Industry 4.0: Electronics Industry Waiting for Local Components

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

JAKARTA (TheInsiderStories)–The electronics industry is one of the priority industries to be developed by Indonesian government under the national program of “Making Indonesia 4.0”, which was formally launched by President Joko Widodo recently. The other four sectors are automotive, chemicals, textiles, and food & beverages.

“Making Indonesia 4.0” program was designed by the industry ministry as a roadmap to develop the Indonesian industries by harnessing the technological advances through what is called industry revolution 4.0, which is characterized by digitization and connectivity through the internet of things (IOT). Under the program, the industries are hoped to create a much bigger multiplier effect to the whole economy of Indonesia. That way, the five industries will become the main driver of Indonesia’s economic growth toward reaching the level of top ten economies in 2030 as envisioned by the government.

Industry Minister Airlangga Hartarto said that during the last quarter of 2017, the whole Indonesian industry grew by 5.51 percent, of which the electronics industry contributed the most at around 35 percent. “The electronics industry will become the new driver of economic growth as its growth reached the highest at 35 percent last year,” he said.

But unfortunately, there are still basic problems that need to be addressed by the government if it wants to accelerate the higher growth of the industries and create much bigger multiplier effects to the Indonesian economy.

In the electronics industry, the main problems are the poorly-developed components industries, unavailability of research and development (R&D) and the absence of business-friendly regulations. Without such supportive factors, the goals set in the roadmap will be just a dream and never realized.

Based on data from the Indonesian Electronics Businessmen Association, Indonesia still imports around 80 percent of components for electronic products. The industry ministry said that the components made in Indonesia are those with low technology, such as speaker, transformer, chassis, and cartoon box. Others with high technology, like compressors and motors, are still imported.

On R&D, the government has been seeking to strengthen cooperation with several international research institutions, such as those from Germany and South Korea. But at home, the government has not yet done enough to create a conducive condition for companies to do research and development activities that are expected to improve technology and create innovations. Creating such condition will require the government to design much friendlier regulations and incentivize industrial players to do R&D activities through tax incentives and tariff reduction.

Perhaps, the government is reluctant to apply the much friendlier regulations due to its commitments that had been set through the application of the ASEAN Free Trade agreement, which had led to the reduction of import tariffs to almost zero percent. Such a condition has led to the preference of importing the electronic products and components instead of producing them inside Indonesia. But for the sake of realizing the dream, the government should be brave enough to take the necessary steps, including by creatively but tactfully designing policies that will fertilize the growth of electronics industry as part of the Making Indonesia 4.0 program.