Industry 4.0: Chemical Industry Needs Investment-Friendly Policies

JAKARTA (TheInsiderStories) – In order for the chemical industry to achieve its designated objective as one of the five priorities in the Industry 4.0 Roadmap, the government must acknowledge that basic but sustained improvements on the part of policies would have a significant impact.

Chemical, along with food and beverages, textiles, automotive, and electronics have been declared by the government as priority industries in the roadmap, which aims to increase the contribution of manufacturing sector to Indonesia’s Gross Domestic Product (GDP) up to 21-26 per cent by 2030.

Furthermore, the roadmap also aims for an additional 1-2 per cent of annual GDP growth from the baseline scenario and 10 million new employment opportunities by 2030.

While the roadmap’s grand theme is to reverse the de-industrialization trend that had occurred in the post-reformation era, it also anticipates the widespread applications of technology and data in tomorrow industries.

On chemical industry roadmap, the government has set a specific focus on biochemical industry, by taking advantage of the nation’s herbal riches and robust pharmaceutical industry.

However, rather than focusing on the long-term goals, the government must first in short-term address the problems facing the industry. Those problems include the high-reliance of the chemical industry on imported raw materials.

One specific case is in the petrochemical industry, which needs around 5.60 million tons of raw materials every year but only 2.45 million tons can be fulfilled domestically. The pharmaceutical industry suffered the most as 90-95 per cent of raw materials it needs are imported.

The high dependency on the imported material causes expensive production cost. The cost will be more expensive as Rupiah continue weakening against the US Dollar. Currently, the rupiah exchange rate has reached more than Rp 14,000 per US dollar.

Actually, in 2016 the government had taken efforts to allay the constraints by allowing foreign investors to take up to 100 percent ownership in drugs material business in Indonesia. But still, there is no major investment in drug material business.

No investment in the drug material industry brings big impact to Indonesia, as it has to import around 90-95 per cent of raw materials. It indicates that the government needs to do more than just attracting foreign investments.

In order to address this problem, the government already provides a tax incentive to attract investment in chemical industry. Last month, the government offered a tax holiday incentive for the 17 sectors including chemical sector.

This incentive allows companies which invest Rp500 billion to more than Rp30 trillion to scrap their obligation to pay corporate income tax for 5-20 years. In addition, the government offered tax deduction up to 100 per cent. Furthermore, the government cut down the tax holiday approval process to 15 days, from the previous 45-day process.

However, the tax incentive is highly unlikely to attract investors if the government does not improve the fundamental investment climate including the permit simplification, business policy certainty, security, political stability, and infrastructure availability.

Last year, Indonesia was ranked 72nd out of 190 countries in Ease of Doing Business (EODB) index. Despite achievement to jump from its previous rank of 91, this progress was still far from the President Jokowi’s ambition to reach EODB ranking at 40. To enable the government to achieve the ambitious goal, it should address the fundamental investment climate first by issuing friendly regulations and applying attractive incentives that will attract investors to invest in the chemical industry.