Symptoms of deindustrialization are shown by the declining contribution of the manufacturing sector to GDP from 29.1% in 2021 to only 18.3% in Q3 2022.
Heaptalk, Jakarta — The contribution of the manufacturing industry sector to the GDP has shown a downward trend since 2005, except in 2011. According to the economist at the Institute for Development of Economics and Finance (Indef) Faisal Basri, these conditions indicate early symptoms of deindustrialization.
In 2021, the manufacturing industry sector contributed 29.1% of GDP but until Q3 2022 it only reached 18.3%, showing symptoms of deindustrialization. “Our manufacturing industry sector experienced a premature slowdown, before reaching its optimum point,” said Faisal in the 2023 Early Notes event held by Indef (1/5).
In general, Indonesia’s economy is growing but stunted. One of the contributing factors is a foundation that is not strong enough and deteriorates over time. Faisal voiced, “This is the result of political processes and structures that are getting worse and worse, resulting in increasingly weaker economic performance.
With the symptoms of deindustrialization, Faisal predicted that Indonesia’s industrial growth could be overtaken by Vietnam imminently and far behind China, Thailand, South Korea, and Malaysia. Whereas the manufacturing sector is a strong middle-class formation. When the growth of this sector is weak, the middle class also stagnates and the layer of formal workers becomes smaller.
Further, the weakening of the manufacturing structure has also limited the range of manufactured products that can be exported. “We are increasingly dependent on commodity exports that only require muscle effort and sweat. Less use of the brain is also acceptable since all we need to do is pick and then sell. Dredging coal, sell. Cutting down trees, sell them,” said Faisal.
Mostly, the manufacturing sector in this country sells more raw materials or semi-finished goods, not finished goods. On the other hand, other countries are competing to develop the industry to produce finished products. Faisal added, “Other countries rely more on brains, while we rely on muscles.”
Technology plays an important role
Consequently, Indonesia’s manufacturing sector is becoming less diversified. Apart from experiencing a slowdown in growth, this sector is also dependent on a handful of industry subsectors, spanning food and beverages which contribute nearly 40% to the total non-oil and gas manufacturing industry.
Regarding the cause of the slowdown in economic growth, Faisal attributed it to the technological element which was reflected in the total factor productivity (TFP). Indonesia’s TFP has experienced a continuous decline and is classified as the most sensitive compared to other countries. “Indeed, in 2020 TFP of almost all countries went down. However, if we look at Indonesia, we experienced the sharpest decline. Worsening foundations have caused conditions like this,” said Faisal.
Meanwhile, the Ministry of Industry recorded that the national manufacturing industry sector grew 4.88% in Q3 2022, which increased from 4.33% in the previous quarter. The Minister of Industry Agus Gumiwang Kartasasmita said that the contribution of the manufacturing sector reached 16.10% of GDP in Q3 2022, considered the highest among other economic sectors.
Currently, Agus conveyed that the ministry is developing a strategy to address labor issues, one of which is layoffs in labor-intensive industrial sectors, spanning the textile, footwear, and furniture industries. The stimulus policies include a limited import ban, adjustments to inspections from post-border to the border, and flexibility in working hours.
