Automation in Indonesia - Implications for skills and government policy.

Abstraksi

Rapid automation and data exchange in manufacturing and services (sometimes referred to as "Industry 4.0") is having a major impact on established domestic and international value chains. It also has major implications for Indonesia’s structural transformation agenda and creates immense opportunities but also challenges for policymakers. The emergence of ride-hailing apps in Indonesia and the country’s burgeoning fintech industry are clear examples of new business sectors that have resulted from the digital economy and Industry 4.0. Similarly, at the global level, trade in services, particular through cross border exchange of data and other digital flows, has surged. Cross-border bandwidth has grown 45 times larger since 2005 and is projected to grow by another nine times over the period 2016 to 2021 as digital flows of commerce, information, searches, video, communication, and intra-company traffic continue to accelerate. At the same time, the ILO (2016) estimates that about 56 percent of all salaried employment in Indonesia, Cambodia, the Philippines, Thailand and Vietnam is at risk of displacement due to technology in the next couple of decades. The impact in Southeast Asia would be felt hardest on “labour-intensive sectors such as textiles, clothing and footwear” – sectors that employ millions of workers across the ASEAN Economic Community (AEC), many of whom are women (ILO, 2016). Automation then is likely to have a major impact on both the quantity and quality of jobs in Indonesia and on the way Indonesians work. As the changes to the Indonesian economy gain momentum, new jobs are likely to emerge and existing jobs are likely to be done differently. For example, many commentators observe that as automation progresses, routine tasks across all levels of the skill spectrum will be increasingly automated, thus freeing up labour to focus on non-routine tasks that are harder to automate. There will be significant gender and distribution dimensions of this. Across low and middle- income countries, women are relatively disadvantaged in their access, use, and control of information technology, and in deriving the economic benefits of greater connectivity. Very little is known on how the rise of non-standard work, automation, and artificial intelligence will impact Indonesian women in their roles as workers, consumers, and as business-owners. The positive effects from job flexibility may be coupled with unstable employment. This presents new challenges to policymakers in Indonesia and globally. The Indonesian government has a roadmap for Industry 4.0 led by the Industry Ministry with engagement also from the Coordinating Economic Ministry and others. Agencies such as the national planning agency (Bappenas) are also exploring skills issues and the future of work. But proactive measures to comprehensively anticipate and fill skills gaps are missing. This paper fills this gap with evidence and policy recommendations the Indonesian government can deliver over the next five years. The paper analyses the opportunities presented by automation for Indonesia with a focus on demand for skills in the future. The paper first benchmarks the current level of automation in Indonesia against peers (ASEAN countries and large developing countries). It also analyses trends in changing jobs and job tasks/skills over the last 15 years in Indonesia and projects changes over the next 15 years. It presents impacts in terms of skills and occupations and breaks this down by gender and other social groups. The next section of the paper estimates the potential economic gains (increase in GDP) and distributional impacts at a macro-level of automation over the next 15 years for Indonesia and includes case studies of good practice in Indonesia where firms have combined productivity-gains from automation with job creation. The final section of the paper explores policy recommendations that have a good chance of uptake in Indonesia. These are focused on national-level policy settings for Indonesia to develop skills over the next five years. It also recommends other measures to leverage opportunities brought about by continued automation that national government agencies can take, along with measures to transition workers whose jobs may be at risk of being lost to automation.