Indonesia’s Industrial Sector: Challenges and Opportunities (Part-1)

By: Dr. Mohamad Ikhsan Modjo (Financial Economic Specialist’s BINUS International Finance Program)

One complex issue in Indonesia’s economy to date is the lack of vitality in the manufacturing sector. From the expenditure side of national income, the existing economic growth has been largely driven by consumption and export activities. Meanwhile, the level of investment has been stagnant until the end of 2023.

Similarly, on the production side, the growth of the tradeable sector, such as Agriculture, Mining, and Manufacturing, has not been optimal. From the records, this sector has only grown by an average of 4 percent per year over the last three years. Meanwhile, the non-tradeable production sector, such as Construction, Finance, Transport, and Trade, has grown at an average rate of 8 percent per year. This trend is certainly concerning. The tradeable sector is categorized as the real sector in the economy.

Since the pandemic crisis in 2020, the growth of the national manufacturing sector has tended to weaken. This can be seen from the growth rate, which has only ranged between 3 to 5 percent per year since 2020. This figure is much smaller than the average growth rate of more than 7-8 percent per year in the pre-pandemic period.