In a clear sign of a slowdown, investment in the country's industrial sector is forecast to drop by 18 percent this year, from a year earlier, with a further decline expected next year as the impact of the global economic downturn peaks.
Investment in the industrial sector from both foreign and domestic investors is set to decline to US$5.9 billion this year from $7.2 billion in 2007, in anticipation of slower demand, in particular from overseas markets, as indicated by the latest data from the Industry Ministry on Tuesday.
The data shows the decline is mostly due to a large drop in domestic investment, estimated to have dropped by more than 50 percent to Rp 13 trillion ($1.2 billion) from last year's Rp 26 trillion, while investment from foreign investors in 2008 gained slightly by 1 percent going up to $4.7 billion.
Agus Tjahajana, the Ministry's secretary general, said the same bleak outlook would be likely to occur again in 2009, or to be even worse, with the global crisis likely to peak next year and hold back investment and growth in Indonesia's industrial economy.
"We don't have the figures yet as these will depend on various factors, including oil prices, which remain unpredictable," he said.
However, the ministry's business plan in 2009 has forecast the nation's industrial sector to grow at between 3.6 and 4.6 percent, compared to this year's forecast of 4.8 percent.
Among sectors likely to be hit hardest and suffer negative growth are textiles, leather and footwear (-2.2 percent), wood and forestry products (-0.2 percent) and as well as cement and non-metal resources (-1 percent).
Ansyari Buchori, the ministry's director general of metal, machine and miscellaneous industries, said his office predicted textile and footwear industries would be hit by declining demand from the U.S. and European countries.
Seventy five percent of Indonesian textile products are exported, with 40 percent going to the U.S., 20 percent to Europe and 15 percent to other countries. While for footwear, 50 percent of local products are exported, of which more than 40 percent was exported to European countries.
Djimanto, a member of the advisory board of the Indonesian Footwear Association (Aprisindo), said the business outlook would be gloomy next year as foreign buyers had reduced their orders and new orders had yet to arrive for the second quarter of 2009.
It was feared that weaker demand could lead to cutting up to a million job as labor-intensive industries were expected to cut production capacity.
Business players have estimated that layoffs next year could affect up to 1.5 million people.
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