Interview: Rosan Roeslani
What is needed to support local industry growth?
ROSAN ROESLANI: Re-industrialisation is important to strengthen Indonesia’s competitiveness in the global market place, and we are focused on the dual objectives of broadening the manufacturing base and moving up the value chain. Many of the problems holding back Indonesia’s competitiveness in the manufacturing sector relate to financing, capacity building and market penetration, areas in which the government and private sector need to work together to improve.
Indonesia’s industrial sector must also modernise and become more competitive, both regionally and globally. We have to operate more efficiently and focus on innovation. Addressing bottlenecks in infrastructure, domestic connectivity, uncertainties in regulations, barriers to competition and better access to finance for small and medium-sized enterprises would bring a necessary push towards growth in the manufacturing sector. In the long term, investing in human capital, high-tech communications infrastructure, facilitating research and development, and facilitating technology transfer from foreign investors are initiatives that Indonesia should pursue.
How can Indonesia be further developed as a production base to serve local and foreign demand?
ROESLANI: The industrial sector is having difficulties moving up the value chain due to factors such as strong international competition, low innovation, poor infrastructure, corruption, high transportation and logistics costs, insufficient access to finance, and a lack of transparency and certainty in regulations. These factors continue to weigh down the country’s ability to become a production base. It is not enough for manufacturing companies to focus only on Indonesia’s large domestic market. To enhance exports Indonesia should integrate more effectively with value chains in the region, unlock local entrepreneurship, raise skill levels and improve innovation and product quality while reducing logistical costs. It is estimated that logistics costs are equivalent to 25% of GDP, among the highest in the ASEAN region.
How can the government support the industry sector through its economic packages?
ROESLANI: Since September 2015 the government has issued a series of economic stimulus packages, supported by KADIN, to boost Indonesia’s economic growth. The reforms do not fix all the problems, but this is an important start. Interest rate tax cuts for exporters, speeding up investment licensing for investment in industrial estates, and integrated billing and payments for port services conducted by state-owned enterprises to combat Indonesia’s high logistics costs are examples of initiatives that will help boost competitiveness. More importantly, these deregulation packages the government has rolled out signal a shift in policy direction towards creating a more business-friendly operating environment. Further reforms are needed for the government to reach its target to re-industrialise the country.
To what extent can the ASEAN Economic Community (AEC) impact the industrial sector?
ROESLANI: One of the biggest opportunities with the implementation of the AEC is that Indonesia will have the chance to grow its domestic manufacturing sector and attract more foreign investment. The prospect of the free flow of goods, services, investment, labour and capital in ASEAN makes Indonesia the natural manufacturing base for companies that want to serve the ASEAN market. This is why we do not think of the AEC as a threat. There might be some short-term costs for some industries as they adapt, but we firmly believe that Indonesian industry will benefit from closer integration of ASEAN markets. The AEC means we become part of a larger market, and that will make Indonesia’s industry more competitive.
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