Basic Problems Should be Overcome to Prevent Deindustrialization

The presence of industrial estates and special economic zones can encourage the spread of value-added industries. However, the government still needs to accelerate the development of these areas.

KOMPAS/PANDU WIYOGA

A number of ships pass through the Singapore Strait near Batu Ampar Harbor, Batam, Riau Islands, Sunday (3/10/2021). The government is trying to boost the Riau Islands economy by establishing a number of special economic zones that focus on producing export commodities.

JAKARTA, KOMPAS — The manufacturing industry has shown signs of recovery following a decline in July-August. However, a number of major obstacles needs to be addressed so that the manufacturing industry can play a bigger role in economic growth.

Indonesia\'s Purchasing Managers Index (PMI) rose to 52.2 in September from 43.7 in August. A score higher than 50 indicates the industry is expanding.

Industry Minister Agus Gumiwang Kartasasmita said the improvement showed the resilience of industries amid the pandemic.

"The decline in Covid-19 cases and easing of social restrictions have encouraged industrial activities," Agus said on Friday (1/10/2021).

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However, the development of the manufacturing industry faces the challenge of premature deindustrialization or a significant decline in its role. The role of the manufacturing sector in the country’s gross domestic product (GDP) has been declining since 2015. In 2008, the sector contributed 27.8 percent to the economy, far higher than 19.8 percent in 2020.

The vice chairman of the Indonesian Chamber of Commerce and Industry (Kadin) for agrarian, spatial and regional affairs, Sanny Iskandar, said the manufacturing industry should ideally contribute more than 30 percent to the economy. The current conditions of the manufacturing industry cannot be used as an indication of improvement. A number of basic problems needs to be addressed, such as the quality of human resources and the effectiveness of industrial utilities, among other things, by providing more affordable gas and electricity prices, as well by overcoming the overlapping regulations and bureaucracy.

The Industry Ministry’s resilience, territorial and international industrial access director general, Eko Cahyanto, said the opening of industrial zones and special economic zones was needed to encourage the expansion of value-added industries. Currently, apart from infrastructure development, the provision of incentives is also needed to attract investors.

Kompas/Bahana Patria Gupta

Java Integrated Industrial and Port Estate (JIIPE), Gresik, East Java, Friday (3/9/2021).

Eko said the government’s policy to provide natural gas supply at US$ 6 per million metric British thermal unit (MMBTU) for certain industries should be expanded to more industries.

"Some investors have showed their interest to enter into several SEZ [special economic zones], but are wondering whether they will get a gas price of $6 or not," he said.

Frans Kongi, the chairman of the provincial chapter of the Indonesian Employers\' Association in Central Java, said the reliance of the manufacturing sector in the province on imported raw materials remained a big problem. The garment industry, for example, still relied on imported cotton.

“The government should build a raw material industry. Investors, for example, need a stimulus, such as a five-year tax exemption,” said Frans.

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According to Juliani Kusumaningrum, the head of Sales and Marketing of PT Kawasan Industri Kendal, which manages the Kendal SEZ, said most of the industries in the Kendal SEZ were export-oriented. A number of industries in the SEZ, which still relied on imported raw materials, had received an incentive in the form of lower import duties, she said.

Meanwhile, the vice chairman of the East Java chapter of the Industrial Estate Association, Tony Hernanto, said that at industrial areas, investors could run their businesses more efficiently because the area was integrated with ports, toll roads, and railroads. According Iskandar JK Rares, the general manager of Business Development and Domestic Sales Marketing of PT Berkah Kawasan Manyar Sejahtera, which manages the Gresik SEZ, the establishment of the SEZ was intended to simplify business process. There are also fiscal and non-fiscal benefits for industries operating in the SEZ, such as a tax holiday for up to 10 years. (AGE/WER/DIT/NDU)

This article was translated by Hendarsyah Tarmizi.