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Developing industrial estates to drive economic growth
The COVID-19 pandemic has further reduced the manufacturing sector’s performance.
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President Joko "Jokowi" Widodo studies the Batang Integrated Industrial Park's development plan during his visit to the park in Batang, Central Java, on June 30, 2020. (Agus Suparto via Kompas.com/-)
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anufacturing is the largest sector in the national economy. The manufacturing sector contributed to 19.9 percent of Indonesia’s gross domestic product (GDP) in 2020, showing that it has a large role in boosting economic growth.
However, the manufacturing sector’s contribution to GDP has decreased since 2004. In 2003, for example, its contribution was 28.1 percent. The downward trend has occurred in several ASEAN countries, such as Thailand, the Philippines and Malaysia, but Indonesia has shown the steepest downward manufacturing trend in the last 10 years.
On the other hand, Vietnam has experienced an increasing share of its manufacturing sector to GDP since 2020. Vietnam has a strong commitment to encouraging the manufacturing sector to spur its economy.
The growth of Indonesia’s manufacturing sector tends to slow down and relies heavily on natural resources. This can be seen from the structure of the national manufacturing sector in the last 10 years. The biggest contributors to manufacturing were the food and beverage industry, as well as the coal and oil and gas refining industry, which amounted to 34.4 percent and 10.0 percent, respectively, in 2020.
The COVID-19 pandemic has further reduced the manufacturing sector’s performance. In 2020, it contracted by 2.93 percent, the lowest since the 1998 crisis. Almost all of the processing industry’s subsectors contracted in 2020, except chemical, pharmaceutical and traditional medicine businesses, as well as basic metals, food and beverages, and paper and paper items.
Manufacturing industries that experienced the deepest contraction were transportation equipment, machinery and equipment, and non-metal mineral goods, with contractions of 19.9 percent, 10.2 percent and 9.1 percent, respectively.
However, the Purchasing Managers’ Index (PMI) of the manufacturing sector continued to increase in early 2021. In March, Indonesia's manufacturing PMI stood at 53.2, an indication that it was starting to recover.
