“If there are people giving out food packages, I’ll chase them down.” That is how Fahmi — who recently lost his job and was forced to live in the alley of Tanah Abang Market — is coping with the post-COVID-19 reality.

Fahmi is not alone. According to the National Development Planning Agency (Bappenas), around 4 million more Indonesians will be unemployed due to the pandemic. While flattening the curve must be our utmost priority, we cannot shrug off the devastating economic hardships that many are struggling with.

The government is undertaking various efforts to tackle this predicament, including the job creation omnibus bill and the preemployment card program, both of which are now mired in controversy. Instead of being embroiled in internecine name-calling, we need to expand our horizon and explore other policy avenues.

For some, the alternative is clear: fix education. Improving our human resources’ quality is indeed important, but extensive research shows that education alone is not enough. In the 1980s, when China’s economy started to soar rapidly, its secondary education participation was still behind Ghana’s.

In the latest Program for International Student Assessment (PISA), Estonian students scored much better in math and science than their Norwegian counterparts, but on average, Norwegians are three times richer than Estonians.

Ricardo Hausmann from Harvard even argued that the notion that education is everything for development is a “myth”. We must improve our education, but doing so in itself will not resolve the unemployment conundrum. Job creation is not just about equipping people with new skills, but also ensuring that the skilled people can be organized and employed in productive enterprises. In order to do so, we can consider three options that are not mutually exclusive.

First, if labor costs are a constraint, we can earnestly develop Special Economic Zones (SEZs) outside of Greater Jakarta to attract investments where the labor cost is lower (the minimum wage in Sei Mangkei and Kendal is half of Bekasi’s in West Java).

We actually have 15 SEZs and despite their potential, they still underperform. This is due to several impediments. First, while SEZs in other countries such as China and Vietnam are harnessed to attract manufacturing investments, many of our SEZs are relegated to natural resources-based industries. For instance, Sei Mangkei is designated as a palm oil processing SEZ.

Because manufacturing has a higher spillover impact and creates more formal jobs, our SEZs must be reoriented to attract investments in the sector.

Another major obstacle is overlapping regulation jurisdictions and bureaucratic red tape. The bulk of the omnibus bill, which is less controversial, is meant to debottleneck these hurdles.

Lastly, we tend to mistakenly believe that attracting investments is all about accommodating all of investors’ needs, which is not entirely true. We have built decent basic infrastructure in SEZs and offer generous fiscal incentives. For example, we offer a five-year tax holiday compared to four years in Vietnam, but we still punch below our weight.

This demonstrates that attracting investments is not just about offering the sweetest carrots; sometimes specific types of sticks are also needed. This is especially true when we compete with countries that have turned into investment magnets (such as Vietnam), which necessitates extra nudges on our part.

Speaking of sticks, the second option is that we should consider “unorthodox” industrial policies, such as joint venture or local content requirements for foreign companies who seek to exploit Indonesia’s market.

The second option is understandably contentious, as some believe that it will backfire with investors’ hostility. That may be true if the policy is enacted by a small country whose population is less than 2 million. However, if it is implemented by a country with more than 250 million people, investors will be compelled to comply. In fact, several major international companies decided to build manufacturing facilities in Indonesia to abide by the 30 percent local content requirement for 4G smartphones. The companies did that not because they liked our policy (they did not) but because they could not afford losing access to our enormous market.  

Not just in Indonesia, these policies were proven to be effective in China years ago when it forced companies that were keen on penetrating China’s huge market to invest in the country. Foreign investors flocked to Shenzen and other SEZs in China, not just because of the tax incentives or cheap labor but because they had to if they wanted to enter China’s market.

The key is to make sure that the requirements are not overly onerous for investors. Instead of fully replicating China, which at one point imposed an 80 percent local content requirement for its automotive sector, having a lower requirement threshold may be more prudent.

Another consideration is to aim for sectors in which we already have vibrant domestic players. For instance, electronic vehicles may be a good target because we already have relatively robust domestic enterprises in the automotive sector. 

With this policy option, investors will not just indulge in Indonesia’s vast lucrative market, but they will also contribute to create jobs for our people and invigorate our domestic companies’ productivity.  

Finally, foreign investments is not the only path for job creation. For example, Japan and South Korea were much less reliant on them. After all, sometimes despite checking all of the boxes, as Hausmann argued, waiting for investments can be akin to “waiting for Godot”.

To this end, the government can also go the extra mile in providing greater support for emerging domestic enterprises. The government can create a “smart” development bank that can strategically lend to promising domestic companies that create jobs in higher value-added niches. For instance, amidst this pandemic, the government can “invest” in domestic companies that can produce ventilators or vaccines.

While social assistance is undoubtedly vital in the short term, the best way to help Fahmi and millions of others is not to give them handouts but jobs. 

 ***

The writer is a master in public policy from Harvard Kennedy Schools.

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