Vice President Says Hardship Means Business

 
 

Vice President Jusuf Kalla expressed his optimism that the economy in Indonesia would improve in the next two to three years and encouraged entrepreneurs to invest now.

Bandung – Vice President Jusuf Kalla expressed his optimism that the economy in Indonesia would improve in the next two to three years and encouraged entrepreneurs to invest now. “The current conditions are quite difficult and it may continue on like this through next year. However, I am convinced that conditions will show improvement in the next two to three years,” said Kalla in his keynote address at the inauguration of the 7th Indonesian Chamber of Commerce and Industry (Kadin) national congress in Bandung on Monday. Investing during a less favorable time, he added, would be beneficial and dynamic entrepreneurs should see the situation as an opportunity. “Now is the time to invest as everything is cheaper. Building a factory now would definitely be cheaper compared to building in the next two or three years,” said Kalla. The government, continued Kalla, are very supportive of entrepreneurs willing to develop the manufacturing industry as this relates to urbanization, a shift in people from rural to urban areas in search of work. “The manufacturing industry could provide bigger job opportunities,” said Kalla before a crowd of 1,000 Kadin members. Based on Central Statistics Agency (BPS) data, slow economic growth would take place during the initial stage of the Joko “Jokowi” Widodo-Jusuf Kalla administration. BPS released economic growth figures for the second quarter of this year, shown at 4.67 percent, slightly lower when compared to the first quarter figure of 4.7 percent. In the third quarter, the economic growth was recorded at 4.73 percent, a slight increase compared to the second quarter. However, according to BPS, the figure was lower compared to the corresponding period last year, which stood at 4.92 percent. Based on BPS data, the numbers of underprivileged people in Indonesia have increased. In March this year, BPS recorded 28.59 million underprivileged people, 11.22 percent of the entire population. Kadin vice chair Shinta Kamdani said that if the government wished entrepreneurs to invest in the manufacturing industry, they would need to provide incentives. “This could be in the form of tax allowance and tax holiday,” said Shinta.

Since September, the government has released six economic stimulus packages as part of its efforts to revive the economy amid global economic downturn, which include fiscal incentives and the streamlining of licensing procedures for a wide range of industries. Meanwhile, outgoing Kadin chairman Suryo Bambang Sulisto said there needs to be synergy between the business world and the government so as to realize businesspeople’s expectations. The interest rate policy is currently regarded by entrepreneurs as being too high. Suryo cited Bank Indonesia’s interest rate of 7.5 percent as the highest and should be lowered. The government can also help entrepreneurs by not setting high interest rates for banks. “Kadin has proposed for the government to spearhead the move and not to ask for bank interest rates that are too high,” he explained. The 7th Kadin national congress, taking place from Monday to Tuesday, is the highest decision-making forum in the organization, in which participants will pick the chairman for the 2015-2020 period. Two contenders, former trade minister Rachmat Gobel and Kadin vice chairman for banking and financial affairs Rosan P. Roeslani, have expressed an interest in the top post. Both of them will run head-to-head, each looking to obtain a total of 132 votes.

Source: The Jakarta Post, November 24 2015

OBG Economic Update: Manufacturing Growth Spread across Indonesia’s regions
Friday, 11 December 2015
By : Oxford - hits : 959

Growth in Indonesia’s manufacturing sector continues to outstrip the rest of the economy, with gains in most industries well above those of the national average. Some regions away from Java posted even higher rates of expansion, though there are lingering concerns some of this growth is underpinned by a reliance on commodities imports – one that fuels the current account deficit.

Growth in Indonesia’s manufacturing sector continues to outstrip the rest of the economy, with gains in most industries well above those of the national average. Some regions away from Java posted even higher rates of expansion, though there are lingering concerns some of this growth is underpinned by a reliance on commodities imports – one that fuels the current account deficit.

According to data issued by the Industry Ministry in early August, Indonesia’s manufacturing sector is out-performing the general economy, with non-hydrocarbons industries ramping up production by 5.5% year-on-year (y-o-y) for the first half of 2014. This is above the overall expansion of GDP for the first six months, which grew by 5.2% y-o-y.

Among the strongest performers were the food, beverage and tobacco segment, which recorded growth of 9.3% while growth in other industrial products surged 15.7%.

Regional push to broaden manufacturing base

Industrial growth was also spread across a number of regions. According to a report issued by the local statistics office on August 9, North Sumatra posted manufacturing growth of 6.4% in the second quarter, fuelled by a strong performance in the wood and forestry products segment, which increased by 9.9%.

This success, though offset by a downturn in some other segments in North Sumatra such as rubber and chemicals, will be welcomed by the government, which is seeking to broaden the manufacturing base by decreasing the focus on Java and decentralising industrial production. Some 70% of Indonesia’s estates are located on Java, which continues to attract the strongest flow of investments.

With rising land and labour costs in West Java and in particular around Jakarta, there have been concerns that Indonesia was losing some of its competitive edge in attracting manufacturing investments.

To maintain its position as a leading industrial producer in South-east Asia, the government announced in late July it would establish 36 new industrial hubs over the coming 20 years on islands other than Java. The government is aiming to lift the ratio of manufacturers operating outside of Java to 40% by 2025, from its present level of 27%.

The initial stage of this programme is to be completed by the end of this year, with the launching of two industrial estates in Morowali, in Central Sulawesi and Kuala Tanjung in North Sumatra, along with two special economic zones in Palu, Central Sulawesi and Bitung, North Sulawesi.

Import input levels a concern

While manufacturing is expanding, there are concerns that growth is in part feeding into the country’s current account deficit, with many industries relying on imports to feed their activities. Last year, Indonesia’s current account deficit hit a record high of $29bn, equivalent to 3.3% of GDP. While still low by international standards, Jakarta wants to see this rate lowered to a more reasonable level, targeting a deficit of $26bn or below for this year.

According to Hendri Saparini, the executive director of the Centre of Reform on Economics Indonesia, there should be a stronger focus on sectors that maximise local input, reducing high import costs and thus boosting direct flows into the economy.

“Most of the manufacturing sector still relies on industries with a high percentage of imported content,” Saparini told the Jakarta Post. Among the sectors Saparini cited as needing high overseas inputs were the automotive and pharmaceutical industries, with the latter importing up to 85% of its needs, compared to the food sector, which was mainly self sufficient for its production requirements.

Dian Ayu Yustina, an economist with Bank Danamon, agreed, adding that cutting manufacturing industries’ thirst for imports was a key measure to addressing Indonesia’s external imbalances. “Structural policies must come forth to address the infrastructure problems, productivity and support the manufacturing sector to reduce reliance on commodity exports,” she wrote in an investor note.

The government itself has some concerns over the manufacturing sector as high local demand could feed into inflation as well as the current account deficit.

“I noticed that we are already in a position where [the government] must be careful over the pressure in the current account due to the strong growth of imports,” Finance Minister Chatib Basri commented at the start of August, when asked about the latest PMI report.

This suggests that the state may take further measures to cool the economy, after having already raided import duties and cut spending. If so, there could be an easing of growth in the manufacturing industries in the latter part of this year.

 

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