Vriens & Partners (V&P) conducted an independent study titled Transforming Indonesia Economy-Making Indonesia Industry 4.0 for EuroCham Indonesia under the ICI+ Project, an action funded by the EU, and published on July 2019. Below is a summary of the study.
The recommendations presented in Transforming Indonesia’s Economy align with Indonesia’s ambitions and policy agenda. In presenting the government’s 2019 draft budget in August 2018, President Joko Widodo emphasised the importance of readying the Indonesian workforce for the fourth industrial revolution through improved vocational training and innovative university partnerships and subjects. The country’s commitment to the Sustainable Development Goals calls for further investment in clean energy sources, such as solar, wind and thermal. Indonesia has also committed to promote technological innovation and research in order to sustain its growing workforce.
Furthermore, the Ministry of National Development Planning (Bappenas) Policies to Support the Development of Indonesia’s Manufacturing Sector within 2020 - 2024 highlights the need to implement successful manufacturing policy to secure future economic growth.
The ministry outlines three separate scenarios which can be attributed to supportive or unsupportive manufacturing policies.
- The Bad Scenario sees manufacturing drop from 14 per cent of employment in 2018 to 13 per cent by 2024, resulting in a 5.52 per cent GDP growth rate for 2020 - 2024.
- The Moderate Scenario sees manufacturing remain at 14 per cent of employment through 2024. This scenario predicts a 5.68 per cent GDP growth rate for 2020 - 2024.
- The Good Scenario sees manufacturing rise from 14 per cent of employment in 2018 to 20 per cent of employment in 2024, resulting in a 6.31 per cent growth rate for 2020 - 2024.
To achieve the ‘Good Scenario’, Bappenas highlights that reforms need to be undertaken, including continuing the focus on attracting foreign direct investment, establishing public innovation infrastructure, developing workforce skills, strengthening links with global value chains and improving coordination between monetary and fiscal policies.
The European Union is ready and willing to assist Indonesia to achieve its ambitions. EU companies are already working hard to support Indonesia’s human capital development agenda, with 93 per cent reporting that they had invested in upskilling their workforce in Indonesia.
Further collaboration, if harnessed, would achieve systemic benefits. The Comprehensive Economic Partnership Agreement (CEPA) is a clear pathway to achieving this. The Centre for Strategic and International Studies (CSIS) Study on the Impact of an EU-Indonesia CEPA in 2015 estimated that a successful agreement will increase Indonesian exports by up to USD 1.1 billion (approx. EUR one billion).
Case studies from Hungary, Italy and the Czech Republic highlighted in Transforming Indonesia’s Economy show that when platforms are created that bring together government, investors, businesses, civil society and academic institutions at local and national levels, economic transformations occur. With the recommendations presented in Transforming Indonesia’s Economy and support from the European Union and European Union companies, policymakers are expected to be able to create the foundation needed for Indonesia to become a leading global economy.
For the full report, visit www.eurocham.id/news-articles.