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Jakarta Post

Analysis: Pulp, paper industry grows in 2019

The pulp and paper industry contributes significantly to the national economy

Araminta Setyawati (The Jakarta Post)
Jakarta
Wed, October 23, 2019

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Analysis: Pulp, paper industry grows in 2019

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span>The pulp and paper industry contributes significantly to the national economy. Up to this year’s first half, the industry contributed 6.8 percent to the non-oil processing industry and 1.2 percent to the national GDP.

The pulp and paper industry's proportion of GDP grows every year. In the first half of the year, the industry grew by 1.9 percent year-on-year (yoy) — an improvement compared with the contraction by 1.1 percent during the same period last year.

The trend of paper consumption needs, especially for packaging paper or industrial paper, continues to grow. This is in line with the growth of its user industries and online businesses, whose selling trends show a high demand for paper packaging.

Indonesia’s Graphic Company Association (PPGI) projects that the contribution of the packaging industry to the pulp and paper industry this year will increase to 70 percent from 50 percent last year. The value of the packaging business in 2018 is expected to be around US$7.25 billion. This is driven by a high demand for packaging by the manufacturing sector, especially for food and beverages.

Statistics Indonesia (BPS) data show the growth of the food and beverage industry reached 7.4 percent yoy in the first six months of this year.

The Industry Ministry continues to urge the pulp and paper industry to use the latest technology in its production. The ministry’s Industry Research and Development Agency (BPPI) head Ngakan Timur Antara said the process of making pulp and paper must prioritize efficiency and effectiveness with a sustainable use of resources.

Innovations in technology, especially in being environmentally friendly, are in line with “Making Indonesia 4.0”. In addition, production will be easier so that pulp and paper products can enter the global market, which will help improve their competitiveness.

BPS recorded that total pulp and paper exports in 2018 amounted to $7.13 billion. This figure has increased by 14.5 percent annually. Meanwhile, the contribution of exports to the paper industry reached 62.8 percent. The three main destinations for Indonesia's paper exports are China (14 percent), Japan (8 percent) and Malaysia (7 percent). At the same time, pulp is mainly exported to China (71 percent), Korea (7 percent) and Bangladesh (6 percent).

In 2019, pulp and paper exports are expected to reach $9 billion, in line with the addition of production lines from several paper producers. Based on their export performances, the paper industry ranks first while the pulp industry has been at third position from 2011 to 2017.

The Industry Ministry also noted an increase in domestic and foreign investments in the manufacturing sector. The ministry believes Indonesia is still considered a main destination country for investment. Indonesia is deemed to have the opportunity to develop its manufacturing industry through its large market and the availability of a competitive workforce. This is big enough potential.

Increased investment in the manufacturing sector can be seen from the achievements of domestic direct investment (DDI) and foreign direct investment (FDI) in the second quarter of 2019, which surged compared with the previous quarter. During the April to June period this year, the contribution of the manufacturing sector to the DDI was Rp 22.2 trillion ($1.57 billion), higher than the previous period’s contribution of Rp 16.1 trillion.

The value of DDI in the paper and printing industry reached Rp 653 billion from 198 projects while FDI amounted to $69 million from 205 projects. This is certainly good momentum. In addition to being able to meet the domestic market demand, the rise in investment also encourages exports.

Despite having the potential to grow, the domestic pulp and paper industry still faces challenges. First, economic tensions (the trade war) between the United States and China, which hamper paper exports to the US and have resulted in lower production and paper prices. Second, allegations of dumping from various countries will still haunt the industry and are a challenge at home.

There are several solutions that can be achieved. First, take advantage of the US-China tensions. Indonesia can cooperate with large cardboard and cardboard-box industries in China. Thus, their paper production can still be exported to the US while this would also improve Indonesia's export performance. Second, regarding paper-dumping allegations, Indonesia can expand its paper export market to several new markets. Government-assisted entrepreneurs can expand export areas, such as to East Asia, the Middle East and African countries.

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