At least Rp 100 trillion ($9.8 billion) per year will be needed to retool some of the country’s most labor-intensive industries over the next five years, amid falling competitiveness and the looming threat of more layoffs, Agus Tjahajana, the Industry Ministry’s secretary general, said on Thursday.
His comments came against a backdrop of falling realized investment, although the actual extent of the decline is difficult to gauge, given the widely divergent figures produced by the ministry and the Investment Coordinating Board (BKPM), which is primarily responsible for investment approvals. Agus said that the ministry would prioritize labor-intensive and export-oriented manufacturers for investment, particularly companies in the forestry, textile, footwear, steel, automotive and agribusiness sectors.
“Most of these industries are facing slumping exports,” he said, adding that many companies were financially unable to improve productivity and ease pressure on employment by modernizing their production machinery.
Major investment is essential if companies in these sectors hope to expand production, modernize machinery, improve product quality and create jobs, Agus said.
According to BKPM figures, total realized new investment in the industrial sector reached only $4.2 billion last year.
The Industry Ministry, meanwhile, said that foreign direct investment in the sector hit $4.77 billion in 2008, spread across 424 projects; domestic investment stood at $1.28 billion.
A lack of coordination is one of the reasons why the BKPM and the ministry have produced widely divergent statistical data, according to analysts.
The BKPM figures show that FDI fell 4.1 percent year on year in April, with actual FDI in that month standing at $1.4 billion, compared with $1.46 billion in the same period last year.
Muhammad Lutfi, BKPM chairman, said that the country would probably not realize its domestic and foreign investment targets this year.
The initial target for both FDI and domestic investment was for $20 billion spread across all economic sectors, but Lutfi said that about $17 billion was the most that could be hoped for under the current circumstances.
Meanwhile, labor-intensive industries continue to struggle under the impact of the global economic slump, with the Indonesian Iron and Steel Association (IISA) reporting that some 24,000 workers were laid off in the sector between January and May.
The IISA also said that capacity utilization among iron and steel producers had fallen on average to about 40 percent over the same period, and that it was likely to remain low for the rest of this year.
The domestic steel industry’s technology and productivity lag far behind the country’s competitors, said Ansari Bukhari, the Industry Ministry’s director general of metals, textiles and machinery.
“Even before the crisis, steel output fell to 4.08 million tons in 2008, from 4.16 million tons in 2007,” Ansari said.