Interview: Rosan Roeslani
What can be done to boost the position of Indonesian manufacturing within the region?
ROSAN ROESLANI: As a developing nation, one very important task for Indonesia is to ensure that the regulatory environment for businesses matches that of developed countries. We need to ensure that our policies create an enabling environment for our economy to flourish – particularly with regards to the manufacturing industry, which has been identified as essential to both economic growth and the structural transformation of the economy. Unfortunately, Indonesia’s manufacturing performance has not been strong since 2010 as evident in the decline of manufacturing value-added in overall GDP, from 22% in 2010, to 19.9% in 2018.
Indeed, Indonesia is experiencing deindustrialisation. This deindustrialisation stems from several factors. Among these is stiff competition from newly industrialised countries such as Vietnam that are able to promote the competitiveness of their manufacturing industry effectively. To reverse deindustrialisation, Indonesia needs to boost its manufacturing competitiveness. One way to do so is to attract increased investment into the sector. However, the share of investment in GDP stagnated from 32.5% in 2014 to 32.3% in 2019. The share of foreign direct investment (FDI), in particular, is a relatively low proportion of GDP, at 2.2%. By comparison, in Malaysia and Vietnam FDI contributes 3% and 6.3% of GDP, respectively.
Which manufacturing subsectors show the most potential in terms of export growth?
ROESLANI: Indonesia boasts a number of competitive advantages in manufacturing. Two subsectors with high growth potential are labour-intensive and resource-based manufacturing, and we support the government’s plan to turn upstream commodities into value-added products. One example is nickel: Indonesia is the world’s top producer and reserve holder, and there is considerable scope for the country to benefit from increased domestic processing of the metal. Nickel can be processed to produce several products ranging from stainless steel to batteries for electric vehicles (EVs). With the accelerating global market for EVs, which is expected to more than quadruple from $118.9bn in 2017 to $567.3bn in 2025, this segment offers sizeable export growth potential.
Where can the efficiency of the Indonesian supply chain be enhanced to benefit manufacturers?
ROESLANI: The most important way to increase the efficiency of the Indonesian supply chain is the installation of adequate and wide-reaching infrastructure to allow goods to be transported at a lower cost. The construction of such infrastructure is particularly important in secondary urban or rural areas that are in proximity to planned special economic zones.
We need much more collaboration between the government and the private sector towards this end. The government must both articulate national strategies for infrastructure development and improve the policy environment. Fundamentally, price distortions and the complex investment climate must be addressed. This will require strengthened public investment management and expanded government financing.
In what ways will the omnibus bill impact job creation in the manufacturing sector?
ROESLANI: To grow the manufacturing sector and boost FDI, we need to improve our ease of doing business, as it is the high number of regulations in Indonesia that often deters potential investment. To address this, the government submitted the omnibus bill to Parliament in February 2020. The bill aims to reduce regulatory hurdles, as well as both simplify and harmonise regulations. If enacted with the current provisions, the legislation will improve the investment climate and increase investment. If inflows are channelled into labour-intensive segments, this will also create jobs.
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