MANUFACTURING TO REPRESENT 33-34% OF GDP BY 2019

Indonesia 2018 | INDUSTRY | VIP INTERVIEW

TBY talks to Airlangga Hartarto, Minister of Industry, on industrial development, accomplishments over the past two years, and the volatility of commodity prices.

What are some of the Ministry of Industry's key accomplishments and achievements over the last two years?

The Ministry of Industry is in charge of developing the manufacturing sectors in Indonesia. President Joko Widodo's vision for industry is first to develop the country's human resources. As part of this, the Ministry of Industry is transforming middle schools, especially vocational schools, so they become the mainstream of Indonesian education in the future. We would like technical training to be a main part of our human resources development based on science, math, engineering, and technologies. Through these vocational schools, we will develop students who can then go on to polytechnic training. We are following industrial countries such as Germany and Switzerland that have vocational schools and polytechnics to develop their human resources. The objective is to get the competitiveness of our labor, talent, and supervisory pools onto the manufacturing floor. The old system is based on a general education at middle school followed by university. This transformation is one of the aspirations of our President. The second aspect is the inclusiveness of the Indonesian economy. There are disparities between the rich and the middle class and poor. We need to narrow the gap by introducing new opportunities for SMEs in the consumer market. We will use the digital platform as a way to transform the SME ecosystem to create inclusive growth in the economy. We will use e-marketplaces based on local start-ups. The difference between Indonesian start-ups and American start-ups, for example, is that here we create jobs out of the application of our digital economy rather than reducing jobs.

Indonesia has incredible potential to increase its industrial sector on several fronts. What key strategies drive your work today?

Our strategy is strengthening the value chain. In Indonesia, we have a few industries that are competitive. One is based on our natural resources and the second is based on our plantations or agriculture. Both are key for Indonesia's manufacturing sector. Another area is based on metals and electronic manufacturing, and we also have chemicals and textiles manufacturing. With these kinds of industries, we can develop a proper base for participating in ASEAN's Industry 4.0. For example, as part of Industry 4.0 we are promoting activities in the electronics industry, as well as in the food and beverages, cement, and the steel and automotive industries. These are the companies that are already using some element of automation, robotics, or artificial intelligence to enhance their competitiveness internationally. The fourth issue is to advance regional development within the country. So not only to develop industry in Java, but also to develop these activities outside Java. Outside Java we have developed 14 Special Economic Zones (SEZs) and Industrial Estates based on the availability of raw materials in those regions. For example, in the North Sumatra region we have developed an industrial estate in Sei Mangkei based on the capital development of crude palm oil (CPO). We have also developed areas in West Kalimantan based on bauxite mining and in East Kalimantan with all the petrochemicals, gas, and palm oil. We have a new development in North Kalimantan based on hydro-power where we are going to build 7,000GW capacity under our master plan, as well as a smelting and refinery complex. In West Papua, there will be developments based on LNG and gas for petrochemicals. In the Southeast of Maluku there is gas for petrochemicals as well. So we have developments happening in a number of geographical areas based on resource-based industries. Of course, Indonesia's manufacturing is still heavily based on Java Island, and secondly on Sulawesi.

What work is the Ministry doing to promote value-added industries that are less susceptible to price volatility?

Over the last 10 years, commodity prices have been volatile, but that is no longer the case with most commodities going down in price. This is an opportunity for Indonesia to move further into manufacturing. We have a roadmap for 10 million tons of carbon steel in Cilegon, for instance. We have also built a ferronickel plant in central Sulawesi. By YE2017, we will have the capacity to produce around 3 million tons of stainless steel per annum. With increases in production in Sulawesi this capacity will increase to 4 million tons in the next year. This will make Indonesia the second largest producer of stainless steel after China. This is the value addition from USD60 per metric ton of ferronickel raw material into around USD2,000 per ton of stainless steel. This is a real indicator that Indonesia is enhancing its value-added manufacturing. We have done the same thing with CPO from plantation into chemicals and with other commodities as well, such as bauxite to aluminum and aluminum alloy. Therefore, the commodity price drops are in fact a big opportunity for Indonesia.

What is your outlook for the year ahead?

Currently, under the UN Industrial Development Organization Indonesia is ranked number 10 in the industrial countries and our local manufacturing value-added is at around USD230 billion. We hope that we can increase the level of our manufacturing value-added. In terms of the percentage of GDP and the classification of industrial countries, we can see that the new paradigm for industrialization is not only about manufacturing, but it is from the beginning of the design, the raw materials, and through to distribution and wholesale, so the entire chain, including the consumer and any reuse of the product. This is about the whole cycle and the industrial sustainability concept. We expect that the recent contribution of manufacturing here can be increased from 30% of our GDP today to 33-34% by 2019. That would still not classify Indonesia as a fully industrialized nation, it would be about half. We are on the right track.

 

Want to read the full interview?

Purchase

this article now for GBP9.99

or
Subscribe Today

to access this article and all
our other premium content

Already have an account with us?

Forgot User ID / Password

or connect with

LinkedIn