Thursday, 13 February 2014


Contribution of national industry to Indonesia’s GDP was constantly declining as there was no commitment among skateholders to promote this sector as priority sector. Unfortunately, from 2001 to quarter II of 2013 performance of national industry was not showing any significant progress.

The issue of industrial decline surfaced again lately just when national industry had to embark on a new era, i.e. the ASEAN Economic Community [AEC] 2015 which would be effective per January 1, 2016. In 2001, contribution of industry on national GDP was 29.1%; in 2005 it went down to 27.4%. In 2010 it slumped to 24.8% and in 2011 down again to 24.3% until finally in quarter III-2013 contribution of GDP on industry to GDP dropped to only 23.11%.

The main cause of slowdown in national industrial performance was : no joint commitment between the ministries and institution to promote national prioritized industry the integrated way. In other words, there was no comprehensive industrial downstreaming plan for various reasons lack of tax incentive, limited quality of Human Resources, high bank interest and workers demand for Minimum Provincial Wages.

In addition to the above, policies which was not supportive to reducing production cost was one of the reasons why national industry’s performance tend to stationary. This was not to mention bad harbor services, poorly maintained roads etc. In the end, slowdown in national industry growth had its effect on national import-export activities with counterpart countries.

Of 13 trading counterparts in the period of January – October 2013, Indonesia only posted surplus with 4 countries, namely Singapore, England, the USA and India. Deficit was posted with Malaysia, Thailand, Germany, France, China, Japan, Australia, South Korea and Taiwan. So the Government must promptly promote performance of national industry so the real sector could develop.

Toward MEA 2015 soon endeavors should be focused on strengthening competitiveness on the weak spots. In the end, degradation of national industry would have its effect on employment. The process of employment, especially in the premium sectors like agriculture was constantly declining and only accommodated 38 million workers in 2013 against 37 million workers in 2010.

Increase of Minimum Wages [UMP], oil fuel price [TDL] and LPG gas, posed ad hard blow to industry and caused mass dismissal of workers. So the Government must understand the need of national industry. In short, economic ministers must not make their own dispersed regulations. Integration and sound inter ministrial collaboration became indispensable. Attention should be focused on maximizing employment by mapping out important sectors in tandem with activation of labor intensive industry in the said sectors.

Sharing the above expectation, the Financial Service Authority [OJK] had instructed national banks to increase pipelining of investment credit. The priority was credit to the manufacturing sector, energy sector and infra structure sector. The three economic sectors must be spurred on to refresh and revitalize national industry to produce products of high added value.

In terms of credit, portion of the 3 segments were relatively small against total banking credit so there would be enough room to absorb credit. OJK’s data per November 2013 last posted credit energy only 2.44% of total banking credit amounting to Rp3,241.04 trillion while credit for infra structure in the manufacturing sector contributed 3.63% of total credit.

In terms of growth, credit for energy including electricity, gas and water was posted to grew by 17.91% [y o y] to become Rp79.21 trillion in November 2013. Furthermore credit for infra structure included in the manufacturing sector, grew by 19% [y o y] to become Rp117.80 trillion per November 2013.

The good news was that this week first and second tier banks would prioritized credit to the manufacturing and infra-structure sector. Meanwhile most Government owned banks stepped up their investments in the energy and electricity sector. For credit expansion, direct payment platform would be used as well as credit syndication or consortium. The platform to be used by each bank considered bank’s liquidity capacity. Generally for big scale payments worth trillions of Rupiah, syndication plan was often adopted to minimize risk so cases of non-performing loan would be under control.

OJK record had it total NPL value by last November was Rp606 billion or up by 95% against same period the previous year at Rp310 billion. The same was happening in the infra structure sector; NPL in this sector was Rp4.43 trillion up by 14% against same period the previous year at Rp3.87 trillion.

The condition was different from consumption credit. Let’s say NPL in automotives was Rp859 billion, shrinking by 22% against the previous Rp1.1 trillion by end of November 2012. Bank’s passion for the consumption credit sector was also seen through bank interest. The average interest of investment credit rose from 11.25% to 11.74%. Strangely consumption credit interest thinned out from 13.53% to 13.12% per November 2013. With BI’s monetary policy which tend to be tight in the consumption sector, it seemed reasonable that consumption credit tend to slowdown.

For that matter, allocation for expansion to productive sector must be given to make sure that Indonesia would not lose the momentum of bettered global economic condition. The opportunity to promote export and draw capital inflow was opening wider. Now was the moment for banks to jack up credit for the industrial sector whereby to meet the growth target of around 5.5% - 6.0% this year. (SS)

Business News - February 7, 2014          

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