Markets and investors understand that the tax, regulatory and labor reforms through the omnibus bills are directed to grow Indonesia’s manufacturing base and boost exports by increasing the ease of doing business and inward investment. Therefore, obviously most provisions in the bills tackle issues on cutting red-tape and protectionism in addition to more flexible and liberal labor regulations. These measures will certainly help boost labor-intensive and resource-driven economic activity. 

Another, less-anticipated dimension of the bills is the set of measures aimed at supporting knowledge-intensive economic activities. This dimension features more obviously in the job creation omnibus bill under the special cluster titled “research and innovation”.

This is to be welcomed. It is high time for Indonesia to prioritize the link between investments for economic growth and investments in research and development (R&D) activities. By looking at these variables of economic complexity, labor force productivity and innovative capabilities, Indonesia needs an innovation policy that supports its transition from a middle-income economy to a high-income economy with a higher share of knowledge-intensive production. 

Indonesia ranked 71st in the Economic Complexity Index of the Harvard Center for International Development (2013-2017), lagging behind Thailand (in 32nd place), Malaysia (in 25th) and Singapore (in 4th). This shows that Indonesia’s products and exports are more factor-driven in contrast to its neighbors, who have more innovation-driven products. In terms of labor productivity, using 2018 World Bank Data, Indonesia also ranks behind Singapore, Malaysia and Thailand.

With regard to innovative capabilities, despite many important variables such as education and infrastructure, an important variable that Indonesia lags behind most countries on is its R&D expenditure. The latest data from the World Bank shows that the world’s average R&D expenditure as a percentage of GDP is 2.3 percent. Indonesia, a member of the Group of 20, only spends 0.08 percent of GDP on R&D. This number is not only way off compared to the world’s average but is also dwarfed by other neighboring countries such as Vietnam (0.44 percent), Thailand (0.62 percent), Malaysia (1.30 percent) and Singapore (2.18 percent).

This is why the omnibus bills’ inclusion of attention to research and innovation is something to be celebrated. The bills, however controversial, present the government with the golden opportunity to establish a well-coordinated Indonesian innovation policy, which is almost nonexistent today.

So far, the omnibus bill on job creation has only one provision under the “research and innovation cluster”, revising a provision in Law No. 19/ 2003 on state-owned enterprises. It only mentions the term “intellectual property” three times, indicating the introduction of easier IP filings through regulations, and only mentions “patents” to delete a relevant provision from the current Patent Law.

It would be a missed opportunity if that were the only focus on innovation and intellectual property. Innovation is playing an increasing role in all economies. It provides benefits for citizens as both consumers and workers. Innovation is essential to creating jobs and increasing competitiveness in the global market.

It is far from too late for both the government and the House of Representatives to use the golden opportunity presented by the omnibus bill’s momentum to establish Indonesia’s first-ever coordinated innovation policy.

All the ingredients are already there, including the “Making Indonesia 4.0 Roadmap” introduced in 2018, the establishment of the National Research and Innovation Agency (BRIN), as well as a more efficient intellectual property office (DJKI) with a set of fully modernized laws on patents, copyright, trademarks and geographical indications.

With all those above-mentioned elements, the omnibus bills should be able to include measures to support the knowledge-intensive sector with higher value addition in Indonesia’s goods and services production.

It will be challenging to push industries and economic actors to spend on R&D in the absence of fiscal or tax incentives. It will be challenging to excel in cutting-edge sectors such as biotechnology, artificial intelligence, big data and agricultural innovation if policies on education, innovation and technology are not coordinated well between different agencies and actors.

This, in turn, needs to be supported by domestic productive capabilities and maintained by proactive government policies in advancing structural transformation involving policy strategies including education, intellectual property, the creative economy, investment policy and fiscal policy, which can be integrated easily in the omnibus bills.

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Economic and intellectual property policy expert at the Foreign Ministry Directorate of Trade, Commodities and Intellectual Property. The views expressed are his own.

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