The government expects the manufacturing industry to grow significantly next year (2015) thanks to massive investment and greater domestic consumption, which would help cushion the country’s economy against shocks from the planned increase in fuel prices and rising labor costs.
The non-oil and gas manufacturing industry may expand by 7 percent, above the economic growth forecast of 5.6 percent next year, on the back of sizeable investment, primarily in the petrochemical and mineral-processing sectors, and greater consumption of locally made goods, according to the Industry Ministry’s director general for the base manufacturing industry Harjanto.
The ministry earlier estimated that to book robust industrial growth, the country might need Rp 270 trillion (US$22.19 billion) next year, up 28.6 percent from the figure targeted this year.
“The biggest issue for us, as Pak Jokowi [President Joko “Jokowi” Widodo] has said, is to simplify existing regulations to attract investment so that we can see progress in investment projects,” Harjanto told reporters at his office on Monday.
Jokowi recently said that his administration aimed to ease investment procedures, primarily by streamlining scattered licensing procedures into one centralized institution — the Investment Coordinating Board (BKPM) — and that this might come into effect in the next three to six months.
In addition to this, the government would promote the use of domestically manufactured goods, most notably in government institutions and state-owned enterprises for their annual procurement, Harjanto said.
“Ministries are expected to commit to spending at least 60 percent of their budget on locally made goods. That will provide an enormous bonus to our industries,” Harjanto said.
Jokowi’s administration has inherited a long to-do list in an economy that grew by merely 5.11 percent up to the third quarter of this year, its slowest pace since 2009.
The list includes the revival of the manufacturing industry, which expanded by between 2.5 and 6.7 percent in the past decade, as the economy grew by 4.6 to 6.5 percent.
In its heyday before the 1997-1998 Asian financial crisis, the industrial sector surged by 12 percent each year and contributed a third of the gross domestic product (GDP).
In the first half of this year, the sector surpassed the economic growth of 5.17 percent, expanding by 5.49 percent, but its share of GDP was only 23 percent.
Jokowi has revealed his intention to stimulate growth in the manufacturing industry, especially in the downstream sector, which can be realized through new investment.
During a bilateral meeting with Japanese Prime Minister Shinzo Abe at an Asia-Pacific Economic Cooperation (APEC) meeting on Monday, the President reiterated the importance of greater investment in the manufacturing industry of Southeast Asia’s largest economy.
Meanwhile, Institute for Development of Economics and Finance (Indef) executive director Enny Sri Hartati pointed out the need for a change in mindset to allow quicker industrial growth.
“The government must now consider the manufacturing sector a priority for the economy. If the sector is to realize its potential, the government must participate more fully in it,” Enny said.
One of the major hurdles is land-acquisition issues, she said, adding that this problem could be overcome by establishing industrial estates alongside supporting public infrastructure.
Only 5 percent of the nation’s industrial estates were built by the government, with the majority in the hands of private developers.
Meanwhile, government-owned estates account for 78 percent of the total in Malaysia, 85 percent in Singapore, 75 percent in Thailand, 70 percent in South Korea and 90 percent in Taiwan, according to data compiled by Indef. (Linda Yulisman, The Jakarta Post)