World Economy

Indonesia Urged to Boost Manufactures

Indonesia Urged to Boost ManufacturesIndonesia Urged to Boost Manufactures

There has been a wave of discussions about Indonesia joining the Trans-Pacific Partnership after President Joko “Jokowi” Widodo notified US President Barack Obama during his visit to the US in October that Indonesia intended to join the trade pact.

The TPP is a free-trade agreement comprising 12 nations in the Pacific Rim, namely the US, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. In principle, the agreement removes all tariffs and barriers for manufacturing products sold among member countries, Yahoo reported.

Under President Susilo Bambang Yudhoyono, Indonesia implemented more inward-looking trade strategies. Meanwhile, President Jokowi is in favor of applying more outward-looking policies and the TPP is in line with export-oriented strategies.

However, competing globally is challenging. An export-oriented manufacturing sector in Indonesia is considered less competitive and stagnant after the 1998 Asian crisis. The primary sector (commodities) has been a major contributor to the economy.

Before joining the TPP (or any other free-trade agreement), it is essential to improve the manufacturing sector to be able to compete and survive in the global market. Indonesia may learn from other countries that have successfully improved their manufacturing sector, The Jakarta Post opined.

History has recorded that Japan experienced a miracle of high economic growth. After the atomic bombs were dropped in 1945, Japan recovered and developed very rapidly in the 1960s, successfully transforming its economy from the primary sector to manufacturing industries. The manufacturing sector was the engine of economic growth over the high-growth period. Japanese products are sold worldwide.

“There are three lessons we can learn from Japan’s experience in developing its manufacturing sector that are relevant for Indonesia,” the Post said.

First is promoting small and medium-sized enterprises. Indonesia has an SME sector with great potential. According to the Central Statistics Agency, more than 90% of enterprises are classified as SMEs. Promoting SMEs is relevant to the current condition.

Second is zoning special regions for industrial development in coastal areas. Indonesia is the world’s largest archipelago, with a long coastline. Developing special industrial regions is suitable in Indonesia.  

Third is enhancing the quality of human resources. Indonesia has the world’s fourth-largest population and the advantage of an abundant young workforce.

Losing the competition within the TPP may lead to job losses in the manufacturing sector, turning Indonesia into a consumer nation. However, the TPP may be the first step for Indonesia to fully implement structural transformation.