Import Substitute: Not Optimal

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JAKARTA, KOMPAS – Export supporting industries should be further strengthened in order to be able to help cover the country’s current account deficit. There are a number of classical and fundamental problems, such as the required use of local products as substitutes for imported raw materials, which is not optimal because the upstream industries are weak and not linked with user industries.

On the other hand, industrial competitiveness also needs to be improved by strengthening research and development, as well as by involving more direct investment and export-oriented innovation. These efforts need to be supported by competitive regulations, the establishment of upstream to downstream clusters and the provision of incentives for exporters and industry players who expand into other countries.

These issues were raised at the Pre-CEO Forum discussion themed "Improving Indonesia\'s Industrial Competitiveness", held by Kompas in cooperation with PT Perusahaan Listrik Negara (PLN) in Jakarta on Tuesday.

The discussion, chaired by Kompas deputy editor-in-chief Ninuk Mardiana Pambudy, was attended by the CEO of Kompas Gramedia, Lilik Oetama, the president director of PT Pupuk Indonesia , Aas Asikin Idat, the director of PLN’s Strategic Planning 2, Iwan Supangkat, and the CEO of PT Garudafood Putra Putri Jaya Tbk, Hardianto Atmadja.

Also present were the president director and CEO of PT Toyota Motor Manufacturing Indonesia, Warih Andang Tjahjono, the vice CEO of PT Pan Brothers Tbk, Anne Patricia Sutanto, the CEO of PT Hartono Hariono Istana Teknologi, and the chairman of the Association of Provincial Governments, Soekarwo.

Warih said that Toyota continued to increase the use of local content (local raw materials) in car manufacturing. At present, the level of local raw materials in the manufacturing of All New Kijang Innova cars is around 85 percent, which is expected to further increase to 95 percent by 2022.

Toyota cooperates with a number of local companies to source local raw materials. In 2015-2018, the number of suppliers of local raw materials reached 140 companies.

"Even so, we often find it difficult to find suppliers of raw materials from within the country because the upstream industry is still relatively weak," he said.

Meanwhile, Anne said that producers of textiles and textile products (TPT) began using local raw materials seven years ago. However, the substitution process is slow because the upstream industry is not fully developed. The amount of imported raw materials has been reduced to 85 percent from the previous 95 percent. "Most of the products we produce are exported. In fact, for PT Pan Brothers, all of its production is exported. We also try to take advantage of the US-China trade war to increase exports by 30 to 40 percent, "Anne said.

Hariono said the amount of imported raw materials for the electronic industry was quite large. For television production, imported raw materials could reach 92.62 percent. The rest comes from local sources, although they are not fully manufactured in the country. It shows that there are still problems in the upstream and intermediaries industries because they are unable to produce the raw materials needed by the downstream industry.

"Through research and innovation, we strive to strengthen product innovation and conduct research on the use of local components," he said.

As for Soekarwo, the East Java provincial government will organize an Aceh-Papua expedition to map out the potential of local raw materials for local industries, especially in East Java. Due to the absence of such a map, inter-province trade is not optimal.

Regulation

During the discussion it was also revealed that there is still a regulatory problem for business players to expand their businesses and investment. As a consequence, according to Hariono, a Chinese investor, who intended to establish an electronic parts factory in Kudus, Central Java, has canceled the plan.

Anne said that foreign investment in the research and development sector needed to be encouraged. To date, Indonesia does not have regulations related to this sector, even though other countries have expressed an interest in investing in the sector.

"In the textile industry, to improve competitiveness is not only a matter of design innovation, but also manufacturing innovation. Research and development are needed," she said.

Soekarwo emphasized that the main key to driving competitiveness was to restructure government policies. Do not let a regulation become a disincentive for other regulations, he said.

Local industry players are committed to maintaining the domestic market and to expanding their export markets. Aas said fertilizer was the main need of Indonesian farmers. Indonesia as an agricultural country should not need to import fertilizer, he said.

As for Hardianto, Garudafood has begun to expand to overseas markets, especially in a number of countries in ASEAN, such as Myanmar, Vietnam and Thailand. The aim is to improve the company\'s image to be more competitive, increase local exports and promote Indonesian tourism.

Iwan added that PLN supported electricity needs for the industry through the construction of electricity infrastructure. He expressed hope that industry players would develop and use renewable energy in Indonesia. (HEN)

Editor:

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