Posted on 15 Jan 2015
With
looming challenges, the country’s manufacturing industry may see another tough
year, with slower growth compared to previous years.
Contraction in manufacturing activities was evident in the final quarter of
2014, as suggested by a drop in the HSBC Indonesia Purchasing Managers’ Index
(PMI) — which measures the health of the manufacturing sector — to a record low
in more than three years on declining output and new orders.
Manufacturing activities may weaken again this year as domestic consumption
might continue to shrink on weaker purchasing power. Meanwhile, the overseas
market is not expected to recover
anytime soon.
Other notable challenges come as a result of the depreciation of rupiah against
the US dollar, rising labor wages and electricity costs.
Amid the variety of factors that may weigh on the country’s industrial
performance, the government has targeted the non-oil and gas manufacturing
industry to expand by 6.1 percent, up from the 5.7 percent estimated for last
year, a level which if not reached would cause its growth to plunge to its
slowest pace in three years.
Growth would primarily be driven by industrial firms that process agriculture
and mining commodities into semi-finished and finished goods, according to
Industry Ministry secretary-general Ansari Bukhari.
“The government will carry out some quick wins to facilitate this growth, such
as through the massive development of industrial estates and improvement of
infrastructure, including energy and electricity,” Anshari said.
In addition to the downstream industries, acceleration of the manufacturing
industry will also be supported by sectors whose output is largely absorbed by
domestic consumers, such as food and beverage and textile, according to the
ministry’s estimate.
Among the bad performers are some sectors grouped under base manufacturing
industrial clusters, such as cement, fertilizers and base metal, of which
consumption will likely shrink in line with the country’s economic slowdown.
Another key factor that will help industrial growth is the realization of
direct investment, which this year is expected to speed up, among others,
construction of smelters and refineries to process mineral ores, the ministry
has forecast.
Investment Coordinating Board (BKPM) chief Franky Sibarani said based on the
trend seen until the third quarter of last year, investment in the
manufacturing industry climbed significantly and such an upward movement would
persist throughout this year.
“Up to the third quarter [of 2014], the investment share in the manufacturing
sector was bigger compared to a year earlier. I am optimistic that the
manufacturing industry will pick up the pace in 2015,” he said.
In the first three quarters last year, realized manufacturing investment
represented 43.3 percent of the overall figure of Rp 324.7 trillion (US$25.68
billion). In 2013, it only accounted for 27.7 percent of the entire investment
amount of Rp 398.6 trillion.
In the January-September period, several manufacturing sectors saw realized
investment exceed expectations, creating potential to spur industrial growth
this year, according to the agency’s estimation.
The sectors comprise food industry, non-metal mineral, base metal, metal
products, machinery and electronics, base chemical, chemical products and
pharmaceuticals, paper and paper products and printing.
Center of Reform on Economics (CORE) Indonesia executive director Hendri
Saparini said the government might need to provide specific incentives,
particularly fiscal facilities, to boost industrial growth this year.
“The government needs to map out what industrial sectors it wants to encourage
and lay out specific incentives necessary to help them grow optimally,” she
said, referring to how the export-oriented industry might require different
incentives from the import-substitute industry.
