The long-term impact of such spending depends largely on whether\nmanufacturers can use procurement revenue to deepen supply chains,\nreduce production costs, and build capabilities in upstream\nindustries.<\/p>\n
Data from the Ministry of Finance shows that central government\nspending reached Rp1,791.5 trillion as of August 31, 2026, or 56.9\npercent of the Rp3,149.7 trillion state budget allocation.<\/p>\n
Goods spending accounted for Rp389 trillion, while capital spending\nreached Rp159.8 trillion.<\/p>\n
These figures underscore the government\u2019s position as one of the\nlargest buyers of goods and services in the domestic market, giving it\nsignificant influence over the direction and structure of national\nindustry.<\/p>\n
To serve this potential market, more than 57,000 products from 5,600\nmanufacturing companies had obtained Domestic Component Level (TKDN)\ncertificates as of September 2.<\/p>\n
The Industry Ministry said efforts to optimize the Increased Use of\nDomestic Products (P3DN) policy are focused on increasing domestic\nmanufacturing value added while providing greater market certainty for\nnational industries through government procurement.<\/p>\n
Yet the percentage of local content stated in administrative\ndocuments does not always reflect the depth of the industrial structure\non the ground.<\/p>\n
A product may meet the required threshold for domestic content while\nstill relying heavily on imported raw materials, lacking an independent\nlocal parts ecosystem, or carrying production costs that are less\ncompetitive outside the government market.<\/p>\n
Securing demand<\/p>\n
Government orders can provide local manufacturers with an initial\ndegree of revenue certainty.<\/p>\n
More predictable transactions give companies room to expand factory\ncapacity, upgrade production equipment, and build stronger relationships\nwith local raw material suppliers.<\/p>\n
The government procurement market also gives micro and small\nenterprises opportunities to expand their reach through electronic\ngovernment purchasing systems.<\/p>\n
Purchases from these enterprises totaled Rp113.84 trillion as of June\n5, accounting for 43.54 percent of the Rp261.45 trillion in total\nnational goods and services procurement realized at that point.<\/p>\n
Market access, however, addresses only part of the production\nchallenge. Small businesses often face limited working capital to\npurchase raw materials and finance factory operations.<\/p>\n
Under government procurement schemes, payments are generally released\nafter goods have been delivered and administratively verified. The time\nrequired for administrative processing and payment can therefore\nconstrain cash flow for companies with limited capital.<\/p>\n
Another factor is the pattern of budget absorption. If procurement is\nconcentrated toward the end of the year, manufacturers may face a sharp\nincrease in orders over a short period, followed by weaker demand early\nthe following year.<\/p>\n
Uneven spending patterns can make it harder for businesses to plan\nfactory capacity, allocate workers, and make long-term investments.<\/p>\n
At the same time, preferential treatment for domestic products in\ngovernment procurement needs to be managed carefully to avoid weakening\nmanufacturers\u2019 incentives to innovate.<\/p>\n
While the policy is intended to strengthen local industry, easier\naccess to government buyers without strong competitive pressure could\nreduce incentives for companies to lower production costs and improve\nquality.<\/p>\n
Such protection could ultimately create dependence, leaving domestic\nproducts vulnerable when they compete with commercial goods in open\nmarkets.<\/p>\n
Deepening value chains<\/p>\n
The economic impact of government spending is maximized when\nprocurement transactions generate production activity further upstream\nin the supply chain.<\/p>\n
In the pharmaceutical and medical equipment industries, for example,\nPT Bio Farma has obtained 29 TKDN and Company Benefit Weight (BMP)\ncertificates for products ranging from vaccines and diagnostic kits to\nmedicines, with domestic content levels ranging from 44.28 percent to\n95.03 percent.<\/p>\n
The wide variation shows that local content levels still differ\nsignificantly among products and do not necessarily indicate\nindependence in raw material supply.<\/p>\n
Evi Sylvia, senior institutional relations specialist at PT Bio\nFarma, emphasized that strengthening domestic production requires\nmanufacturing capabilities to be developed from upstream to downstream,\nsupported by technological know-how and compliance with quality and\nhalal standards.<\/p>\n
That commitment to industrial deepening is also reflected in PT Bio\nFarma President Director Shadiq Akasya\u2019s technology-transfer partnership\nwith Atlantic Lifesciences in Ghana.<\/p>\n
The initiative illustrates how technological capabilities and\ncompliance with international quality standards can help national\nproducts enter global markets.<\/p>\n
A similar upstream-oriented approach is being pursued in the electric\nvehicle sector through a national roadmap that gradually raises domestic\ncomponent targets to 80 percent from 2030.<\/p>\n
The target is intended to ensure that investment flows do not stop at\nassembling imported components, but instead encourage the development of\nfactories producing batteries, drive motors, and major components while\ninvolving local supply chains.<\/p>\n
The success of government procurement policy, therefore, should not\nbe measured solely by the value of transactions completed or the number\nof certificates issued.<\/p>\n
A more comprehensive assessment should track whether new investment\nis entering upstream raw material industries, whether the number of\nlocal parts manufacturers is growing, whether companies are allocating\nprofits to research and development, and whether their products can\ncompete in private markets and exports.<\/p>\n
Such evaluation is important because government spending is tied to\nannual budget cycles and the limits of public finances. When procurement\ncontracts end or government allocations decline, manufacturers still\nneed the resilience to produce high-quality goods at competitive prices\nfor commercial markets.<\/p>\n
Government spending is a significant economic stimulus because it is\nplanned and recurring each year.<\/p>\n
When managed precisely and strategically, government procurement can\ndo more than meet the operational needs of public institutions. It can\ndeepen manufacturing value chains and help build a nationally rooted,\nhighly competitive industrial base.<\/p>\n
*Martha Herlinawati Simanjuntak is a journalist at the ANTARA News\nAgency<\/p>\n
Disclaimer: The views and opinions expressed here are those of the\nauthor and do not necessarily reflect the official policy or position of\nthe ANTARA News Agency.<\/p>\n
Related news: Indonesia\u2019s 2027 spending to exceed Rp4,000\ntrillion<\/p>\n
Related news: Central government spending hits Rp1,791.5 trillion by\nAugust<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/put-state-spending-to-work-for-industry-1791438950", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }