Government blasts for neglecting electronics sector

Zakki P. Hakim, The Jakarta Post, Jakarta

"The government has been neglecting the electronics industry," Adhi Sukmono, secretary of the Association of Indonesia Electronic and Electrical Appliances Industries, said on Wednesday during a discussion between industry players and journalists.

The remarks immediately received the support of other businessmen participating in the discussion, which was organized by the Indonesian Chamber of Commerce and Industry (Kadin) and the Electronics Association (Gabel).

Among the industry players were the top executives of major brands such as Panasonic, Toshiba, LG Electronics, Cosmos and Akari.

Adhi blamed lack of knowledge about the industry on the part of government officials for the "negligence and resulting series of misguided policies".

Kadin vice chairman for industry, technology and the marine, Rachmat Gobel, said the latest government move that showed this negligence was the omission of the electronics industry from its top 10 priority industries under the country's five year plan (RPJM).

Indonesia's electronics sector is the biggest non-oil and gas sector after textiles and clothing, with last year's exports amounting to approximately US$7.6 billion.

"It is important to have government commitment to an industry and, eventually, the provision of incentives," said Rachmat.

He emphasized that the sector merited attention, considering its export performance and labor intensive nature. "If we get the incentives, we can double our exports to $15 billion in five years."

The electronics makers urged the government to consider the fact that it was more profitable to open a factory and produce goods here rather than merely importing them.

"It is unfair that a brand that has no factory in the country and relies solely on imports can gain a similar market share to other brands that have made big investments," said Kadin's Indonesia-Japan Economic Committee secretary-general Heru Santoso.

Heru stressed that the government needed to consistently provide tax relief for companies that invested in research and development.

As an example, he said that an electronics maker in Malaysia could have its total taxes halved if the firm, among other things, invested in R&D, provided training, invested in property, used environmental protection equipment or entered the export market.

Moreover, Ali Soebronto Oentaryo, managing director of PT Panggung (producer of local brand Akari), said local and foreign investors were reluctant to set up shop here as importing raw materials was much more expensive than importing the end product, due mainly to the higher import duties imposed on key materials such as steel.

He said that when the business climate encouraged firms to import rather than produce, downstream industries would eventually die and upstream supporting industries would follow suit.

"Without strong supporting industries producing parts and components, who will want to open a factory here," Ali said.

He added that it was imperative for the government to restrict electronics imports.

"If the government can restrict the importation of drugs using various safety and health standards, logically the same can be applied to electronics imports," he said.

The industry players expressed concern about increasing imports of cheaper electronics products, mostly from China, that they said failed to meet health and safety standards.

According to PT Indonesia Epson Industry vice chairman Eiichi Abe, contrary to the common perception, Indonesia actually enjoyed the same level of competitiveness as China, especially as regards labor.

However, Abe said the main distinguishing factors were that China was far stronger in precision injection, molding processes, engineering design and R&D, which was a result of the active involvement of universities there.

"Aside from the universities' roles, China has numerous exporting firms and strong supporting industries," he said.

Rachmat added that the Chinese government had a long-term and detailed plan for the building up of its manufacturing sector, including availing of technologies introduced to the country by investors.

"For example, the Chinese government sent 5,000 workers to work in one industrial cluster full of foreign factories. After a certain period, it then moved the workers to various clusters of domestic factories, to which they brought their newly acquired skills," he said.

"Has our government thought about such a plan?" he asked.