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Manufacturing sector still expanding, though at slower rate: Report
Indonesia’s manufacturing industry continues to expand, though at a slower rate despite concerns over deindustrialization, a recent report has shown
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span>Indonesia’s manufacturing industry continues to expand, though at a slower rate despite concerns over deindustrialization, a recent report has shown.
Cement, food and fertilizer industries lead industry gains as textile, paper, vehicle and machinery manufacturers contract.
Bank Indonesia’s (BI) prompt manufacturing index (PMI) shows that the manufacturing sector’s performance remained expansive at 51.5 percent in the fourth quarter last year, compared to 52.04 percent in the previous quarter. A reading of above 50 percent indicates expansion and below that illustrates contraction.
The highest expansion occurred in the cement and nonmetal mining industry subsector with 57.43 percent, followed by food, beverage and tobacco (52.47 percent), fertilizer, chemicals and rubber-based goods (51.48 percent).
Meanwhile, sectors that border between expansion and contraction are iron and steel basic metals (50.53 percent), as well as wood products and other forestry products (50.36 percent).
Contractions, meanwhile, were seen in the October-December period of 2019 for these sectors: textile, leather goods and footwear at 49.71 percent, paper and printed products (49.01 percent) and transportation, equipment and machinery (47.14 percent).
Institute for Development of Economics and Finance (Indef) program director Esther Sri Astuti said the flood of imports in several industries was one of the main causes of the slowdown in the manufacturing sector’s business activities.
“The upstream textile and steel industries, for example, have been experiencing an influx of cheaper imports in the past four years,” she told The Jakarta Post on Monday, adding that the imports made garments and construction material producers reluctant to use local products.
The government is preparing three omnibus laws and deregulation measures and plans to streamline investment business licenses to jack up investment and revive Indonesia’s manufacturing industry.
The largest contributors to Indonesia’s gross domestic product (GDP), manufacturers have been struggling to maintain their performance. Statistics Indonesia data show that the industry’s contribution to GDP declined to 19.6 percent in the January to November 2019 period, compared to 30 percent during its prime in the 2000s.
The omnibus laws may not necessarily be the final solution for all deindustrialization problems in Indonesia, Esther said.
“In my opinion, the condition of Indonesia's manufacturing industry next year will not change as long as there is no significant policy change,” she added.
In fact, the omnibus laws may well attract investors who do not want to participate in a transfer of knowledge or who may harm the environment, as the government is also planning to abolish the Environmental Impact Analysis,
Esther said.
She suggested that the government create supply and demand for Indonesia's manufacturing industry and that local products at least be able to fill the domestic market.
“The government must also maintain low production costs since local products cannot compete due to the high costs of doing business, such as the cost of energy,” she said, adding that sustainable legal certainty in the country was also important.
Industry Minister Agus Gumiwang Kartasasmita said the PMI slowdown was an inseparable and inevitable cause of global and national economic conditions.
“However, the PMI has actually rebounded to a higher level in the past months, so there is hope,” he told the press on Monday on the sidelines of an event that kicked off 2020 budget disbursement.
BI predicted that in the first quarter of this year, the PMI would rise to 52.73 percent, higher than 52.65 percent in the same period last year.
It further projected that PMI expansion would occur in almost all subsectors, with the highest in cement and nonmetallic goods (56.85 percent), followed by the timber and other forest products (53.79 percent), as well as food, beverage and tobacco products (53.03 percent).
