The government believes that diversifying and upgrading Indonesia’s manufacturing sector is essential to attain higher economic growth. Therefore, the government will be focusing on the development of the manufacturing sector for the next five years. The head of National Development Planning Agency (Bappenas) Bambang Brodjonegoro said that developing this sector would boost Indonesia’s potential GDP growth and maintain growth of the economy in the long term.
A joint report by Asian Development Bank (ADB) and the Bappenas analysed Indonesia’s growth prospects and estimates that Indonesia will see an average growth rate of 6.31 percent between 2020 and 2024. Furthermore, employment in the sector was set to increase gradually to 20 percent of the workforce by 2024. According to Statistics Indonesia (BPS) data from August 2018, Indonesia’s manufacturing sector makes up 14.72 percent of the labour force. The report states that transforming Indonesia’s economy in 2020 to 2024 and beyond should be of top priority.
Indonesia’s manufacturing sector is currently undiversified and depend largely on exports of simple manufactured goods or raw commodity-based exports which offers few linkages to other industries—mostly as suppliers of natural resources. As commodities are susceptible to price swings in the market, developing the manufacturing sector is vital in reducing this dependence which provides the Indonesian economy with a weaker platform. Bappenas stresses that the key manufacturing strategy should be to develop niches in value added complex manufacturing activities which would diversify its export products. According to Bambang, developing more downstream products would be the first step in driving growth of the manufacturing sector.
“The government can play an important role in revitalizing the manufacturing sector by working more effectively with the sector,” said Jesus Felipe, Advisor in the Economic Research and Regional Cooperation Department of ADB. “The government needs to initiate dialogue with the private sector to jointly identify and address obstacles to the development of a modern manufacturing sector. It is critical for policy makers and the private sector to collaborate in discovering those new and more sophisticated products that Indonesia could successfully diversify into,” he added. Besides collaborating with private enterprises, the government also needs comprehensive policies geared towards specific subsectors of the industry and attract new investments in the manufacturing sector.
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