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)