JICA Give a Recommendation to Indonesia on Promotion for Globally Competitive Industry

In his speech, Minister Bambang welcomed this discussion on policy recommendations resulting from a study that began in mid-2016. "Through today's discussions, hoped that they will be able to raise understanding and commitment among each GOI agency, especially in addressing the development of the sector national industry. I hope the results of this study contribute to the sharpening of national industrial development policy, "he said.

Minister Bambang explained the development of national industry is directed to solve three major problems. First, the stagnation of industrial labour productivity. IMF data shows Indonesia's labour productivity has stagnated for more than a decade, while China and India are experiencing rapid increases. Second, national industrial competitiveness. The increase in Indonesia's Incremental Capital-Output Ratio (ICOR) reflects the weakening of capital use due to the lack of optimal banking intermediation function and limited access to finance for the community. Third, Indonesia's exports of manufactured products are dominated by low-tech products. The low proportion of exports with high tech content indicates that Indonesia has not participated optimally in the global value chain.

Minister Bambang encouraged efforts to increase the diversity and complexity of Indonesia's export products in order to compete in the global market. The empirical study proves that the level of complexity and diversity of a country's export products has a positive correlation with the per capita income level of a country. Based on Atlas of Economic Complexity data published by Harvard University, Indonesia's exported products have limited variety, dominated by commodity-based products, and have limited forward and backward linkage with other sectors. This makes Indonesia has not been able to produce new products with higher technology.

Currently, Indonesia is also facing the biggest challenges in the Information, Communication, and Technology (ICT) sector. ICT ratings Indonesia can be quite good, but its growth has not been able to meet the needs of access to national ICT infrastructure and the use of individual ICT. In addition, the government also needs to ensure the development of national industry must be in line with technological developments, both used producers and consumers. The projection of ING Economics shows the development of electric car technology is very rapid, until estimated in 2030 conventional automotive market in Europe worth $ 200 billion will be lost and replaced completely by the electric car market. According to Minister Bambang, the development of ICT and digital innovation can be an opportunity for Indonesia to increase national economic productivity.

In the Government Work Plan (RKP) 2019, the government targets the national industrial sector to grow within the range of 5.1 to 5.6 percent. To achieve these targets and push the national industry forward, the government will focus on several strategic issues, such as manufacturing value added, business climate, productivity, technological content and export of manufactured products. The work plan that supports the development of national industry in the National Priority 3: "Increasing the Value Added Economy and Employment Creation through Agriculture, Industry, Tourism and Other Productive Services", among others: (1) development of UMKM industry-based agriculture, development of upstream industries, supporting industries and industrial zoning, (3) increase of manufacturing exports, (4) development of industrial human resources competencies through vocational education, and (5) enhancement of industrial research and development.

Especially for industrial research and development activities, the government is currently preparing industrial investment incentive schemes, one of which is tax deduction incentives through tax holiday facilities, tax allowance, and import duty. Minister Bambang said the national industry development strategy becomes the basic capital in achieving the target of the development vision of Indonesia in 2045 as a country with high income level. The industrial sector is expected to be the main driver of the national economy with average growth reaching 7.8 percent per year and contribution to the economy by 32 percent.