High-tech revolution to improve Indonesia’s industrial competitiveness

Indonesia is looking to utilise advancements in modern technology to spur growth and improve competitiveness in the industrial sector, with the government unveiling a new plan aimed at increasing manufacturing output.

Launched in early April, the Making Indonesia 4.0 strategy highlights the potential of technological advancements – including the internet of things, artificial intelligence, human-machine interface, 3D printing, and robot and sensor technology – to boost industrial capacity.

Five priority sectors – food and beverages, automotive, textile, electronics and chemicals – have been identified as areas where Indonesia can become a global leader under the roadmap, with manufacturing forecast to account for 21-26% of GDP by 2030, up from 18% in 2016.

The government projects that the increase in manufacturing activity will create some 7m-19m jobs over the next 12 years and add 1-2% to GDP annually through to 2030, lifting average annual growth rates to between 6% and 7%.

Infrastructure projects to help drive industrial growth

To meet the goals of the Making Indonesia 4.0 strategy, the government is hoping a series of major infrastructure projects, a more supportive legal framework, and incentives for modern technology transfer and development will boost manufacturing activity.

Speaking at an Indonesia Employers Association event in Jakarta on April 24, Airlangga Hartanto, the minister of industry, said strengthening raw material output was key to improving industrial production, with a series of construction projects to help fuel demand.

The government pledged to develop Rp5500trn ($390.4bn) worth of new public works projects between 2015 and 2019, to be largely funded by the private sector, of which around $300bn remains in the pipeline.

Developments include a specific focus on transport and logistics sectors, with 2650 km of new roads, 3258 km of rail lines, 15 airports and 24 seaports to be constructed, along with mass rapid transit systems for six metropolitan areas.

Of these 265 projects, 26 had been completed by the end of the first quarter of this year, and another 150 are under construction; however, a series of construction-related accidents saw the government suspend development on some projects in February.

While infrastructure developments should ease productivity bottlenecks, Making Indonesia 4.0 foresees a major overhaul of the education system to improve national human resources and better align academic curricula with the new economic model. Officials have also pledged to redevelop the country’s industrial zones, and bolster industrial sustainability through the greater adoption of electric powered vehicles, biofuels and renewable energy sources.

Furthermore, the policy calls for incentives such as tax exemptions or subsidies to be offered to speed up the adoption of certain technologies, in addition to greater collaboration between the state, private sector and universities to develop an innovation-based ecosystem, and a harmonisation of regulations and policies.

SMEs key to industrial push

Another factor central to the success of the strategy is improving the technological uptake of small and medium-sized businesses (SMEs). There are an estimated 3.7m SMEs in Indonesia, accounting for some 99% of all businesses and more than 60% of GDP.

Along with micro firms, industry figures have highlighted how SMEs have the potential to be key suppliers for some of the major sectors targeted under Making Indonesia 4.0, emphasising the need to integrate them into the technology and supply chains as the policy is rolled out.

New regulation aimed at improving skills transfer

The accelerated industrial programme has also been supported by new regulations governing the employment of foreign workers domestically, a development expected to assist in building up the skills of the local workforce.

The new regulations, which were approved in March and come into effect in July, will make it easier for both local and international companies to employ foreign workers.

However, some political leaders and trade unions have raised concerns that the changes could see Indonesian workers locked out of manufacturing jobs in favour of highly skilled foreigners. Currently, there are some 126,000 foreign workers in Indonesia, according to data from the Ministry of Manpower.

Another area of concern is that the technological upgrade of the industrial sector could make many existing jobs redundant in the coming years, meaning the re-skilling of workers will be key to meeting the targets of making Indonesia 4.0.

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