Despite its remarkable export growth last year, Indonesia, unlike other ASEAN countries, has failed to cash in on increasing trade opportunities in emerging markets, a business analyst says.
"Indonesia has not been able to catch up with its regional neighbors in benefiting from the rapidly unfolding market opportunities associated with international product fragmentation, or outsourcing," said Prema-chandra Athukorala, a professor of economics from the Australian National University (ANU), during the first annual Sadli Lecture in Jakarta on Tuesday.
Attending the lecture, named in recognition of former minister Mohammad Sadli's contribution to economics, were some of Sadli's former students and colleagues, including Trade Minister Mari Elka Pangestu, ANU Indonesia Project head Chris Manning and the dean of the University of Indonesia's School of Economics, Bambang Brodjonegoro.
Chandra said that compared with Thailand, Malaysia and Singapore, Indonesia had performed poorly in the food processing, assembling and other manufacturing sectors, including those related to outsourcing.
During the period from 2001 until 2004, processed food exports from Indonesia grew at 5.7 percent compared to 2.8 percent in the case of Malaysia, and 3 percent for Thailand. However, Indonesia's world market share in 2003 and 2004 for this dynamic product category, at only 0.91 percent, was one third that of neighboring Thailand.
In manufacturing, he said, Indonesia remained an underperformer in benefiting from the opportunities provided by emerging markets, especially China, whose total foreign trade value expanded from about US$20 billion annually in the late 1970s to over $800 billion in 2004.
In her opening remarks, Minister Mari said that according a government analysis in 2003-2004, Indonesia's constraints on the supply side were mostly related to inadequate infrastructure, lack of fresh investment, the high cost of doing business, and increased competition from China and Vietnam.
However, Chandra suggested that the fears over China's expansion had been widely exaggerated.
"Competition from China doesn't necessarily imply a proportionate loss in market share for all developing countries. Contrary to popular belief, manufactured goods, not primary products, have been the most dynamic export product category from ASEAN to China," he pointed out.
In his concluding remarks, Chandra said that over the past five years the Indonesian government had made good progress in restoring order to the macroeconomic fundamentals that had been shattered by the 1997-1998 financial crisis, "However, it was not sufficient for achieving rapid and sustained export growth in this climate."
"Market-oriented reform is much more pressing in the current international economic environment, characterized by the rapid expansion of global production networks," he said, urging Indonesia to participate more fully in outsourcing.
Supporting Chandra's analysis, the University of Indonesia's Institute for Economic and Social Research (LPEM-UI) chairman Chatib Basri said that other ASEAN members were more engaged in the production network than Indonesia.
"So, even at the lower levels of investment, they can generate strong export growth because what is really involved is outsourcing. They become more efficient," he said.
Mohammad Sadli, admired as a teacher and a colleague, served as minister of manpower from 1971 to 1973, and minister of mines from 1973 to 1978. Now 85 years of age, he still regularly writes on economic issues.