Indonesia 2018 | INDUSTRY | B2B

Through improved free trade agreements and transportation infrastructure, associations across various industries are pushing to bring in more investment and increase Indonesian exports.

Yohannes Nangoi
Association of Indonesia Automotive Industries (GAIKINDO)
Ade Sudrajat
Indonesian Textile Association

What is being done to reach either your own or national targets for industry's sub-segments?

YOHANNES NANGOI GAIKINDO has 43 members within the automotive industry in Indonesia and is the only association in this sector. We are becoming a government partner in terms of making regulations. We are close to the Ministry of Industry and are also a member of the Organisation Internationale des Constructeurs d'Automobiles (OICA) because Indonesia produces over 1 million cars a year. We are the 18th-largest country in the world in terms of car production. We are still low in terms of scale, but have great potential for the future. Indonesia's population is close to 257 million people, while the car-ownership-ratio is about 80 cars per 1,000 people. Our neighbors, such as Thailand, have a ratio about 240 cars per 1,000 people, while Malaysia is 400 per 1,000, and Australia 800 per 1,000 people. If we increase our ratio by just one car—from 80 to 81—we would sell an additional 250,000 cars. At the moment, Indonesia's car manufacturing capacity is 2.2 million per year, but production is only 1.2 million. We hope to double automotive sales to 2.5 million units by 2020. Japan, South Korea, China, and the EU are looking at Indonesia as a market with extreme potential. Our target is to continue to maintain and improve the situation here so that cars that will be sold here are produced here. We do not want to simply be a market for cars produced outside of the country. If possible, we would also like to increase our export volume.

ADE SUDRAJAT The government targets increasing the nation's value of exported textiles and garments to USD75 billion by 2030, which is a very progressive target. There are many things to be done to reach this target, including increasing production capacity, growing investment, adopting new technology, increasing productivity, and accessing more export markets. In 2010, many countries updated their FTAs. At the time Indonesia made a mistake, which was signing a free trade agreement (FTA) with China that was not complementary in terms of our industry. At that time China was also a producer. Later, we failed to have an FTA with the EU. On a more positive note, we entered into an FTA with Japan so every year we have increased our exports to Japan by about 30%. Within four years we doubled our exports to Japan. Exports reached a high in 2011 at USD13.2 billion and then fell gradually until 2016. This was six years of suffering, and in 2016, our exports fell to only USD12.2 billion. We lost USD1 billion in business in these six years. This is painful for us; however, in 2017, I hope our exports will increase by 4%.

How will you facilitate more investments into this sector of the economy?

YN We plan to improve infrastructure. For example, most of our factories are located in the eastern part of Jakarta, only 36km away from the city center. However, it takes about five hours to go there because of traffic. Indonesia sells 1.1 million cars domestically every year while Japan, which has 120 million people, sells closer to 5 million cars per year. Traffic is bad here, and not because of the car population, but because of the roads. The government seeks to build 2,000km of highway by 2019, which will help significantly. We are confident in the government. A few years ago, 80% of cars in Indonesia were sold on Java Island. Now, that figure is closer to 60%, indicating that car ownership is spreading. For exporting, the Tanjung Priok Port is insufficient. The current government is working hard to do this. For example, it is opening a new port called Patimban and is also widening a major highway.

AS The main reason why our supply chain between local textile producers and the industry is not working is because our prices do not meet the requirements of the global market. The cost of energy is much higher in Indonesia, and the government has adopted VAT. If the government is purchasing from this industry it should pay 10% for VAT. The reimbursement sits in the hands of the government, which is why we are struggling. If the government is importing, it has a facility where companies can postpone the payment of VAT. There is a red carpet for imports but no carpet for the local industry. We have a proposal for the government to treat the local industry as it does imports.