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Dark skies ahead for Jokowi's economy: Experts
The future economic team of newly inaugurated President Joko "Jokowi" Widodo and Vice President Ma'ruf Amin will face several challenges ahead as industries falter, trade deteriorates and a skills gap amid rising automation threatens job growth, economists have said
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The future economic team of newly inaugurated President Joko "Jokowi" Widodo and Vice President Ma'ruf Amin will face several challenges ahead as industries falter, trade deteriorates and a skills gap amid rising automation threatens job growth, economists have said.
Think tank Institute for Development of Economics and Finance (Indef) senior economist Didik J. Rachbini said Jokowi’s economic team in his first term in office left much to be desired as it lacked the teamwork needed to create efficient policies, citing manufacturing as an example of a sector that required change.
Didik said the manufacturing sector, which he stated had received little attention in the past five years, needed special treatment from the future economic team so that exports could be revived.
“There is a crucial need for the [new] government to revive industry, to increase exports in order to reduce the current account and trade deficits,” he said at a business dialogue attended by former vice president Jusuf Kalla in Jakarta on Thursday.
“A lot of industries have suffered setbacks due to weak competitiveness because of inefficient bureaucracy, costly logistics and [complicated] licensing.”
Without proper handling of the industrial sector, Didik went on to say, it would be difficult to increase the country’s exports amid growing competition from other Asian countries.
In a speech made after taking his oath of office on Sunday, Jokowi vowed that human resources development would be his administration’s priority going forward while simplifying bureaucracy and working with the House of Representatives to create omnibus laws on job creation and empower micro, small and medium enterprises, among other things.
He also promised to transform Indonesia’s economy from one that relies heavily on natural resources into one with increased manufacturing competitiveness and modern services with high added value.
The manufacturing sector’s contribution to the country’s GDP fell to 19.52 percent in the second quarter from 20 percent in the first three months of the year, as the sector only grew 3.5 percent annually, below the overall economic growth target of 5 percent and marking the sector’s lowest figure since the second quarter of 2017, according to Statistics Indonesia (BPS) data.
Meanwhile, national exports dropped 5.74 percent year-on-year (yoy) in September to US$14.1 billion, marking 11 consecutive months of yoy declines, BPS reported. Imports, meanwhile, were down 2.41 percent yoy in September at $14.2 billion, resulting in a trade deficit of $160 million.
Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah shared Didik's view as he believed the government’s lack of focus on industrial development was the reason for the decline in the manufacturing sector’s contribution to the country’s GDP, which was nearly 30 percent back in 2002.
“The country needs to conduct structural reforms so that we no longer rely on exports of [unprocessed] commodities. We need to develop downstream industries to increase exports of processed products,” Piter said.
Jokowi’s past administration struggled to boost exports in a bid to jack up the country’s sluggish economic growth amid lower commodity prices and heightening trade tensions that disrupted global demand.
As such, various efforts are being made to boost exports, from encouraging local businesses to produce more competitive products to holding an international trade forum to secure more shipments abroad.
Meanwhile, the International Monetary Fund October 2019 World Economic Outlook drastically cut the global trade volume growth projection to 1.1 percent this year from the 3.4 percent forecast in April.
“Rising trade and geopolitical tensions have increased uncertainty about the future of the global trading system and international cooperation more generally, taking a toll on business confidence, investment decisions and global trade,” the report reads.
In an interview with The Jakarta Post on Thursday, Kalla expressed concern about the country’s economic outlook despite his optimism over the new government improving economic growth if it worked to address the issues that were holding back the economy.
“However, this year and next year will be difficult," Kalla said. "[We have to] improve our economy's productivity, improve the people's skills so that we can add more value. And we have to simplify our bureaucracy, both the [business] permit process and the decision-making process have to be easier.
"Looking at the world as a whole, and the Asia and Southeast Asia region, I will remain pessimistic as long as the trade war between China and the United States continues [...] The conflict in the Middle East will also have an effect on energy prices and could impoverish the world. So, if it continues, of course we will be pessimistic looking at the situation.”
The new economic team would also need to solve skills gap issue amid the rising popularity of automation and machine learning.
The Automation and the Future of Work in Indonesia study published by management consultancy McKinsey & Company projects that 23 million jobs could be displaced by automation by 2030, but 27 million to 46 million new jobs could be created in the same period.
That would result in 23 million more jobs created, 10 million of which would be new types of work.
The World Bank’s acting chief economist for East Asia and Pacific, Andrew Mason, told the Post in a recent interview that policymakers would need to make sure that even in the most remote and rural areas, children and their families have access to affordable digital technologies and attain basic digital literacy, all so that that they could participate successfully in the 21st-century economy.
“The idea is that if Indonesia can continue to strengthen its business and regulatory environment, it will be able to attract more foreign investment. With more foreign investment also comes new technologies, the opportunity to learn from more advanced enterprises and this, in turn, can have positive spillover effects on the economy,” he said.
