Business climate, infrastructure to shape manufacturing hub
Indonesia has a great potential to become a hub for manufacturing industries but poor infrastructure and an unpleasant business climate remain the major challenges that the country has to deal with, businesspeople say.
Speaking at a conference held by The Economist on Thursday, a number of business players from pharmaceutical, polyester and thermal coal manufacturers voiced their expectations for better infrastructure and regulatory certainty.
“In manufacturing particularly, if you have the goods, you have to import raw materials […] and you have slow infrastructure, which is the big handicap,” said Ilham Habibie, president director of Ilthabi Rekatama.
In addition, taxes for both exports and imports have made manufacturers based in the country lose out against manufacturers operating overseas, he added.
Voicing a similar concern, Indorama Corporation managing director Amit Lohia said Indonesia was a starting point for his labor-intensive business, but uneven infrastructure development remained the biggest challenge for manufacturing industries.
Under the administration of President Joko “Jokowi” Widodo, the government has driven to speed up infrastructure development, allocating Rp 313.5 trillion (US$23.5 billion) this year, the second time in a row it has been even bigger than the budget for energy subsidies.
In addition, the government has turned its attention to manufacturing industries as it expected them to add value to the country’s export commodities amid the slump in commodity and oil prices.
The Industry Ministry previously said that it aims to record 5.7 percent growth in non-oil and gas manufacturing industries this year, higher than the economic growth target of 5.3 percent.
Industry Ministry secretary-general Syarif Hidayat said previously the government’s economic stimulus package was expected to help propel industrial growth this year.
Investment commitment in manufacturing industries surged by 164 percent year-on-year (y-o-y) to Rp 90 trillion in January this year, according to data from the Investment Coordinating Board (BKPM).
Pawan Sud, GlaxoSmithKline Consumer Healthcare Indonesia’s president director, said on Thursday that infrastructure, regulatory certainty and intensive dialogue between the private sector and the government were things that the country needed to improve manufacturing industries.
“[We need] more active dialogue between the industries and regulators, so if there is a policy change happening we know already and we can predict our investment plan,” he told reporters. GlaxoSmithKline Consumer Healthcare, which operates in Indonesia under PT Sterling Products Indonesia, currently has two manufacturing plants in the country producing consumer healthcare products like Panadol, Sensodyne and Scott’s Emulsion.
Sud said his company imported around 40 percent of its raw materials and sourced another 60 percent domestically.
He welcomed the government’s latest “negative investment list” (DNI) revision, which fully opened the raw pharmaceutical ingredients business to foreign investment.
“Once it has started, then we will explore, depending on what raw materials have been produced locally,” he said.
In the 10th economic stimulus package, the government will fully open the manufacturing businesses of crumb rubber and pharmaceutical raw ingredients to foreign investors to develop upstream industries.
Lana Soelistianingsih, an economist with Samuel Asset Management, said the country should also make sure that it could market the intermediate products should it become a “manufacturing hub” converting raw materials into semi-finished goods.