joint publication report of the Asian Development Bank (ADB) and the National Development Planning Board
Joint publication report of the Asian Development Bank (ADB) and the National Development Planning Board in Jakarta. Photo by The Ministry.

JAKARTA (TheInsiderStories) – Indonesian government continues to improve the manufacturing sector in order to achieve higher economic growth rates and become an upper-middle income country, told joint publication report of the Asian Development Bank (ADB) and the National Development Planning Board in Jakarta, on Friday (02/08).

The report entitled “Policies to Support the Development of Indonesia ‘s Manufacturing Sector during 2020–2024” analyzes Indonesia’ growth prospects during 2020–2024, specifically whether or not the seven percent growth rate can be achieved.

According to the Minister of National Development Planning Bambang Brojonegoro, in order to compete with developed countries, Indonesia must build a sophisticated manufacturing industry sector so that economic growth becomes more optimal in the medium and long term.

“Indonesia wants to become an upper-middle income economy in the next fifteen years. The findings of ADB-Bappenas indicate that the structure of the Indonesian economy, which is still based on agriculture, natural resources, as well as simple manufacturing and services, does not allow us to achieve a higher growth rate,” he noted.

Brojonegoro acknowledges that achieving higher income can be achieved, it is important for Indonesia to develop various niches in manufacturing activities with complexity and high added value.

He added, that Indonesia’s manufacturing sector is currently not diversified and only exports relatively few types of products, even though in 2018 it reached an investment realization of Rp 222.3 trillion (US$ 15.88 billion).

Meanwhile, Indonesia’s main exports are unprocessed natural resources and simple manufactured goods, very different from complex and high-value products exported by developed economies, such as machinery, chemicals or electronics.

The minister explained that Indonesian companies are indeed connected to the global value chain, but most are only suppliers of natural resources. In addition, the current portion of manufacturing employment in overall employment is lower compared to the economies of high-income Asia decades ago.

Reportedly, around 99 percent of manufacturing companies in Indonesia are micro or small, while the food sector is the largest employer in Indonesia, where in the food industry in 2018 7.69 percent and drinks reached 23.44 percent.

As stated in the report, governments and economic partners need to discuss ways to diversify and improve the manufacturing sector, modernize industrial policies, and the role of fiscal and monetary policies in supporting higher growth rates.

Moreover, the government needs to increase productivity in Indonesia, support product diversification, and create strong links between large companies and small and medium enterprises, and also between domestic companies and international markets.

As reported before, Indonesia’s economic growth since 2014 has not experienced a significant increase. In 2014 the Indonesian economy only grew 5.01 percent, lower than 2013 at 5.56 percent. Then in 2015 it dropped to 4.48 percent.

However, it back growth in 2016 and 2017 was 5.03 percent and 5.07 percent respectively. Finally, in 2018, Indonesia’s economic growth is only 5.17 percent, far from the government’s target of above 5.4 percent.

Meanwhile, ADB Economic Research and Regional Cooperation Department Jesus Felipe, said that to increase product diversification and increase economic growth, the Indonesian government must revitalize the manufacturing sector through more effective cooperation with the private sector.

“The government needs to initiate dialogue with the private sector in order to jointly identify and overcome obstacles to the development of the modern manufacturing sector. Policy makers and the private sector must work together to find new and more sophisticated products that can be used as a means of diversification for Indonesia,” he said in Jakarta.

Felipe stressed that ADB is committed to achieving a prosperous, inclusive, resilient and sustainable Asia and Pacific, and continues its efforts to eradicate extreme poverty, including Indonesia.

Brojonegoro at the end of presentation hoped that the report would become a standard and solid foundation for Indonesian policy makers to begin to review policies that need to be implemented to support Indonesia’s development in the medium and long term.

“The analysis and recommendations in this report will be an important input for the 2020-2024 development agenda,” he concluded.

Written by Daniel Deha, Email: theinsiderstories@gmail.com