Airlangga Hartarto, Minister of Industry: Interview

Interview: Airlangga Hartarto

Are Indonesian export-oriented companies sufficiently prepared to compete on a regional scale?

AIRLANGGA HARTARTO: The Making Indonesia 4.0 roadmap was launched by President Joko Widodo in April 2018 and aims to make Indonesia one of the world’s 10 largest economies by 2030. The roadmap also aims to double Indonesia’s economic productivity. In order to achieve this, Indonesia will adapt revolutionary technologies and digitalisation under the umbrella of Industry 4.0. It is estimated that this will add one to two percentage points to Indonesia’s current GDP growth rate.

The roadmap is in line with the government’s longterm strategy to transform Indonesia into a knowledge-driven economy. For this reason, spending on research and development is set to rise to 2% of GDP in the short to medium term. We have prioritised five of the 84 industries facing a barrier to value addition: automotive, textile, chemicals, food and beverage, and electronics. These industries account for 60% of Indonesian manufacturing, employment and exports, and as a consequence we believe that the financial, digital and educational prioritisation of these segments will enable the economy to compete on both a regional and global scale. These five industries are also characterised by high value addition and by a relative ease of technological adaptation.

Making Indonesia 4.0 requires three key developments. The first is human capital, which requires a meticulous focus on vocational training. The Ministry of Industry now manages 1200 vocational schools and is looking to increase this number by another 800 over the coming years. New curricula are being developed that have a ratio of 70% applied knowledge and 30% theory. Second, Indonesia’s long-term competitiveness increasingly relies on a multi-sectoral application of the internet of things. The technological advances made in logistics and warehousing inevitably require an understanding of blockchain’s advantages as well. Third, we expect that lighthouse projects in any of the five sectors will lead to spillover effects across other industries and will attract more investment.

What role can foreign direct investment play in addressing potential industry shortcomings?

HARTARTO: The key for industrial acceleration is investment. For instance, Indonesia relies heavily on foreign investment in the automotive sector. With the weakening of the rupiah, it is becoming even more relevant to address import substitution and exportdriven industries. In order for Indonesia to take on a leadership role on the global stage, the country’s integration in the global value chain is pivotal. One of the current challenges is therefore to accelerate the Comprehensive Economic Partnership Agreement negotiations with Australia and the EU.

Indonesia largely remains a commodity-based economy – the country is exporting significant steel volumes to the US, for example. However, the administration of US President Donald Trump imposed import duties of 10-25%, and this prompted the government to diversify its investor base to ensure that the tariffs will not deteriorate the investment climate, as Indonesia is one of the top producers of stainless steel.

How do you view the role of special economic zones (SEZs) and Industry 4.0 in boosting regional growth?

HARTARTO: Nowadays, SEZs can be found in North Sumatra, Central Sulawesi or Papua, and additional industrial zones are under development. This will accelerate economic growth outside of Java. However, any economic deviation away from Java depends on the regional availability of resources as well as on local economies of scale. Most industries across Indonesia have been transitioning to automation processes, including distributed control systems, in the wake of the third industrial revolution. It is hoped that the fourth industrial revolution, however, will focus on upgrading facilities and increasing efficiency by about 98-99%.

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The Report: Indonesia 2019

Industry chapter from The Report: Indonesia 2019

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