Indonesia finally has industrial policy

Indonesia finally has industrial policy

Zakki P. Hakim, The Jakarta Post, Jakarta

After more than a decade without clear direction, Indonesia's
manufacturing sector finally has a comprehensive detailed plan to
develop the country's manufacturing industries for the next 20
years.

The Ministry of Industry revealed its National Manufacturing
Sector Development Policy, which prioritizes 32 sectors of some
365 existing industries in the country.

The 32 sectors -- chosen through a thorough quantitative
measurement of its international and domestic competitiveness --
have been contributing 78 percent of the national output and 83
percent of the country's total non-oil and gas exports.

The Ministry's secretary general Agus Tjahajana explained that
the priority sectors were grouped in two main categories: the
basic (core and supporting) and future industries.

The core and supporting sectors are existing industries, which
survived the monetary crisis in 1997. Agus said the government
would continue to support the core sectors to return to their
precrisis level of competitiveness in the next five years and
further strengthen them to be world class industries in the long
term.

"Should any of them fail due to natural competition over time,
we have no choice but to shift to others. Nevertheless, we are
determined to do our best to assist all of them (basic sectors),"
Agus said on Friday during a workshop on Industrial Policy for
Journalists.

The basic manufacturing is expected to support the development
of future industries and all the agro-based industries upgraded
from the basic manufacturing sector.

The National Policy document includes a detailed target of
what products each sector should be able to produce in 10 years
from now and a matrix of who would be responsible for each
activity, as well as industrial zoning maps.

Agus elaborated that 20 industries would be developed using a
cluster approach, while the remaining 12 would have non-cluster
or development according to individual characteristics.

The industrial cluster approach would enable the government to
develop a certain manufacturing sector from downstream to
upstream, through facilitating networking and synergy between
core, related and supporting industries of all sizes, and then
future sectors.

"It is like a conglomerate, but it involves numerous different
firms -- small, medium and large -- instead of, for example, all
under one holding company," Agus said.

The ministry chose to adopt the industrial cluster approach,
which tends to push the priority sectors evenly, mainly because
it was the best option for the government's limited budget.

"If we have the money, we might consider selecting a limited
number of leading sectors and use the budget to push them in
order to pull all other industries," he said.

However, Agus stressed that looking at other countries'
experiences -- such as England, France, the U.S., Thailand and
Malaysia -- it would take years or even decades to develop a
single fully-integrated cluster.

"Now we have somewhere to start. If this could not serve as a
road map or blueprint, I don't know what could."

He said further that the 32 priority sectors would enjoy
preferential treatment from the government, including fiscal,
monetary and administrative incentives.

The government would expand the market of products from the 32
industries, prioritize foreign direct investment for them, push
capacity building of their human resources, direct and organize
university research for their benefit, and build the
infrastructure for the sectors.

"To put it simply, if we have to choose where to disburse our
limited budget or facilities, we would prioritize those 32," he
said.

The ministry acknowledged that the success of the detailed
policy depended greatly on commitment, coordination and
consistency from all stakeholders in the government, private
sector and academic world.

To ensure strong legal support, the ministry is now pursuing
the enactment of the policy as a presidential regulation. But
until then, it was upbeat that other ministries would stay
committed, as the policy was a result of a rigorous inter-
departmental and assorted stakeholder consultations.

"We expect this to become the Ministry of Finance's or
Ministry of Trade's or other ministries' policy on the industrial
sector," Agus said.

The policy formulation was first initiated in 2000 under
Minister of Industry and Trade Luhut Panjaitan, but somehow
stopped until the next Minister Rini MS Soewandhi restarted it in
early 2004. Eventually, the industry ministry under the
leadership of Andung A. Nitimihardja managed to conclude the
much-anticipated policy.

Agus said the time was right to launch the policy, as local
industries had just started to rebound after the monetary crisis,
while the stabilizing of the macroeconomic climate, globalization
and trade liberalization commitments had started to show a
concrete impact on the manufacturing sector.

The national policy document should be able to answer the
questions and doubts of observers and industry players in
relation to the Mid-term Development Plan (RPJM) 2004-2009
launched earlier this year by the National Development Planning
Agency (Bappenas), in which the government announced it would
prioritize only 10 industrial clusters.

The RPJM put the clusters under Chapter 18 titled Improving
the competitiveness of the manufacturing sector, thus it only
explained the government's concern over the sector's ailing
competitiveness, but did not outline a plan and steps to develop
the country's industries, Agus explained.

In the next five years, the national policy is expected to
help the industrial sector to grow by 8.6 percent per annum to
support the national economy to expand by 6.6 percent annually.