010, except for a slight increase from 2013 to 2015.
The Industry Ministry secured an additional Rp 2.57 trillion (US$180.9 million) in fundings in the middle of last year to improve, among other things, industry standards, policies and supply chains related to the five priority industries.
“The government is also working on fiscal packages, especially tax incentives for R&D and industry research as well as tax holidays,” said the minister at a discussion held a month before the road map’s launch.
Building human resources is another cornerstone of the road map. Data released prior to the added funding show that the ministry budgeted Rp 1.79 trillion to facilitate certification programs, hire more trainers for vocational schools, improve school buildings and buy more training equipment.
However, criticism abounds over the implementation of Industry 4.0. Indonesia’s Purchasing Managers' Index — a benchmark for measuring manufacturing industry performance — remained unchanged at 49.9 points from January last year to January this year, despite the introduction of the road map.
Achmad Zaky, cofounder of e-marketplace Bukalapak, tweeted in February that “Industry 4.0 is nonsense”, because Indonesia’s R&D budget in 2016 ($2 billion) was far below that of developed economies like Singapore ($10 billion), Australia ($23 billion) and Japan ($165 billion).
McKinsey & Company noted in a report published in May that the country’s basic education curriculum did not include core skills needed for Industry 4.0, such as data science and data engineering.
The report also says that only 13 percent of Southeast Asian companies have attempted to implement Industry 4.0 technologies, citing limitations related to use cases, data integration, cybersecurity and talent acquisition.
McKinsey partner Vishal Agarwal said that, even though most Indonesians were active internet users, “there is one real challenge, which is to make sure that there is enough talent for the next phase”.
