Potential exists for strong domestic industrial sector

Rachmat Gobel, Jakarta

In recent years, there has been an exodus of international companies from Indonesia. Kyocera is just one of the most recent examples. Because of this exodus, and the reluctance of new investment to come into Indonesia, many are claiming that Indonesia is threatened by a "de-industrialization" process.

Yet, in view of our domestic market potential, Indonesia should be able to establish a strong industrial base from which to achieve sustainable development. Take for example the electronics industry which I am most familiar with. A strong electronics industry in Indonesia is very feasible, one that not only produces end products but also electronic components.

The component industry supports not only electronics, but is crucial in other industries as well, such as the automotive sector, which also needs electronics parts.

The development of both the electronics and the automotive sectors would also encourage the development of the plastics industry, which contributes a lot to the making of electronic and automotive products. These industries are interconnected. More importantly, they are all labor intensive.

With 220 million people, our domestic market alone is big enough to support the development of the electronics industry. In addition, there is the huge potential of the regional and international markets.

Electronic goods are the country's second largest non-oil and gas exports after textiles and garments. Exports of electronics reached US$7.05 billion in 2004. However, that is a drop in the proverbial bucket compared to the exports from the Philippines and Thailand. Electronics exports from each of those countries reached at least $25 billion last year.

Indonesia could emulate them by establishing a strong base in the "low-tech" electronics sector by first supplying the domestic market as the main priority followed by exporting. "Low-tech" electronics include conventional color televisions, refrigerators, air conditioners and washing machines. Without domestic market support, it would be difficult for us to develop a strong low-tech industry, much less move into the high-tech sectors.

However, many problems beset the industry, such as rampant smuggling, unfavorable tax policies, unattractive labor laws and the lack of infrastructure. These problems of course apply to many other Indonesian industries.

The Indonesian Chamber of Commerce and Industry (Kadin) has submitted to the government a road map describing all problems confronting local industries -- problems that the government needs to immediately solve in order to boost the private sector and to attract the new investment badly needed to create jobs.

If the government is able to implement just 50 percent of the recommendations spelled out in the roadmap, I believe there will be fresh investment of up to $2 billion in the electronics industry alone within the next five years.

The next step that the government needs to take is to formulate its "target, vision and mission" for itself to anticipate the ongoing liberalization under the World Trade Organization. Without a broad overall understanding of where our industries are heading, our domestic market will be easy pickings for our neighboring countries. If that happens, we will lose our national pride and perhaps even our national heritage.

Take for example, the threat facing our own batik industry. Malaysia, under its new prime minister, Abdullah Badawi, wants to register a patent for Malaysian batik. If it succeeds in registering a patent for the word "batik," we may well have to pay royalties to Malaysia when we export our own homemade batik.

To take another example, a tourism association leader told me that they had to request the Japanese government's permission to use the song Bengawan Solo in a tourism advertisement. The patent for the song is held by Japan.

I have heard a similar story concerning our jamu (herbal medicine) industry. The jamu industry is an original Indonesian industry. We have, or should have, exclusive intellectual property rights over jamu, which we have inherited from our ancestors centuries ago. Yet here too we are facing a threat from Malaysia which also wishes to develop a jamu industry. In fact, when people from Brunei talk about jamu, they refer to Malaysia rather than Indonesia.

Both batik and jamu, as well as other traditional Indonesian industries absorb a huge number of workers. Sadly, however, we seem unable to protect the intellectual property rights of our traditional industries. If we cannot protect and develop these industries, how can we protect and develop the electronics and automotive sectors? How can we shift to the "middle-tech" level of electronics, automotive and other industries?

This should be our main concern for the next five to 10 years. And we need to move fast, with both the private sector and the government working together to build the vision of where we want to head toward.

The writer is a businessman and Kadin deputy chairman for industry, technology, fishery and maritime affairs