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.