Bappenas Launches Book on Manufacturing Industry to Push Structural Transformation Efforts

JAKARTA – Indonesia's manufacturing industry is still facing a raft of challenges to its growth, specifically its dependency on imported raw materials, a workforce dominated by low-skilled workers, the lack of proper infrastructure, vague and inefficient regulations and policies and the lack of sustainable practice implementation.

 

Aiming to tackle these challenges, the government issued the 2020 Job Creation Law (UU Cipta Kerja) which outlined 49 strategies and tasks to alleviate the obstacles.

 

In order to support evidence-based planning and budgeting strategies, especially in the manufacturing sector, the Ministry of National Development Planning/Bappenas, in collaboration with the Economic Research Institute for ASEAN and East Asia (ERIA), has jointly launched a book titled "The Study of the Indonesian Manufacturing Sector in 2021".

 

Industrialization strategies outlined by the Ministry are outlined in this book as part of economic transformation efforts directed at continuing and strengthening existing initiatives and introducing new policies that enable better performances. Several options for strengthening the existing manufacturing industry policies recommended in this study have been adopted and merged into the government's 2020-2024 Mid-Term Working Plan (RPJMN).

 

"The study outlined in this book recommends strategies to encourage structural transformation in the manufacturing industry, including the increasing of investment in human resources to be able to support advanced technologies such as Industry 4.0 methods. Others include advice on how to develop new industries related to the production of medical and pharmaceutical devices and equipment and how to strengthen product and process technology for small and medium scale industries (IKM) as supporting industries," the Minister of National Development Planning/Head of Bappenas Suharso Monoarfa elaborated during the book's launch event on Wednesday (17/11).

 

Furthermore, Minister Suharso also noted several recommendations from this study that are relevant to the recovery and development of industrial competitiveness, mainly related to i) improving the down streaming of natural resources, ii) further involvement in the global supply chain and the export market, iii) improving the readiness and quality of industrial infrastructure, iv) increasing the utilization of government procurement of local goods and services as a driver of demand for industrial products, v) preparation of potential exporters by increasing their roles in the domestic market, and vi) implementing various policies to improve the business climate in Indonesia.

 

Various recommendations outlined are also in line with the direction of policies and strategies that will be implemented in 2022, which are focused on accelerating recovery and structural transformation.

 

"Observations related to the Covid-19 pandemic's impact on the industrial sector form part of the main basis for analysis to ensure that various strategies are carefully drawn up to support the acceleration of economic recovery. We hope that this will be a good start for the re-industrialization efforts of Bappenas and the Indonesian government so that we can achieve our goals for our Menuju Indonesia Emas 2045 target," the Ministry of National Development Planning/Bappenas' Deputy for Economics Amalia Adininggar Widyasanti explained.

 

The strategies recommended in this book include increasing technological innovation and adaptation, improving the quality of labor and human resources, increasing participation in global value-added chains, increasing competitiveness through agglomeration, deepening the sub-sectors involvement and strengthening other supporting services. These strategies are also complemented by strategies to strengthen ecosystems that enable industries to become more productive and competitive, including those related to exploiting export and domestic market opportunities as pulling factors, access to competitive energy, and financial sector support to strengthen the manufacturing industry's capacity.

 

"Indonesia must present a stable, predictable and responsive business environment as added value to domestic and foreign players. In the context of all of Asia, this is the time for Indonesia to become a major player in the Factory Asia concept. It should be able to form a thick industrial base in an open environment to allow a sufficient degree of freedom for the private sector. Indonesia must also pursue and implement innovative methods combined with incremental and disruptive methods," ERIA Chief of Economics and Professor of the Faculty of Economics at Keio University Fukunari Kimura said.

 

"The ideas outlined in this book are still relevant for the improvement of the manufacturing industry after the pandemic, but also needs to be encouraged by several sectors in the short term. Meanwhile, in the long term, it is necessary to pay attention to new global trends, such as faster digitalization, global awareness of the green revolution, and multilateral economic agreements," added ERIA Senior Economist Dionisius A. Narjoko.

 

Adding to that, Professor Dradjat Irianto of the Bandung Institute of Technology (ITB) said that Indonesia is currently facing a transitional period from mass production to mass customization by the way of collaborative manufacturing. "This is the transitional phase that we have mapped out. Indonesia currently only has a little bit of mass customization and collaborative manufacturing policies," he said.

 

Meanwhile, Professor Maman Setiawan of Padjadjaran University suggested that there are three main points regarding Indonesia's participation in the global value chain.

 

"The first is that increased involvement in the global value chain will help boost our domestic and international competitiveness. Second is that the involvement of the manufacturing sector in the global value chain will help influence the service sector utilities used by the manufacturing sector such as banking. And the third, is that for a developing country, participating further in the global value chain is important because it can potentially invite new foreign investment," he said.

 

"There are several things to consider in the development of human resources in Indonesia. First is balancing between the needs of medium and large industries and those of smaller industries. Second, the balance between the focus of formal education with informal education: balancing technical skills and soft skills, balance between government training and private training, and addressing disparities between genders and young and old workers," added Asakreativita CEO Vivi Alatas.