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• The missing link in intermediary goods halt Indonesia’s value added production of goods,
especially in Manufacturing.
• Value added might not be gained when there are still missing link between downstream and upstream on
industrial linkage. Hence, imported intermediate inputs used for export is still about 20% on average.
• Problem: Dependent on exporting raw materials and importing near-final goods to be assembled (or
even final goods)
We must focus on additional investment on the sectors with the highest output growth above economic growth to reduce ICOR.
Specifically, investment on linkage between upstream and downstream in these sectors. Moreover investment is not always in
physical infrastructure form. Investment in human capital (education) to increase labor capabilities can also reduce the ICOR.
Indonesia’s labor force still dominated by elementary and junior high school graduates.
Source: BPS 3
HIGH LOGISTICS COSTS, NEEDS AN INTEGRATED SYSTEM
Farmers/
Village A Retailers Warehouse
Farmers/
Village B
Farmers/
Village C
Warehouse - Wholesalers
Urban Market
Farmers/ Farmers Local Aggregator Retailers
Village D
IMPROVING
ECONOMIC DECREASING HUMAN CAPITAL
INFRASTRUCTURE INVESTMENT
GROWTH DEPENDENCY ON AND LABOR
DEVELOPMENT CONFIGURATION TO
DISTRIBUTION FOREIGN CAPITAL IN MARKET
OPTIMALIZATION SUPPORT GROWTH
POLICY THE SHORT RUN EFFICIENCY
2018
Indonesia India Vietnam China This ratio shows the level of
6.5 6.3 7.5 efficiency or configuration
7.5 6.8
7
6.98
7.08
6.6 (the time of an investment to
6 7
6.6
6.5
6.5
yield) of all types of
5.5
5.17 6
6
6.4 investment in a country.
5 5.5
5.5 6.2
5
4.5 4.64 5
6 5.9
With relatively equal ratio of
4.5
4
4.5 4.31
capital formation, India and
4 5.8
3.5 3.5
4
Vietnam have lower ratio of
3.5 5.6
3 ICOR and higher economic
3 3
ICOR GDP Growth
ICOR GDP
Growth (%)
ICOR GDP 5.4
ICOR GDP Growth (%) growth.
(%) Growth (%)
Gross Fixed Capital Formation to GDP in 2018 High score of ICOR indicates
that in a macro level,
investment in Indonesia is
32.57% 32.37% 30.53% 44.06% less efficient.
In 2018, the ICOR of Indonesia is 6.30, still higher than India (4.64) and Vietnam (4.31)
Source: BPS, World Bank 6
Lower ICOR is Needed to Achieve Growth
Evidence from China’s Evidence from Vietnam’s Indonesia’s Economic Currently, Indonesia
Economic Condition Economic Condition Growth Simulation is focusing on
9.7 10 10
10 exports without
9 9 9 industrial linkage.
8 8 8 Correct investment
7.08
7 6.6 7 6.5 7 configuration and
6.3
5.9 5.7
6 composition are
6 6 6 5.43
4.9
5.17 expected to reduce
5 5 5
4.3 the ICOR.
4 4 4
The feature of OSS System has not been Improve the feature of OSS system that
able to fulfill the entire licensing process can accommodate the needs of
and the needs of business actors. K/L/D’s business actor. Improve the service and
supporting system has not fully complied stability of the supporting system from
with the OSS System K/L/D
Further improvement of OSS is by involving the active role of local government and K/L in running the OSS and
completing the Omnibus Law to further simplify the licensing system in Indonesia.
8
OSS System Attracts Foreign Investors' Interests
Even though the OSS system still needs the improvement, the incoming foreign investment is quite
significant.
Further efforts are needed to reinstate the position of export-oriented industry and also to generate reserves
In 2007, the contribution of Manufacturing Sector to In 2018, the contribution of Manufacturing Sector to
GDP growth of Indonesia reached 1.30% GDP growth of Indonesia reached 0.91 %
Export-oriented Industries
Contribution of Automotive 0.77% Contribution of Automotive 0.12%
The contribution of the three industries (Automotive, Chemical Industry and Electronics) decreased in the period of 2007 to
2018. However, the contributions of Textile & Textile Products, Tourism, Food Products & Beverages, and Downstream of Natural
Resources increased. Indonesia has to reinstate the contribution of the Manufacturing Sector since it is only 1.30% like in the
pre-2008 crisis period. Between 2000-2018, the GDP growth was at its peak in 2007. 10
Sumber : BPS
Improving Export-Oriented Industries
Priority Industry in
Industry 4.0 Roadmap Other Industries
Food & Textile & Natural Resource Products (Mining, Plantation &
Beverage Cloth Electronic Automotive Chemical Tourism
Horticulture, Forestry, and Fisheries)
Breakthrough
Machine Modernization Facility Revision of Imported Raw Optimizing Indonesia’s Product- New Travel
Modernization of Machines Completion PPnBM Materials (Nafta potential as the downstreaming Destination
biggest Nickel
with Taxation Income Tax structure Condensate & and increased Development
producer (Electric Car
Facilities Article 23 Ethylene) battery material) in the value added and
world exports
11
11
Fiscal Incentives to Support the Investment
Incentives for
s
business entities Busines Increase
x
that will invest in Entity Ta Investm
d
n ent
strategic industries, Deductio
pioneers, labor-
intensive, vocational Increased
VA
funding, industrial and even In T
iday, com
R&D, even for PPh Tax: Hol Tax with th e
ce , e
SMEs. Allowan on increase o
ucti f
dan Ded Productio
n
Volume
12
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