Thursday, 12 March 2015


Although the Ministry of Industry continues to implement the national industrial development with main objectives, among others, growth of non-oil and gas processing industry of 6.1% to 6.8% this year, a number of parties expressed diverse opinions. According to researchers from the Economic and Social Research institute of the University of Indonesia (LPEM-UI), Erna Zetha Rusman, with economic growth in 2014 only at 5.02%, the demand from the national side will also be low. If consumption is low, then national production is also low, he told Business News, Monday (February 9).

“Although the government provides a variety of additional stimulus, we hope that his will increase Government spending. Then we will see the direction of the Government spending. For example, whether the provision of stimulus and government spending will spur consumption or not. If it spurs consumption, then it is helpful, but I have not seen it that way, because currently the selling price of the product and basic necessities are increasing.

When deflation occurred in January due to the rise and fall of fuel prices, it does not have an impact in term of production costs. Input factor of products are from imports, because of the dollar exchange rate against the rupiah also rose. Most raw material of manufacturing industry are by imports. In addition, the load interest rate is high, the government and the central bank will set BI rate still at 7.75%. I do not see any signs of reduction of interest rates in the country. Moreover, there are symptoms that the United States will increase. The Fed rates, so that it is unlikely that BI rate will increase. With high domestic interest rate, the loan for investment is still high, then the procurement cost of the industry will be expensive.
Economy slowing, Growth of Processing Industry is also slowing.

Based on data from the central statistical Bureau (BPS), the achievement of economic growth in 2014 is not encouraging compare to the last five years. It only reached 5.02%, the government missed the predictions, i.e. 5.1%. Slowing economic growth was also followed by the decline of processing industry growth, which in 2014 only grew around 4.6% and its contribution to GDP is about 21%.

Relatively to the achievement of economic growth which only grew 5.02%, there is a correlation between processing industry growth in 2014 and the declines in the aggregate growth of household consumption expenditure, which fell from 5.38% in 2013 to 5.14% in 2014. This is affected by a sharp decline in government expenditure in 2013 from 6.93% to 1,98%, industry and trade observer, Fauzi Aziz, told Business news.

While, the growth of Gross Fixed Capital Formation (GFCF) also decreased from 5.28% to 4.12%. Export growth also declined sharply in 2013 from 4.17% to 1.02% in 2014. Other factors that affect the decline in growth of the processing industry are purchasing power due to the slowdown in growth of GDP per capita of Indonesia society. In year 2012 the value reached USD 3,751.38, fell to USD 3,669.75 in 2013 and in 2014 fell to USD 3,531.45.

We can understand that the slowing growth of the processing industry in the country in 2014 was due to the weakening market conditions in the country, investment (GFCF) also decreased, and exports of goods and services also fell. Economics logic says that if data on the macro level had decreased, the conditions on the micro level are also decreasing.

Conditions in 2015 became a bit heavy because it is not easy to improve the macro performance where almost all components that contribute to expenditure growth are decreasing. The cause of the weakening growth of the processing industry which occurred in 2014 is not a single factor and sectorally it slowed due to unfavorable macroeconomics performance, both internally and externally.

Attempts should be done by the government, must be realized as soon as possible so that the macro or micro/sectoral growth target that has been set by the government and by each ministry/agency in 2015 is not too far from the projections. Slowing down of processing industry growth could not be overcome by the ministry of industry because only about 30% which is under its responsibility and the remaining or approximately 70% is the authority of other ministries.

There are four policy issues that must be resolved by the government in a coordinated manner, namely 1) The increase in business volume in the domestic market, including relaxation on procurement of government goods and services from domestic production; 2) perform a more comprehensive export promotion strategy that included trade diplomacy and export incentives; 3) accelerate realization of physical investment so that GFCF growth will improve; 4) Conduction import controls effectively. The government needs to carry out deregulation and de-bureaucratization policy which gives relaxation to rescue the national economy. (E) 

Business News - February 13, 2015

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