Electronics still shielded by protection
Electronics still shielded by protection
JAKARTA (JP): Indonesia's electronics industry is too domestically-oriented and dependent on the government's protectionist policies, an expert said.
Farid Harianto, a visiting professor at the Center for International Studies of the Canadian University of Toronto, said over the weekend that Indonesia's industrial policies on the electronics industry differ from those of other countries in the region in terms of their orientations toward domestic market, coupled with relatively high trade protection.
"The domestic-oriented electronics industry is a product of the protectionist regime," Farid told a World Bank-sponsored conference on deregulation.
Export-oriented electronics firms in Indonesia have developed practically since 1991, stimulated by export-oriented direct foreign investments which came rather belatedly, as compared to the experience of neighboring countries, such as Singapore, Malaysia and Thailand.
The entry of export-oriented electronics firms have brought some impressive results. Exports of electronic products increased rapidly to about US$2 billion last year from $1.2 billion in 1993 and only US$102 million in 1989.
Currently the government protects the country's domestic- oriented electronics industry by imposing import tariffs of an average of 40 percent in addition to a luxury tax of about 10 percent.
Inefficient
Farid noted that domestic-oriented electronics firms are mostly inefficient but still enjoy good profit margins because of continued protection.
In the domestic market, Farid said, retail prices of electronic goods in 1993 averaged 33 percent higher than international prices.
Similarly, factory prices of selected consumer electronic goods were about 27 percent higher than those in Singapore due to inefficiency and high costs of imported materials.
Farid said the protection given to domestic producers reduces the efficiency of all related domestic companies.
"We observed that local suppliers spent less efforts to earn equivalent or higher profits by catering to the domestic-oriented firms than to the export-oriented ones, simply because international standards were harder to meet and the profit margins were lower.
"As a result, the protection given to the domestic markets has created a significant disincentive for the development of truly internationally competitive supply industries," Farid said.
He noted that many parts and components for exports are still imported due to quality problems of the domestic industry and a relatively small domestic demand.
Many of the high value-added components, such as cathode ray tubes, integrated circuits, discrete semiconductors and magnetic heads are still largely imported. Only a very limited range of locally-made components are used, comprising mainly of simple components such as plastic and metal parts, packaging and passive components.
To boost downstream production, import duties on parts and components have been lowered to between zero and five percent since 1990.
Interestingly, Farid noted that the existing protection also creates a situation in which domestic-oriented producers are exposed to competition from unintended sources, namely smuggling.
He indicated that 30 percent of the domestic demand for consumer electronics is fulfilled by illegal imports, which provides effective competitive pressure for domestic-oriented firms.
A rough estimate for 1993 indicated that some US$180 million to $200 million out of about $750 million domestic demand for consumer electronics was met by imports, of which only US$30 million were recorded as legal. (rid)