RI's export-led industries need new investments

RI's export-led industries need new investments

JAKARTA (JP): Indonesia needs more investments in labor-
intensive and resource-based industries, which have dominated the
country's non-oil exports, to maintain their competitiveness in
the global market, a senior economist said.

Mari E. Pangestu, an economist at the Center for Strategic and
International Studies, said on Thursday that Indonesia's major
exports, mainly textiles, plywood and electronics, have met such
severe competition from other developing countries that they need
to strengthen their competitive edge.

"They need further restructuring to improve their
competitiveness. And such restructuring needs new investments to
get new technology and improve workers' productivity," Mari said
at the conference on the outlook of Southeast Asia and China.

The conference was organized jointly by The Jakarta Post and
Canberra-based Asia Pacific Economics Group.

Mari shared the views of many other Indonesian and foreign
economists that Indonesia should move up the industry ladder from
the lower-end and labor-intensive level to the upper-end and
capital-intensive cluster.

However, she noted that Indonesia cannot just dump its labor-
intensive industries because they are still among the largest
foreign exchange earners.

Textiles and garments, for instance, still dominate the
country's non-oil exports, contributing US$6.2 billion or 13.6
percent of the country's total exports last year.

Indonesia's textile and garment industries are quite strong,
compared with neighboring countries in the Association of
Southeast Asian Nations, because they are integrated from the
upstream to the downstream process.

However, Indonesia, whose labor wages rise faster than
productivity, is facing a serious challenge from countries with
lower labor costs, including Bangladesh, China and Vietnam.

Indonesia, therefore, should move up to higher value-added
textiles and garments and reduce import contents, Mari said, but
adding that "All of these need new investments."

Mari noted that there has been no new significant investments
in the textile industry since the mid-1980s, when Indonesia
started to massively restructure the textile industry.

Indonesia, she added, also should make new investments in such
natural resource-based industries as plywood to increase their
added value.

"Our plywood industry has already faced a serious problem in
the raw material supply. So, the question is how to increase the
value added of its products," Mari said.

Exports of plywood last year reached $3.46 billion, accounting
for 7.6 percent of Indonesia's non-oil exports.

Meanwhile, the electronics industry -- another major foreign
exchange earner -- also needs new investment, especially in the
components supply sector, Mari said.

Last year, Indonesia's exports of electronic goods totaled
US$2.9 billion, representing a 13.4 percent increase over the
previous year's $2.6 billion.

"That's nothing compared with Malaysia's electronics exports
worth $15 billion, and Thailand's $18 billion," Mari said at the
meeting.

Indonesia's relatively high export revenue from electronics,
however, does not contribute much to Indonesia's balance of trade
as the industry depends largely on electronic component imports,
which stood at $2.3 billion last year and $1.9 billion in 1994.

Mari suggested that the government provide a more conducive
investment climate for new investment in textile, plywood and
electronics industries so that they can maintain their
competitiveness.

She also suggested that the government continue to reduce both
legal and bureaucratic bottlenecks, which have barred new
investments in the three sectors. (rid)