Analyzing the Prospects and Challenges of Industry 4.0 Implementation in Indonesia

President Joko Widodo Launch Making Industry 4.0 - Photo by Industry Ministry

JAKARTA (TheInsiderStories)The fourth industrial revolution (Industry 4.0) that refers to process automation and data exchange has prospects for a greater use in manufacturing technologies in Indonesia.

Many countries have developed strategies to capitalize on this technology. In a bid to catch up the trend, Indonesia’s government earlier this month launched Making Indonesia 4.0. This roadmap focuses on the five areas namely food and beverages, textiles, automotive, electronics, and chemicals.

The government targets to increase the economic growth by 1-2 percent per year from currently in the range 5 to 7 percent in 2018-2030. In addition, the manufactures will contribute around 21-26 percent of GDP by 2030. Furthermore, Indonesia targeted to improve the ratio of net export to GDP from 3 percent to 5-10 percent and create 7-19 million employment in both manufacturing and non-manufacturing sectors by 2030.

Indonesia has a big opportunity in the Industry 4.0 as reported by the McKinsey, by speeding up the digital economy, Indonesia can earn up to US$150 billion in annual economic impact by 2025.

This big opportunity is mostly driven by the demographic bonus in the next 15 years. With the huge population, the country has giant smart-phones users of 100 million in 2017 and around 143.26 million people connected to the internet in 2017, according to the Association of Indonesian Internet Service Providers data.

The government realized this big opportunity, however, there are challenges needed to be addressed.


The various opportunities, the elevated need for investments in the Industry 4.0 is one of the most important topics. Industry 4.0 needs high-technologies that requires huge capital. However, the banking industry has not focused on financing high-tech industries because the industry is relatively new with high risks.

Permata Bank Economist Josua Pardede explained the government should give incentives to attract the banking industries pour loan to high-technology industries. In his opinion, the adjustment in the risk-weighted asset would be best option to overcome the high risk in the high-technology industries.

The banking industries’ appetite for the high-tech is getting smaller as the industry suffers high NPL driven by the economic slowdown. The Financial Services Authority reported NPL ratio increased to 2.9 (gross NPL) and 1.3 (net NPL) in January 2018.

Human Resources

The second challenge is the readiness of human resources. Indonesia has the 4th largest workforce in the world but very lacking in talent. According to the Manpower Ministry data, Indonesia is dominated by the unskilled labour with a percentage of 60.24 per cent of total 125.44 million labours. The skilled labour with the bachelor degree certificate is only 11.65 million labours. It is very low as Indonesia has an opportunity to become the 7th biggest economy in 2030 so that the country needs 113 million of skilled labours, according to the research published by McKinsey Global Institute (MGI).

The low rate of skilled labours in line with the tiny government budget on education that only US$114 per capita. In addition, Indonesia’s government only has a tight budget for the research and development (R&D), only 0.1% to 0.3% of GDP. The government itself targets the R&D budget to rise at least 2% to enter the 4.0 industry.

Digital Infrastructure

Last but not least, Indonesia also has a constraint in the digital infrastructure to boost the fourth industrial revolution. The cellular phones still use the 4G technology, not ready to use 5G technology. The average speed of fiber optic is also less than 10 Mbps. In addition, cloud infrastructure is also still limited.

To catch up the infrastructure lag, the government build the Palapa Ring project that will provide a backbone for a national information superhighway. This project is part of the universal service obligation to ensure the telecommunication and informatics access for the public.

Furthermore, the government is also speeding up the High Throughput Satellite (HTS) project aimed to bring internet access to the remote area. However, the satellite is expected to launch at the end of 2021 or at the beginning of 2022.