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An Ambitious 2020 Target – Indonesia is Set to Experience a New Industrial Revolution

Is this the programme to help Indonesia’s industrial heart beat faster and turn the country into an international economic powerhouse? 
Published: 2013

For any economy with ambitions to grow, the development of a core industrial policy that takes account of a fast-changing international economic environment is fundamental. So, though materials and exported commodities have long been essential components of Indonesia’s economic heritage, that’s all set to change. Instead, today’s Indonesia is looking to reinvent itself as a ’New Industrial Developed Country’ by 2020 recognised on the world stage for possessing a strong and vibrant modern economy. To turn this goal into reality, the government, led by the Ministry of Industry (MOI), has set out a detailed industrial strategy for re- shaping the nation’s economy, building upon Indonesia’s inherent assets–its large land area, the size of its population and wealth of natural resources–while developing the country’s human capital through training and education.

Accelerate growth quickly then keep the momentum going is at the centre of Indonesia’sindustrialstrategy.

Fast-Start Growth 
This ‘accelerated industrialisation’ will focus initially on achieving economic momentum in mining, agriculture and human resource based industries and domestic markets, such as textiles, furniture and electronic components. From these fast-start sectors, focus will turn to ‘future’ industries, with transportation and information technology and telecommunications equipment being among the first to be explored.

To meet its self-imposed target growth rates of 8% and 9% annually between 2015 and 2025, the government has chosen five main strategies. These include encouraging the business sector to help in the revitalisation of country’s existing out-of-date infrastructure and removing the bureaucratic barriers that ham- per decision-making and limit entrepreneurial activity. It will also aim to refocus export priorities so higher value products make a larger contribution to international trade; foster greater productivity and competitiveness among companies; and finally, improve the integration of domestic markets so doing business in Indonesia becomes more efficient and effective.

To stimulate private company involvement, the government will employ a range of tools at both state and national level. These will cover fiscal and budgetary measures and the creation of an infra- structure of industrial estates, and adopting a cluster approach to development of skills and resources for particular industries are brought together. It will also invite companies to participate in PPP schemes. After an initial process of industrial intensification that will last until 2014, the MOI will concentrate on six priority areas: labour-intensive industries, the capital goods sector, industries based on natural resources, high-growth industries, and those that are identified as special priorities.

SMI Vitality
It will also seek to develop small to medium-sized industry, something the government hopes will help immunise the country against future global and regional economic instability. This it has done in the past, when the sector proved remarkably resilient during the Asian financial crisis of the late 1990s. Then, while larger enterprises suffered given their dependence on external funding, withlittleborrowingexposuresmall businesses were largely insulated from a troubled financial services sector. In 2010 SMEs contributed less than 20% of the country’s manufactured exports, which meant they were touched less by the global market slowdown.

But while keen to protect itself from the vagaries of the interna- tional economy, Indonesia is nevertheless eager to participate on the world economic stage. This has seen it entering into a variety of Trade Agreements (FTA) and Economic Partnership Agree- ments (EPA), such as bilateral arrangements with neighbours Australia and South Korea, as well as others further afield, includ- ing the European Union. But while the government is encouraging exports, there are concerns that as the population becomes more affluent, a flood of imports might be sucked in which could seri- ously damage domestic industries. Having an effective industrial policy will provide Indonesia with an all-important backbone for its future economic growth, giving a new coherence to the country’s economic activity over the next 10 to 12 years. With growth rates climbing, there are signs that it is already having an impact, and along with the long awaited improvements in infrastructure, this should stimulate even further growth in what is one of the most commercially focused populations in the world.

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