Government eyes higher growth in manufacturing

The Jakarta Post, Jakarta

The government aims to boost growth in the country's manufacturing sector -- the largest contributor to gross domestic product (GDP) -- to an average of 8 percent per year in the next five years, from about 5 percent currently.

Speaking to legislators on Wednesday, Minister of National Development Planning (Bappenas) Sri Mulyani Indrawati said such growth was needed to help push the economy to grow at pre-crisis levels.

According to the Central Statistics Agency (BPS), manufacturing makes up about 30 percent of annual GDP. But, while it was growing by 10 percent to 11 percent before the 1998 economic crisis, it had not reached those levels since.

"From 1998 onward, the sector's growth averaged about 5 percent. Not only that, the decline has also been highlighted by capital outflows and relocations of many businesses (out of the country)," Sri Mulyani said during a hearing with the House of Representatives' Commission XI on financial affairs.

"We aim to reach 8 percent growth. But obviously we need more investment flows to do that, especially from the private sector as the government's financing ability is very limited."

A more robust growth in the manufacturing sector, in which many companies are labor-intensive, would eventually be beneficial in helping contain the massive unemployment problem here, she added.

The country's economy needs to grow by at least 6 percent per year just to keep up with the millions of new workers entering the job market annually. However, the slow progress in investment has hurt prospects for growth.

Investment, or gross fixed capital formation, makes up about 18 percent of total GDP, BPS data showed.

"We aim to increase that to 24.4 percent by 2009. Improved investment, along with improving exports, is the best answer to generating economic growth to the pre-crisis level."

She did not elaborate on what to do to attract investment, in which she added, Indonesia would need well over US$100 billion over the next five years to reach an average economic growth of 6.6 percent -- the target this government has pledged to meet.

As for exports, notably non-oil and gas commodities, she said the government wanted to boost the growth from only around 2 percent in 2004 to 8.7 percent by 2009.

With investment and exports improving at that pace, the economy should grow by 6.6 percent in 2009, added Sri Mulyani.

The economy is likely to grow this year by about 4.8 percent.

Elsewhere, aside from strengthening the manufacturing industry, the government was also committed to boosting the performance of the agriculture sector, which is set to decline this year by 2.9 percent due to a number of problems.

Previously, growth in that key sector averaged 3.3 percent, Sri said.

Problems that have been detrimental to accelerating growth in the sector include farmland conservation, massive migration from rural to urban areas, lack of access to water supplies and inadequate irrigation facilities.