Regions should have own industrial development vision: UNIDO
Regions should have own industrial development vision: UNIDO
Indonesia has just signed a US$10.5 million technical assistance
program with the United Nations Industrial Development
Organization (UNIDO) to develop the country's small and medium
industries, encourage environmentally friendly industry and promote
the reconstruction of tsunami-affected and post conflict areas.
The Jakarta Post's Zakki P. Hakim talked to UNIDO's country
representative in Indonesia, Masayoshi Matsushita, about the
deal, which is called the Second Country Service Framework (CSF)
for Indonesia, and the industrial problems facing the country.
The following are excerpts from the interview:
Question: I understand that UNIDO granted a second CSF to
Indonesia in departure from normal practice. Could you elaborate?
Answer: We initially had two different programs: an integrated
program and the CSF.
Now, integrated programs tend to be given to smaller
countries, like Laos or Vietnam, because overall industrial
development has to be properly assessed by experts in UNIDO.
As Indonesia is so large, with 220 million people and over
17,000 islands, each region is at a different stage of
development.
We can't formulate an integrated program. Thus, we have the
CSF, where we are not responsible for overall industrial
development in Indonesia, but we'll provide assistance during
each of the different development stages at the region, province
or even island level.
Part of the program is to formulate an industrial framework on
a regional basis. How does this work?
We are working on the Eastern Indonesia development program
and our focus is on the Industrial Development Vision for
Sulawesi 2010.
We are working on agro-based industry as Sulawesi has great
potential in the fishing, cacao, coconut and corn sectors.
We are utilizing "global value chain analysis", in which we
analyze every value chain in an effort to bring Indonesian
products to the international market.
We will come up with an industrial framework for Sulawesi
first, then we can go to the national level in the future.
We hope to provide it by the end of this year to governors on
the island.
Why these four sectors?
We adhere to what we call the "wild geese formation"
development paradigm. You know that wild geese fly in a V-
formation during migration. So, we select four leading industrial
sectors.
If these sectors can develop and then become our leading
sectors, other sectors will follow.
This was the Japanese paradigm of industrial development in
the 1950s and 1960s. Japan chose iron, steel and heavy chemical
industries as the leading sectors. By supporting these sectors,
other sectors like metals, automotive, and electronics simply
followed their lead.
In the case of Indonesia, perhaps agro-based industries could
be one of the leading sectors. But if you look at Java, it could
be the automotive, chemical, steel and iron, and heavy industry
sectors.
The government had identified its priority industry sectors.
How should it now nurture them?
When you talk about industrial policy formulation, people tend
to think you are giving subsidies to the leading sectors. This is
unfair.
Japan used the wild geese formation approach back in the
1950s, at which time industries were not as diversified as today.
Nowadays, it is extremely difficult to choose which should
be the leading sectors and receive special subsidies and
assistance for development.
If we don't give subsidies, what should we give to the chosen
sectors to boost their growth?
Competitiveness is one issue. Why is China so competitive?
Because they absorb all the foreign direct investment and seek
technology from foreign firms. With low labor costs, they can
produce consistently low-cost but good quality goods.
Indonesia's case is the same. Indonesia has to develop
technology domestically, and also promote FDI more so that local
companies can enter into joint ventures with foreign firms and
get high quality technology for products that can prevail on the
international market.
How can we compete against unfair trade practices, such as
trade distorting subsidies?
We see things differently. We see competitiveness coming from
efficiency and technology development.
When we look at non-tariff barriers, for example, like
administration, export and import procedures, it becomes too
costly for Indonesian manufacturers to do trade in raw materials
and capital goods, because all the bureaucratic procedures are
high cost.
If we can get rid of this, and find a more efficient way of
smoothen out the flow of products, competitiveness will increase
dramatically.
What makes the sectors that have been chosen different from
the rest?
Let's take fishing as one the leading sectors in Sulawesi. We
have studied how Gorontalo fishermen catch yellow fin tuna, which
are abundant in the Gulf of Tomini area, and the quality is very
high.
But there are no international buyers touching this. The
fishermen maintain a very traditional way of catching and
processing the fish, and they are only for the domestic market.
It is such a waste as the price is very low. Japanese buyers say
that if the fish were caught in the modern way, they would buy
them at much higher prices.
They need to be well-trained in how to catch fish the modern
way in order to be far more efficient in every stage of the value
chain. And process them with the necessary skills and technology
in order that the fish can be sold on the international market.
We are working on every link in the value chains of the four
selected sectors in Sulawesi.
If you can improve each stage of the value chain through a
very high level of processing, you get greater added value and
can bring the products to higher level domestic markets, and
eventually the international market. This is called
competitiveness.