The Future of Domestic Manufacturing Industry Amid Global Uncertainty

In spite of the possibility of a recession and general unease around the world in 2023, the Indonesian government is confident that the domestic manufacturing sector will continue to prosper.

According to Ferry Akbar Pasaribu, Assistant Deputy for Investment Acceleration Strategy and Policy at the Coordinating Ministry for Maritime Affairs and Investment, the government is not concerned about the outlook for the world because there are still plenty of opportunities for the growth of the country’s manufacturing sector.

“Whether you like it or not, you need to be smart when it comes to manufacturing. Even though a recession may occur, we must be aware of the possibility and remain fearless. We have to pay more attention to the manufacturing sub-sectors that have high potential,” Pasaribu remarked.

Health and semiconductors are at least two manufacturing-related industries with promising futures.

Almost every industry, including mobile phones, laptops, home furnishings, and automobiles, depends on the semiconductor industry.

According to these statistics, Indonesia has great potential to capitalize on this due to its numerous locations and superior electricity support. The chip or semiconductor industry is small and only consists of a few players, such as Taiwan, China, which produces it unsuccessfully, Japan, and Korea, which produce little of it.

Running a chip business is challenging due to the high cost, specialized infrastructure requirements, and specialized worker training. Additionally, the factory’s electricity must run 24 hours a day.

The health sector is regarded as prosperous at the same time because there will always be customers. These two sectors can help increase Indonesia’s welfare because they are both significant.

Particularly during the period of recovery after being impacted by the COVID-19 pandemic, the Indonesian manufacturing sector continues to exhibit positive trends.

The seven industries listed on the Making Indonesia 4.0 roadmap are the food and beverage, textile and apparel, automotive, electronics, chemical, medical device, and pharmaceutical sectors. These sectors are also ready to enter the industrial 4.0 era based on development priorities.

With a current contribution to the national economy of 16.10 percent, the non-oil and gas processing industry sector is expected to grow by 4.83 percent annually in the third quarter of 2022 (you).

Sadly, despite the fact that many industrial sectors experienced phenomenal growth in the third quarter of 2022, many of them also displayed signs of decline in line with the slowing global economy.

The base metal industry, machinery and equipment industry, industrial metal goods, computers, electronic goods, optical and electrical equipment, and the transportation equipment industry were a few of the industrial sectors that experienced positive growth.

The food and beverage, chemical, pharmaceutical, and traditional medicine industries, as well as the non-metallic mineral goods and furniture industries, were among the industrial sub-sectors that were said to have been impacted by the weakening of the global economy.

Trust in Indonesia

However, national and international players in the manufacturing sector continue to have a high level of confidence in Indonesia despite the unpredictability of the global economic climate. The realization of investments in the manufacturing industry sector, which totaled Rp365.2 trillion between January and September 2022, makes this clear.

In comparison to the same period last year, when Rp236.8 trillion was achieved, this achievement increased by 54%.

The Future of Domestic Manufacturing Industry Amid Global Uncertainty

According to information from the Ministry of Investment/BKPM, the manufacturing industry sector contributed 40.9 percent of the total investment, or Rp892.4 trillion, between January and September 2022.

Ignatius Warsito, the Ministry of Industry’s interim director general of the Chemical, Pharmaceutical, and Textile Industry (IKFT) noted that while some manufacturing sub-sectors were slowing due to a decline in orders from Europe, others were still expanding.

“A decline in European orders is the cause of the slowdown. However, we are still optimistic,” he remarked.

As a temporary fix-up until the beginning of 2023, the Ministry of Industry has also prepared policy instruments.
This action was taken because the government could no longer rely on exports given that every nation will make efforts to survive and develop.

“We are interested in how resilient the domestic economy is to this recessionary wave. The import substitution policy has become part of our instrument in the last two years by maintaining the supply of raw and auxiliary materials to help the IKFT sector utilities,” he stated.

Warsito stated that since the industrial sub-sectors he manages are special and dynamic, they should be investigated through effective handling efforts.

The competitiveness of the industrial subsectors that are still expanding will be encouraged to continue growing, while the survival of the ones that are slowing down will be guarded.

“We are discussing the level of productivity that, barring a disruption in the raw material supply, we can maintain. The energy used, including supply and cost, is also maintained. We have also assigned our team through the task force ordered by the minister to carry out surveillance in an effort to support the resilience of the IKFT sub-sector industry,” he said.

Warsito, who concurrently holds the position of Expert Staff to the Minister of Industry for Capacity Strengthening of the Domestic Industry, also stressed the need to increase domestic market potential in light of the haziness surrounding the export market.

A temporary fix for Indonesia’s supply chains is the Program to Increase the Use of Domestic Products (P3DN) and surveillance through business matching.


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