Indonesia Wants to Become Manufacturing Hub in ASEAN

Indonesia targeting to become a manufacturing hub in Southeast Asian (ASEAN) region - Photo by Industry Ministry Office

JAKARTA (TheInsiderStories) – Indonesia targeting to become a manufacturing hub in Southeast Asian (ASEAN) region with several industrial sectors that have deep structures, ranging from upstream to downstream in automotive, textile and garment, food and beverages, metals, and chemicals sectors, said Industry Minister Airlangga Hartarto.

He adds, in the coming years, there will be more fiscal policies and sectors facilitated by the government to support the target. This strategic effort is believed to be able to spur industrial and economic growth to the next level.

In the automotive sector, Indonesia has great potential because last year’ car production reached 1.34 million units with a value of US$13.8 billion per year, he noted. Currently, there are four major automotive companies that make Indonesia an important player in the global supply chain.

Hartarto conveyed, the government was preparing a roadmap for the automotive industry to become the largest low emission vehicle manufacturer in ASEAN, especially those using Electrified Vehicle technology.

Also, prepared fiscal incentives for electric vehicles and effective regulations to support the electric vehicle industry. In fact, the government will offer super deductible taxes of up to 200 percent for industries that carry out Research & Development activities and plan more other opportunities in the coming years.

He added, along with the implementation of the Making Indonesia 4.0 road map, the digital economy in Indonesia grew rapidly. Seven unicorns in ASEAN, four of them from Indonesia, namely Bukalapak, GoJek, Tokopedia, and Traveloka.

Hartarto said startup companies and tech-wizards have contributed up to $10 billion to the economy. He stated: “This is still below their potential and our target is quite high, which is $150 billion in 2025.”

To achieve this target, the government continues to push for more unicorns or decacorns. Not only that, he said there will be more than two companies that have the potential to catch up as decacorns in 1-2 years.

“That is why we believe industry 4.0 will strengthen inclusive economic policies because they are based on collaboration between large industries with Small and Medium Industries,” he said.

Hartarto revealed, Indonesia has the advantage of solid demographic bonuses, so that e-commerce platforms currently rival conventional stores.

“Bukalapak and others have five million vendors, people who visit the website are around 30 million. The sales are around $4,000 per year, from here it can be seen the economy of the scope of the digital market in Indonesia,” he explained.

Although currently, the Indonesian manufacturing industry focuses on digital, with various regulations issued, the government seeks to balance more traditional or conventional industries with high-tech ones because the harmony between the two has been going on for quite a long time.

“I emphasize, Indonesia today is different from 10 years ago. At that time, we were dependent on commodity exports, but in the past five years, Indonesia focused on manufacturing sector exports with high added value,” he said.

Currently, Indonesia’ economic growth continued to show a positive trend, with an average of above 5 percent per year. This is inseparable from the role of the manufacturing sector which provides the largest contribution to national GDP.

The processing industry still contributes the most to the structure of the national GDP by 20.07 percent in the first quarter of 2019. This number is higher than the achievement in 2018 of 19.86 percent.

Then, in the same period, the manufacturing sector contributed up to 22.7 percent of the total investment with a value of Rp195 trillion. Through this potential, Indonesia is considered to be a manufacturing hub in ASEAN and as a production base for global producers to meet domestic and export market needs.

For ease of investment, he adds, the government has launched Online Single Submission (OSS). With this system, investors will be facilitated in managing business licenses.

“We have succeeded in doing so by attracting more investment through an aggressive tax holiday policy, which is aimed at companies that invest from $30 million to $2 billion, which can get a tax holiday in a duration of 5 to 20 years,” he explained.

A few days ago, the Standard and Poor’s (S&P) Global Ratings upgraded Indonesia’ sovereign credit rating from BBB to BBB with a stable outlook. Thus, Indonesia now has an investment grade status from the three international rating agencies, such as S&P, Moody’s, and Fitch.

Furthermore, Hartarto revealed, President Joko Widodo’ government will rely on automotive, chemicals and electronics industries to push the contribution of the manufacturing sector to 25 percent of the nation’s economy by 2025 from 20 percent now. The move may help boost exports from South-east Asia’ largest economy and tackle its current account deficit, he added.

“The government’s initiatives to bolster manufacturing will include relaxing the negative investment list, which regulates levels of foreign ownership across hundreds of sectors, implementing tax holidays for both domestic and foreign firms, and reforming the labor law, he said when speaking at the Nikkei Forum in Tokyo, Japan, Thursday (05/30).

With the world moving towards electric vehicles, Indonesia wants battery-powered automobiles to make up 20 percent of the nation’s total output by 2025. A road map being prepared by the government would involve existing manufacturers such as Toyota Motor Corp and Mitsubishi Motors Corp as well as Chinese electric vehicle makers such as BYD Co and Wuling Motors Holdings, he said.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com