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 The plant, a small repair shop 30 years ago but now covering the
area of six soccer fields, is a rare manufacturing success that
Indonesian President Joko Widodo needs more of, as he tries to spur
economic growth in the resource-rich archipelago amid tumbling
commodity prices.
In pursuit of that goal, Widodo last week liberalized dozens of
sectors of the economy in what one minister called the biggest
opening to foreign investors for 10 years.
It was the latest policy move to improve competitiveness and
stimulate growth in Southeast Asia's largest economy, which last
year expanded by 4.8 percent, the slowest since 2009 and well below
a 7 percent target.
So far, Widodo, a former furniture exporter, has little to show for
his push toward manufacturing.
Growth in the sector has lagged the overall economy since he took
office in late 2014, and last year there were declines in output of
major products including clothing, textiles and electrical
equipment.
Tom Lembong, once a Wall Street banker and now Widodo's trade
minister, said turning things around would not be easy.
"We realize we've fallen very far behind," he told Reuters, pointing
to creaky infrastructure, patchy power supplies and slow progress on
free-trade pacts to prise open Western markets.
"We're changing direction after 10 years of drift toward narrow
nationalism and protectionism."
WORLD TRADE STALLS
The government has accelerated reforms, including cutting
bureaucracy, promoting special economic zones and boosting spending
on infrastructure projects like ports and roads.
It has also signaled greater openness to foreign trade by stating
its intention to sign the Trans-Pacific Partnership, a U.S.-led
trade pact, in what some see as a sign liberals are winning the
argument over Indonesia's economic future.
Trade tariffs, local-content requirements and other restrictions are
still common, but Lembong said the benefits of free trade were now
recognized more widely.
"Imports are an important part of the journey toward investment and
exports," he said, citing Chinese electronics firm Lenovo, which
opened a plant in Indonesia in November after years of selling the
country smartphones made entirely abroad.
Yet Indonesia faces daunting challenges to a manufacturing drive
that mirrors a similar initiative, albeit on a larger scale,
underway in India.
Across Asia, exporters are struggling as global trade stalls. In
January, the International Monetary Fund (IMF) estimated the volume
of world trade grew just 2.6 percent in 2015, the slowest in six
years.
Japanese electronics firms Toshiba and Panasonic have shut factories
in Indonesia as part of global restructurings, while a strike by
workers at the Batam free-trade zone in January disrupted operations
at an Apple subcontractor, prompting the firm to threaten a move to
Vietnam.
Benedict Bingham, the IMF's head in Jakarta, said Widodo's recent
reforms had succeeded in shifting the debate away from protectionism
toward competitiveness.
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But foreign investors needed to be convinced the government was
serious on reform, while domestic firms must cease practices
centered on "extracting maximum rents" from Indonesia's resources or
markets and start competing internationally, Bingham said.
"That is quite a big shift we're asking for."
Local executive I Made Dana Tangkas, of the Indonesian Automotive
Industry Association, says Indonesia needs to develop supporting
industries to compete.
"The policy packages are positive for industry ... but they need to
be improved," he said, adding it is difficult to obtain car
components locally even though raw materials are abundant.
COMMODITY COLLAPSE HITS INDONESIA
The collapse in prices for oil, gas and other commodities has caused
economic distress across a country that depended heavily on natural
resources as China boomed.
Industries like plantations and mining account for around one fifth
of Indonesia's gross domestic product and half its export earnings.
Coal, Indonesia's largest export by far, sold for nearly $200 per
ton in world markets in mid-2008. Today it sells for around a
quarter of that.
"It is hard to see ... how this economy is going to create higher
productivity without a revival of the manufacturing sector," said
Rodrigo Chaves, the World Bank's Jakarta head.
At the Siemens factory, General Manager Christof Cichon is positive
about Indonesia's manufacturing prospects, pointing to improved
services from customs and investment officials.
He also says there are plans to expand the facility to meet growing
demand.
Yet Cichon cannot conceal his frustrations.
Scrap metal is piling up on site because of regulations that mean it
takes six weeks to process paperwork to sell to small traders
outside the estate. The factory could use the space to increase its
productive area by 1,000 square feet.
It is another example of the irritants Widodo must address to wrest
market share from Asia's larger, longer-established manufacturing
centers.
(Additional reporting by Fransiska Nongoy; Editing by Mike Collett-White)
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