Industry Review: In Search of New Growth Engines

Indonesia is Optimistic to Become a Manufacturing Hub in ASEAN
Industry Minister Airlangga Hartarto (left) visiting an automotive component plant owned by Thai Auto Summit Group (Image Credit : Industry Ministry).

JAKARTA (TheInsiderStories) – Early last week, hundreds of investors and business players gathered at the main hall of the Indonesian Stock Exchange Building. The main topic addressed was how to sail through economic and political tides in 2018.

The speakers included National Police Chief Tito Karnavian, who provided insight about political security next year, while economists and top executives shared insights on what to expect in terms of economic growth.

The Police Chief assured business players that the country would remain safe as long as the police and the military are united as shown at present, working hand in hand to safeguard the nation and all elements of society, including business players, so that they can conduct their activities and business as usual.

From industrialists and business players’ perspectives, such assurance is necessary, so that they can focus on running their businesses and leave security to the proper authorities, wasting no time or effort in securing their enterprises.

For business and industry players, next year promises to be a challenging year, given that the economy is expected to be little changed from this year, in terms of growth. If the economy did manage to improve, it would not do so by much, as reflected in the various projections issued by economists and multilateral agencies.

The Indonesian government expects the growth in the range of 5.4 to 6.1 per cent from this year’s target of around 5.2 percent. Meanwhile, Bank Indonesia (BI) estimates that Indonesia’s economy could grow between 5.1 to 5.5 per cent next year.

Economists and multilateral agencies provide more modest projections. Bank UOB Indonesia expects to see growth of 5.3 per cent in 2018, the same projection issued by the IMF.

Despite relatively subdued economic growth, the Joko Widodo government is not hesitant in its ambitious projects, continuing to embark on various infrastructure projects, such as toll roads, ports, dams, airports, energy infrastructure, light rapid transport (LRT), among others. These mega-infrastructure projects help create jobs in the short run, but also provide a solid foundation for the national economy over the medium to long-term.

President Widodo believes that poor infrastructure has crippled Indonesia’s economy in the past, stopping from fulfilling its full potential. He cited high logistic costs for the flow of goods and services within this archipelago that has caused national business to be less competitive in general, and harmed industry players in particular.  

Business and industry players will enter 2018 on the back of relatively stagnant economic growth. As reported by Statistics Indonesia, the country’s economy still records shy growth in the three quarters of 2017, lower than the government’s target of 5.2 per cent.

The economy grew by 5.01 per cent in the first and second quarter and 5.06 per cent in the third quarter, and is likely to continue the trend through to the fourth quarter. Many observers believe that such a subdued growth rate may continue until next year, in line with the global economy.

In the past, the commodities sector has helped offset slow growth in other sectors. However, the heyday of commodities has come and gone: while it still contributes to the country’s economy in term of export value, this is not as significant as in the past. 

The good news is that while overall economic growth has not been that encouraging, certain sectors of the economy have recorded robust growth.

Statistics Indonesia data shows that in the third quarter, ‘other services’ recorded the highest growth, at 9.45 per cent, followed by ‘information and communication’ at 9.35 per cent, ‘company services’ at 9.24 per cent, and ‘transportation and warehousing’ at 8.27 per cent. A similar high growth trend was also recorded in the previous two quarters.

In non-oil & gas processing industries, the ‘basic metals industry’ has recorded growth of 10.6 per cent in the third quarter, ‘food & beverages’ 9.46 per cent, ‘machines & equipment’ 6.35 per cent and the ‘transportation equipment industry’ at 5.63 per cent.

Industry Minister Airlangga Hartarto observed that the encouraging performance of the basic metal industry is supported by government policy to boost the downstream sector.

The aforementioned data signal that there are still opportunities for policymakers to boost sectors that have the potentiality to record high growth. This is also a signal for industry players to search for new opportunities to expand, diversify and embark on new businesses to offset existing low-growth sectors. (*)

Written by Roffie Kurniawan, Email: roffien@theinsiderstories.com