New Normal In Manufacturing Industry

The operation of the manufacturing industry is very important for logistics supply and employment. However, more careful handling is needed for the adoption of the new normal.

AFP/WANG ZHAO

A cleaner wearing protective gear sprays disinfectant along a production line at a Mercedes Benz automotive plant during a media tour organised by the government in Beijing on May 13, 2020.

The manufacturing industry is among sectors being prioritized to operate again under the new normal scenario. Careful preparation is needed for the labor-intensive sector, which is the biggest contributor to the country’s economy.

After more than two months of the imposition of large-scale social restrictions (PSBB), the Covid-19 curve has not shown a flattening trend. As of 2 June 2020, there were still 609 new cases of Covid-19 in Indonesia, bringing the total number of confirmed Covid-19 cases to 27,549 cases.

The national economy as been impacted by the PSBB enforcement, evidenced by slowing economic growth in the first quarter of this year to 2.97 percent compared with the first quarter of 2019 (year-on-year). Based on data from Statistics Indonesia (BPS),

Responding to this fact, the government plans to reopen economic activity in the new normal scenario. Quoting a Kompas news report on 27 May 2020, the manufacturing industry is one of the priority sectors to operate.

According to Coordinating Economic Affairs Minister Airlangga Hartarto, from the beginning, the manufacturing industry has pocketed an operational permit from the Health Ministry. Other sectors that are prioritized are the tourist sector and the transportation sector.

Labor intensive

The operation of the manufacturing industry is very important for logistics supply and manpower absorption.

The manufacturing industry is the third-largest sector in terms of manpower absorption after the agricultural sector and trade sector. Referring to BPS data, from 129.4 million people aged 15-years-old and older who are employed, 14 percent of them are absorbed by the manufacturing industry.

Also read : Indonesia to Mitigate Covid-19 Outbreak’s Economic Effects

With the manufacturing industry back to operation, there would be a large number of workers affected by the Covid-19 epidemic that could earn an income again. According to the Manpower Ministry\'s report, as of May there were 1.7 million affected workers.

KOMPAS/TATANG MULYANA SINAGA

Workers head home on Thursday (23/4/2020) after finishing their shifts at a garment factory in Dayeuhkolot, Bandung regency, West Java. Protecting workers from Covid-19 infection is critical as a number of businesses continue to operate during the large-scale social restrictions (PSBB) implemented in Greater Bandung.

Workers who return to work can encourage economic activity, particularly through household spending. As it is known, more than half of the national gross domestic product (GDP) is contributed by household spending. Based on BPS data, the average contribution of household spending from 2015 to 2019 stood at 56.3 percent.

However, the reopening of factories that employ many workers is prone to becoming a new cluster of Covid-19 transmission. Regarding the adoption of the new normal, particularly in the manufacturing industry, the government has issued Health Ministerial Decree No. HK.01.07/MENKES/328/2020 on guidelines for Covid-19 prevention and control in offices and industry

In the decree, it was stated that industry was required provide a safe and healthy work environment for workers to prevent Covid-19 transmission at work. Companies must provide health facilities for workers, including health insurance, health detection devices, masks and hand-washing facilities. Perhaps, the companies also provide additional medical staff in anticipation of workers who experience symptoms of Covid-19 (Kompas, 3 June 2020).

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In anticipation of crowds, the government also instructed the industry to limit the number of employees. Before the Covid-19 epidemic, the industry can operate by optimizing 100 percent its employees. However, in the new normal scenario, the industry can make adjustment by limiting the number of employees up to 50 percent. This is done for the sake of complying with health protocols and keep the physical distancing.

Make a big contribution

The second reason why it needs more careful handling of the manufacturing industry in the new normal scenario is the contribution of the manufacturing industry to the national economy. Manufacturing industry is the main contributor to GDP according to employment. In the past six years, approximately one fifth of total national GDP is contributed by the manufacturing industry.

In fact, amid the Covid-19 epidemic pressure, the manufacturing industry remained the biggest contributor to the national economy. In the first quarter of this year, it was still able to contribute 19.98 percent to GDP according to employment. The manufacturing industry was also the second largest source of economic growth in the first quarter of this year. From the national growth of 2.97 percent (yoy), the manufacturing industry contributed 0.44 percent.

Also read : Coronavirus and Economic Resilience

KOMPAS/KRISTI UTAMI

Industry Minister Agus Gumiwang Kartasasmita (left) inspects a pair of trousers on Friday (29/5/2020) at a garment factory in Cimohong village of Bulakamba district, Brebes regency, Central Java. Agus visited the garment factory during a tour of the Brebes industrial area.

For information, the sector that is the main source of the economy growth is the information and communication sector. The enforcement of PSBB that is marked with working, studying and worshiping from home becomes one of the high contribution of the sector.

The performance of the manufacturing industry sector should continue to be maintained so that it keeps driving the economy. The reopening of this sector will be able to bring multiplying effect on the other sectors. Because, as an industry that processes raw materials into ready-to-use goods, this industry involves upstream to downstream sectors. The supplier of raw materials, such as the agriculture and plantation sectors, for example, to marketing to consumers did involve the trade and transportation sectors.

If we leave it non-operational for a long time, it will have a bad impact on the national economy. Sluggish national economy in the first three months of this year was one of them caused by slowing growth of the manufacturing industry. Despite showing positive growth at 2.06 percent (yoy), the figure was lower compared to that of last year at 3.85 percent. Meanwhile, if it is compared to the fourth quarter of last year, the growth rate fell by 1.17 percent.

Challenges and Anticipation

Meanwhile, playing a big role in the national economy became a challenge for the manufacturing industry to operate in the middle of an epidemic under a new normal scenario. The requirement to limit the number of employees up to 50 percent has an impact on productivity so that it becomes difficult for industries to be able to achieve the target even though adjustments have been made.

In this case, the Industry Ministry has adjusted the manufacturing industry growth target in the second quarter to be at 2.7 percent. That can be achieved if the curve of Covid-19 cases is flattening and there is no second wave of outbreak. The Industry Ministry also carried out technical training for industrial apparatuses in 34 provinces in preparation for new normal

In addition, in terms of costs, the industry must incur operational costs which is bigger than usual. So far, health facilities budgeted by the industry might just include healthcare and social security (BPJS) and occupational health safety (K3) at the work place. Meanwhile, the provision of disinfectants, personal protective equipment and health detection equipment may never be allocated by all industries before the Covid19 epidemic.

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KOMPAS/P RADITYA MAHENDRA YASA

Workers maintain physical distance on Monday (20/4/2020) while doing calisthenics at a factory in Semarang, Central Java. In recent weeks, many people have adopted more healthy lifestyles to boost their immune systems during the coronavirus outbreak in the city.

For the manufacturing industry, the government has provided stimulus in the form of income tax (PPh) relaxation. The income tax (Article 21) that should be borne by the workers, will be paid 100 percent by the government within 6 months. Meanwhile, the income tax (Article 22) related to imports is also eased as a compensation for switching costs (costs related to changes in country of origin of imports).

There is also a credit relaxation policy for the industry so that the industry financing is well maintained. For this reason, the industry is required to manage its financing more prudently so that the operations continue to run well and cash flow is well managed.

Another challenge is the people’s low purchasing power has led to low demand, both from domestic and export markets. Because, as it is already known, Indonesia\'s export destination country is still being hit by Covid-19 epidemic, such as the United States, China and the European Union countries. The government’s role becomes very crucial in finding new markets so that the products of the manufacturing industry continue to be absorbed by the market. It should be equipped with innovations from industry to improve the competitiveness and independence of the nation.

Behind all this, the most important thing is consistency in the implementation of health protocols while staying productive. Certainly, we did not expect a failed implementation of health protocols in the manufacturing sector would turn into a boomerang that will tear down this economic sector if there are more factories that collapse. (KOMPAS R&D)