Indonesia’s Industrial Sector: Challenges and Opportunities (Part 3)

A high concentration in the manufacturing sector has detrimental effects both in the short and long term. In the short term, it leads to the rapid overheating of the economic engine, which then easily triggers inflation. This is due to the dependence of an industry’s price and production on the capacity of a handful of companies. In the long term, an uncompetitive structure makes it difficult for new players and investments to enter an industry, resulting in difficulties in increasing production capacity over the long term.

From the past few months, there are indications of improvements from the above issues. For example, the demand for domestic manufacturing products has visibly recovered in line with national economic growth. What needs to be wary of is the demand for manufacturing exports. Future manufacturing export growth must no longer merely rely on cheap labor wages. Therefore, an export strategy related to industrialization must be developed immediately.

Similarly, there are strong indications of improvements in the growth rate of capital and credit disbursement to the manufacturing sector in recent months. In addition, the government is currently trying to improve the severance pay rules by issuing its own Government Regulation (PP) to revise this issue. It is hoped that this PP can eliminate the obstacles felt by companies to add workers.

An acute problem that still exists to this day is the lack of competitiveness of the national industrial structure. In some industries, improvements are visible. However, generally speaking, the government does not yet have a systematic and integral step to improve the domestic competitiveness of the national industry. This problem is a long-term structural problem, but its solution must be thought out and deliberated as soon as possible.