JAKARTA (TheInsiderStories) – The manufacturing sector is still the largest contributor to the national economy, among others through an increase in value-added raw materials produced by the country, the absorption of labor, and foreign exchange earnings from exports.

Several industry sub-sectors, including steel, automotive, electronics, chemicals, pharmaceutical, and food & beverage industries, are projected to spur manufacturing sector growth in 2018, according to the Ministry of Industry’s projections.

These sub-sectors are expected to achieve a 5.67 per cent growth target for non-oil and gas processing industries in 2018.

In 2017, these sub-sectors grew above average national growth: basic metal industry grew by 10.60 per cent, food and beverage industry grew 9.49 per cent, and transportation equipment industry posted 5.63 per cent.

“Therefore, the Ministry of Industry is focused on implementing its downstream industrial policies,” said Minister of Industry Airlangga Hartarto.

The value-added effort has been emphasized in agro-based and mineral industries, which have yielded various downstream products, such as palm oil and stainless-steel derivatives.

From 2015-2017, Indonesia developed integrated smelter industries, producing two million tons per year of stainless steel-derived products. This volume is higher than the figure reported for 2014, which only reached 65 thousand tons of semi-finished products in the form of ferronickel and nickel matte.

Manufacturing is also expected to be able to create job opportunities. The Government predicts the manufacturing sector will be able to create new jobs for 17.01 million people in 2018. This will lead the country of 250 million to continue emerging from steep unemployment and persistent poverty.

The food & beverage industry is predicted to deliver jobs to more than 3.3 million people, while the automotive and furniture industries are expected to recruit about 5.5 million workers.

Manufacturing also contributed to trade activity, by carrying US$79.96 billion worth of exports, or 74.76 percent of the total in the first half of 2017. China, U.S, Japan, and European Union are among the top non-oil export destinations.

Furthermore, non-oil and gas processing industries contributed the most to national Gross Domestic Product (GDP) in quarter III, 2017 by reaching 17.76 per cent. Meanwhile, the growth of non-oil and gas processing industries in quarter III 2017 reached 5.49 per cent, or higher than the 5.06 per cent national figure.

As for revenue, the industry has become the largest contributor of taxes and excise duties. Based on a report from the Directorate General of Taxation of the Ministry of Finance, the realization of tax revenues from the industrial sector up to the end of third quarter reached Rp224.95 trillion (approx. US$165 million) or 16.63 per cent more than the same period the previous year.

Furthermore, over the past 10 years, state revenues from excise have steadily risen. Statistics Indonesia data show this positive trend since 2007 with total revenue from excise duty of Rp44.68 trillion, soaring to Rp145.53 trillion in 2016.

However, there are still obstacles that need to be anticipated in the future, including import tariff barriers set by some countries for industrial products from Indonesia.

“We see that trade barriers are declining; therefore, the performance of the textile and footwear industries’ exports should rise,” he said.

These tariff barriers are in place because a number of economic cooperation agreements have not been completed, including ones with Europe, U.S, and Australia.

Currently, in the process of negotiation for bilateral agreements, such as the export duty of Indonesian textile products (still at 5-20 per cent), while Vietnam’s exports to America and Europe are zero per cent,” according to Hartarto.

Referring to the World Economic Forum (WEF) report, Indonesia’s Global Competitiveness Index ranking in 2017-2018 is 36th out of 137 countries, or up five places compared to the previous year, when it ranked 41st. In 2013, it is in 38th position from 148 countries, in 2014 34th from 144 countries, and in 2015 position 37th out of 140 countries.

The publication results of the year also mentioned that Indonesia was ranked 31st in innovation and 32nd for business sophistication. In fact, Indonesia is considered one of the top innovators among developing countries, along with China and India.

The United Nations Industrial Development Organization (UNIDO) noted that Indonesia was ranked 9th in the world, or up from the previous year’s rank of 10th for the ‘manufacturing value-added’ category. The 9th rank is similar to that of Brazil and England, and even higher than Russia, Australia of other ASEAN countries.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com