MARKET DEVELOPMENT
New Govt Told to Give Priority to Downstream Industry
New Govt Told to Give Priority to Downstream Industry
17/10/2014 (Jakarta Post) - Outgoing Industry Minister MS Hidayat has called on the incoming government to continue giving priority to the development of the country’s downstream industry in its industrialization program.
Hidayat said only with the development of the downstream industry would Indonesia be able to fully benefit from its natural resources.
He said that programs to build the downstream industry, which had become his main priority during his five-year term at the helm of the ministry, must go on to allow the country, a major producer of various commodities from agriculture to minerals, to enjoy higher benefits from its resource-rich land.
“I hope my successor can consistently implement all our programs to spur growth in the downstream industrial sectors,” he told reporters at his office.
The ministry started to spur growth in the domestic downstream industry in 2011 with the development of agriculture-based products, such as palm oil and cocoa, and further continued with the expansion of mineral-based products, such as nickel and copper. The move was enabled by the entry of sizeable investments thanks to fiscal incentives, including tax holidays and tax allowances.
Another priority for the next industry minister will be to facilitate the expansion of strategic industries, particularly those producing import substitutes, according to Hidayat.
At present, Indonesian manufacturers rely heavily on imports of raw materials and intermediary goods used as inputs for their production apart from imports of capital goods, such as machinery and heavy equipment.
“I hope the new government will not reject a proposal [to reduce dependency on imports] that is still being laid out. It requires some facilities and privileges to help build such kinds of industries,” Hidayat said, citing fiscal incentives as the necessary facilities.
During the last five years, the ministry has often faced opposition from its counterpart — the Finance Ministry — in obtaining certain incentives for import-reliant sectors, such as the petrochemicals sector, resulting in less appeal for investors to set up manufacturing facilities in the country.
In international trade issues, Hidayat said that the future industry minister must roll out a better strategy for negotiating free trade agreements (FTAs) with partner countries, as each deal would affect industrial stakeholders.
“We have to prepare very well for FTA negotiations for the sake of the national interest. There should be no more FTAs signed merely for ceremonial reasons,” he said. He referred to Indonesia’s move to suspend talks on a comprehensive economic partnership agreement with South Korea as the right decision due to an inability to reach a compromise point.
Southeast Asia’s biggest economy has learned a lot from an ASEAN-China FTA that has caused local business players in several sectors to lose ground in the domestic market as they cannot compete with Chinese goods.
Despite the claim of industrial success, economists have expressed concerns about the inability of the manufacturing industry to push down unemployment rates. From 2009 to 2013, foreign direct investment has largely focused on capital-intensive industries.
“Future industrial planning must bring optimal benefits for our economy. This can be achieved through the commitment to integrating industrial development with efforts to lower unemployment and save foreign exchange reserves through lower imports,” said Latif Adam, an economist at the Indonesian Institute of Sciences (LIPI).
Hidayat said only with the development of the downstream industry would Indonesia be able to fully benefit from its natural resources.
He said that programs to build the downstream industry, which had become his main priority during his five-year term at the helm of the ministry, must go on to allow the country, a major producer of various commodities from agriculture to minerals, to enjoy higher benefits from its resource-rich land.
“I hope my successor can consistently implement all our programs to spur growth in the downstream industrial sectors,” he told reporters at his office.
The ministry started to spur growth in the domestic downstream industry in 2011 with the development of agriculture-based products, such as palm oil and cocoa, and further continued with the expansion of mineral-based products, such as nickel and copper. The move was enabled by the entry of sizeable investments thanks to fiscal incentives, including tax holidays and tax allowances.
Another priority for the next industry minister will be to facilitate the expansion of strategic industries, particularly those producing import substitutes, according to Hidayat.
At present, Indonesian manufacturers rely heavily on imports of raw materials and intermediary goods used as inputs for their production apart from imports of capital goods, such as machinery and heavy equipment.
“I hope the new government will not reject a proposal [to reduce dependency on imports] that is still being laid out. It requires some facilities and privileges to help build such kinds of industries,” Hidayat said, citing fiscal incentives as the necessary facilities.
During the last five years, the ministry has often faced opposition from its counterpart — the Finance Ministry — in obtaining certain incentives for import-reliant sectors, such as the petrochemicals sector, resulting in less appeal for investors to set up manufacturing facilities in the country.
In international trade issues, Hidayat said that the future industry minister must roll out a better strategy for negotiating free trade agreements (FTAs) with partner countries, as each deal would affect industrial stakeholders.
“We have to prepare very well for FTA negotiations for the sake of the national interest. There should be no more FTAs signed merely for ceremonial reasons,” he said. He referred to Indonesia’s move to suspend talks on a comprehensive economic partnership agreement with South Korea as the right decision due to an inability to reach a compromise point.
Southeast Asia’s biggest economy has learned a lot from an ASEAN-China FTA that has caused local business players in several sectors to lose ground in the domestic market as they cannot compete with Chinese goods.
Despite the claim of industrial success, economists have expressed concerns about the inability of the manufacturing industry to push down unemployment rates. From 2009 to 2013, foreign direct investment has largely focused on capital-intensive industries.
“Future industrial planning must bring optimal benefits for our economy. This can be achieved through the commitment to integrating industrial development with efforts to lower unemployment and save foreign exchange reserves through lower imports,” said Latif Adam, an economist at the Indonesian Institute of Sciences (LIPI).