DOMESTIC AUTOMOTIVE INDUSTRY RELIES ON 3S

Indonesia Automotive Industry Association (Gakindo) sees that the domestic automotive industry relies on 3S (sales, service, and spare parts). Sales are related to service. So, the sole agent (ATPM) must provide service centers, especially workshops. Spare parts also determine consumer interest in Indonesia. “So it is not surprising, as Auto 2000 successfully developed 3S, it continued to expand. They open branches in Pontianak, Bengkulu and so forth, “Secretary General of Gakindo, Noegardjito, told Business News (September 19).

The manufactured automotive products must be able to seize market share. That is, the manufacturing company should be able to meet the 3S. Moreover, in conditions like in Jakarta and other big cities, people want to be practical and fast. Commonly, consumers choose products that provided satisfaction of service. “Suppose I live in Jakarta an work in Karawang (West Java). The car must be serviced. The car most be serviced. I left the car at Auto 2000, and I took cab to Karawang. I go home at 7 pm, and workshop is still open. But, if it is other brand (manufacturer), they closed at 5 pm. Of course, I chose Auto 2000. It is reasonable.”

Indonesian automotive industry recorded a very significant development. One of the is the in Indonesian government very significant trust. Indonesia is a production base, so that the range of services covers the domestic and export markets. Until now, there are 80 export destinations of Indonesia cars in addition to export destinations in ASEAN (Malaysia, Philippines, Thailand, and Brunei Darussalam), Pakistan, the Middle East, Latin America and Japan. Car exports from Indonesia are in the form of CKD (completely knocked down) or CBU (completely built up). Export of components or spare parts have been successfully destined to some parts of the world. “We have 20 thousand CKD cars and around 300 thousand CBU cars, so that there is an overall total of 320 units of cars exported. For CKD cars, there are parts (components), and all must be calculated for the production capacity.”

The government is targeting exports of Indonesian cars next year at 360 thousand units. Gakindo is optimistic that it can achieve these targets. Components or spare parts industry should continuously be encouraged. Even, the Ministry of Industry has recently issued a permit for about 30 component plants. “There are about 100 companies who filed a request. Perhaps in the near future, there are also five brands, such as Toyota, Suzuki, Honda and others, which will open component plants.

Most of foreign investment uses joint venture schemes. The fulfillment of the domestic market should be with the attainment of based load (primary load), which is equivalent to BEP (breakeven point) of 50 percent. “Suppose I invest for a production capacity of 100 cars, for the domestic market I should be able to sell 60 per cent. That is just starting to get profit or breakeven point. If you can export, it means that there is a profit. Thank God.”

The automotive industry in the country can be stable, even continues to increase, if transport costs are affordable. The current condition is that the costs are very high. The most significant thing to maintain competitiveness is the application of the amount of local content, Technology is not too significant, because it is a standard. The conditions are different from local content that must be increased in order to achieve competitiveness of Indonesia’s automotive industry. Unlike the American auto industry, which relies on investment activities. “Like General Motors who has investment principle, as long as there is market opportunity.”

Another factor that determines the success of the development of Indonesia’s automotive industry is infrastructure. It is generally accepted, in the sense of not only the automotive sector, but across sectors. The most obvious impact of infrastructure on the automotive industry is seaports. During this time, the distance between Karawang and Tanjung Priok port, North Jakarta takes around fours of travel. “For us, the travel time is a problem. We want it to be shorter.”

Although production absorption decreased this year, there is a shift of market to other cities and islands. Some cities, such as Bali, Pekanbaru (Riau Province), Makassar (South Sulawesi) and Medan (North Sumatra) experienced an increase in the absorption of the car market. In addition to high economic growth in these regions, the number of young executives in large companies, such as in Pekanbaru and Medan, continues to increase. They need a car, whether for prestige or job mobility.”

In addition, port infrastructure is very supportive to automotive industry development. During this time, many industrial centers and automotive markets time, many industrial centers and automotive markets shift from Jakarta to other cities. Car shipment to Borneo and Sulawesi should go through the ports, for example, Tanjung Priok port of Tanjung Perak port, Surabaya. “Each manufacturer has different calculation of transportation cost.”

The lesson learned from the success of the Thai automotive industry is the availability of infrastructure. Thailand’s automotive exports reached 50 percent (about 1.2 million units of cars) of its overall production capacity. Its success cannot be separated from the availability of infrastructure, especially ports and access roads. “Thailand can do exports with two ports for 1.2 million units of cars. While, Indonesia only exported hundreds of thousands of units, because it is only supported by one port (Tanjung Priok). Port capacity could only accommodate 3,500 units.”

Meanwhile, Minister of Youth and Sports, Roy Suryo, admitted that the regularly visited IIMs (Indonesian International Motor Show). Beyond his capacity as Minister of Youth and Sports, he is a collector of classic cars. So whenever there is an automotive event, he did not miss it. “The automotive world is not far from my daily life. I collect classic cars, and I often look for spare parts that are still good in Asem Reges Market (Central Jakarta), “Roy told Business News (September 19). (E) 

Business News - September 24, 2014

REMARK ON INDONESIA’S ECONOMY FOR NEW GOVERNMENT

Over the past 3 years, Indonesia’s macro economy had been constant setback. Economic foundation was gradually degrading with alarming process of vulnerability domestically or internationally.

At home, Indonesia was tormented by deficit in balance of payment and deficit in state at high alarming degree, increasing portion of foreign ownership over Government bonds, worsening Debt Service Ratio and swelling overseas debt [ULN] unprotected by any hedging measure.

Indonesia’s vulnerability at International level was due to economic slowdown in the emerging market especially China and fear of the Fed’s action to run QE in the USA in 2015 which would generate pressure all over the world including Indonesia.

Bank Indonesia and the Government had strived to strengthen national macro economy resiliency by monetary and fiscal mix-policy. This was indicated by signaled of betterment in Indonesia’s macro economy such as deficit in balance of payment which had been minimized, improvement in oil – gas export and eased inflation.

Unfortunately the Government had been concentrating on the demand side only and too little attention on the supply side which was indicated by deficit in oil gas trade balance, and downturn of raw material export.

Hence reformation and structural restoration was needed for the long terms with the objective to lessen economic cost and shorten transport time especially for goods of high added value.

The reformation would bring incentive to the businessworld with high profitability which enabled economic expansion. To develop the supply side, three obstacles must be faced i.e. measly facilities of domestic and international trading and digital connectivity as well as condusive economic trading related to legal protection, and competence disparity of skilled human resources.

The disheartening thing was that many parties had not been able to make economic transformation on the overall to develop skill and capability which increased market confidence. This was due to low institutional capacity in Indonesia.

The institutional capacity included: change of rules, management, organization and best practices of high standard supportive to economic activities effectively and efficiency. They realized that good institutional system could bring assurance and lower economic cost which in turn would strengthen competitiveness and economic growth sustainably.

To maximize development on the supply side and institutional capacity as a whole in Indonesia, upgrading of human competence was needed. The present educational system with amphasis on general knowledge must be revised to give more room to competence training. More vocational schools were needed since the graduates were in high demand in the industry.

For long it was apparent that the policy and regulations in schools were inappropriate since it was not in accordance with the objective condition afield. Besides the policies and regulations were not well implemented afield.

So it was necessary to enhance the discourse to reform tertiary education; it was time to set vocational education from general education to link it more to the Ministry of Research of Technology. This would be one of the new Government’s strategic agenda.

In tandem with Human Resources Quality supported by better human competence to be more competitive.

Combination between institutional and human capital could serve as around foundation in the process of structural transformation acceleration in the process of structural transformation acceleration in Indonesia. The two aspects would combine as sound underlying foundation for stronger competitiveness.

The synergy between strong institutional aspects and human should be in tune with the characteristics of Indonesia’s economy which was the economy of an archipelago state but remember that the geographical characteristics has pitfall of its own.

In developing maritime economy, Indonesia still had to face the challenges of inter insular connectivity which could integrate the country from Sabang on the Western tip to Merouke in the Eastern tip. Inter insular transportation system was an urgent matter.

The discourse to build maritime toll system had become jusrifiable to be executed. Indonesia is the greatest archipelago in the world with enormous potentials but not exploited to the maximum.

The need for raw materials was growing while natural resources on land was limited and hard to tap or develop. In terms of geo-economic position Indonesia is on the crossroad of two continents and two oceans.

Marine resources had high added value potentials which could narrow income disparity and reduce income gap between land and sea.

The marine sector was a nature based economic sector which could reduce import demand and pose as no burden to deficit in current transaction and balance of payment. Inter-insular connectivity, if promoted, could lower economic cost for better competitive edge.

By applying the right technology, comparative advantage might turn into competitive advantage the strengthen food resiliency and national souveignity.

In the case, the Indonesia Economic Development Expansion and Acceleration Plan [MP3EI] was answer to the said logistic connectivity challenges. It was right that President SBY handed over the Masterplan to his Successor Joko Widodo to accomplish it.

The Government’s support was called for through sound fiscal policy with more propotional budgeting to develop marine potential outside Java island. The Maritime Development Acceleration Plan included among others building of ring roads in Java and others islands, building of industry-related airports and seaports especially in fishery centers.

Broadly speaking the thinkable solution to tap maritime potentials was to buils integrated maritime sectors which were unexplored.

The revitalization encompassed increase of sectoral productivity, efficiency and continuity and development of new growth centers especially in the coastal areas, and small outer islands. Implementations so they were demanded to always coordinate vertically or horizontally.

It was indeed not easy to execute the agenda due the next Government. However with support of all parties including the private sector, all for maximum result. (SS)

Business News - September 24, 2014

LARGE RICE MILLS REQUIRED TO COOPERATE WITH SMALL RICE MILLS

The construction of large-scale modern rice mills by PT Lumbang Padi Indonesia (PT LPI) in Mojokerto should not to create unfair competition in the search for raw materials in the form of paddy/rice among large and small rice mills. At the time of harvest, it is predicted that there will not be scramble to obtain raw materials, because rice production is abundant. But, at the time of non-harvest season, scramble to obtain raw materials may occur, because the volume of rice production is low so that the volume of raw material supply to the rice mills is limited. Though, to achieve economic scale, rice mills should operate throughout the year.

Ir. Burhanuddin, Secretary General of the Central Executive Council of the Indonesia Rice Mills and Entrepreneurs Association (DPP Perpadi) when contacted on Tuesday (September 16) said that prevent unfair competition in obtaining raw materials of paddy/rice between large and small rice mills, large rice mills were requested to corporate with small rice mills. The forms of corporation are, among others, small rice mills are given the opportunity to supply brown rice mills. Brown rice is produced by small rice mills, then brown rice is processed into a variety of good quality rice in large rice mills.

The advantage of this corporation is that small rice mills will gain assurance and certainty of new markets. On the other hand, large rice mills will get a guaranteed supply of raw materials, so they can operate throughout the year. In addition, it is expected that large rice mills can produce fine quality rice in accordance with SNI (Indonesian National Standard). The government has set SNI for rice, but the implementation is not running, because the machine tools and working system applied by rice mills vary. Coupled by human resources who are not qualified in managing rice milling business. Generally, small rice mill entrepreneurs were satisfied with the quality of the rice produced, so they are reluctant to add investment to buy machine tools that can improve the quality of the rice produced.

 
When large rice mills can produce good quality rice in accordance with SNI for rice, then the benefit is enjoyed by consumers. If the government sets SNI for rice to become mandatory, it can be used to face global competition when the ASEAN Economic Community is implemented at the end of 2015.

The emergence of large rice mills is expected to help farmers market their products. At the time of main harvest, which is usually coupled with rainy season, farmers often have difficulties in post-harvest handling, because they do not have grain at the farm level to drop below the Government Purchase Price (HPP). When large rice mills are willing to buy wet grain from farmers in accordance with HPP, farmers who may suffer from potential losses can be helped. Thus, at any given moment, large rice mills can help farmers increase market access.

To ensure the supply of raw materials, large rice mills can do grow rice of their own or plant rice in cooperation with local farmers. Planting rice in Java is not possible, because the rice fields in Java were owned by small farmers and the agricultural land in the island of Java is decreasing due to uncontrollable land conversion. Therefore, it is possible for large rice mills to corporate with local farmers in growing rice. The forms of cooperation vary, and can be adjusted based on agreement with farmers.

Chairman of the Indonesian Rice Mills and Entrepreneurs Association (Perpadi) of DKI Jakarta, Nellys Sukidi, said that PT LPI has built a large-scale rice mill, which in the first year can absorb 150,000 tons of harvested dry grains (Gabah Kering Panen), and to be increased to 250,000 tons/year. As long as rice production in East Java is a lot and is capable of supplying to PT LPI, it seems that there will be no problem. But, the concern is when rice production in East Java is low, there will be a scramble to buy paddy/rice among rice mills or with the National Logistics Agency (Bulog). If the supply of grain/rice to PT LPI is not sufficient to operate rice milling machine in one full year, the next concern is that PT LPI may ask for permission to import rice to fill the idle capacity of its factory. This was made possible after the implementation of ASEAN Economic Community. According to information, Thai rice prices are cheaper than the price of domestic rice. But if the government wants to grant the request, the impact on national rice mills and entrepreneurs should be considered. (E)

Business News - September 19, 2014

GOVERNMENT ESTIMATED SEPTEMBER TRADE BALANCE TO BE USD 100 MILLION SURPLUS

The government estimated that Indonesia’s trade balance in September 2014 will enjoy a surplus of about USD 100 million. However, even if trade balance experienced a deficit, the estimated value is around USD 100 million. This statement was made by the Minister of Trade, Muhammad Lutfi, in Jakarta, on Monday (September 15). “In September 2014 as well in September of the previous year, there was empirically a sluggishness of imports, so it is estimated that imports will not be high. Like in April, imports are usually high so it can be said that these months, it is only seasonal or temporary.

Thus, if from July to August there is a surplus of approximately USD million, this month I estimated that there was such a slight surplus, he said. The decrease in exports last month was due to the decline in oil palm exports from approximately USD 2.2 billion to USD 1.1 billion in the previous month. With the world economic situation, The fed plans to raise interest rates, and commodity players reportedly will release funds. This occurs because of the high cost of administration, thus causing the fall of commodity prices. However, this only reactionary, so that it is expected that by the end of September/ October, the status of the condition will be obvious. Thus, it is expected to improve the position of commodity prices. Because commodity is a supply and demand matter, so it’s not a problem if the owner of the commodity has or does not have funds.

Lutfi revealed that there is still a number of homework missed by Indonesia for the last decade. This causes Indonesia, in binding a number of trade agreements with other countries, not to obtain benefit, like the ones enjoyed by other countries. “So far, Indonesia still relies on the shoe industry, footwear, and textile industry. While China, which 10 years ago was together with Indonesia in setting labor wages, is now assembling electronic products and building network. Finally, China already has Huawei and ZT as mainstay of electronic products.

So far, Indonesia did not build infrastructures, while the middle-class population continues to increase.

That is why Indonesia should be able to escape the “trap of the middle class,” by building infrastructures, such as power plants as well as strengthening the telecommunication industry. This will help Indonesia achieve its growth exponentially, so it is not just being defensive as it is today, “he said. Infrastructure issues were also mentioned by the Honorary President of Notre Europe, Pascal Lamy. A number of problems associated with Indonesia’s competitiveness include, among other, transportation problem, infrastructure, and logistics efficiency, this includes energy transportation, seaports and airports. These are all closely related to supply factor in the global supply chain.

Facing the ASEAN Economic Community (AEC) in 2015, the Indonesian market actually does not deed to be protected, but should be developed, and Indonesia should continue to establish trade diplomacy at the international level. In addition, in the field of industry, what needs to be done is increasing global supply chain to follow the current trend, with joint production and mutual benefit.

In line with this, economist of the Economic Research Institute for ASEAN and East Asia, Lili Yang Ing, pointed out that in facing the formation of AEC in 2015, by making it as a production base where product, and this will be a capital network for its production. Currently, Indonesia is still widely known as a country that relies much on domestic market orientation. (E)

Business News - September 19, 2014