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INDONESIAN COMMERCIAL NEWSLETTER
March 2010

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TIME FOR THE MANUFACTURING SECTOR TO REBOUND


A lot of challenges have to be met and dealt with in developing the manufacturing sector in 2010, but good opportunity has come   after the global financial crisis has receded and exports have been picking up strongly.

During the global financial crisis of 2008-2009 the country's manufacturing sector was the hardest hit by the impact. The production cost was jacked up with soaring prices of feedstock in primary commodities needed by the sector. The soaring prices of crude oil also contributed to weakening the sector which needs large supply of oil fuels.

In 2008-2009, slump hit the export market as the products of the country's manufacturing industry are mainly for exports to advanced economies s, which suffered the most under the global financial woes.

Therefore, industries using imported basic materials such as steel bore the brunt of the economic turmoil.  Apart from difficulty in gaining foothold in international market, local products found sharp competition from imported products some of which were sold at dumping prices such as steel from China and India. The domestic market was flooded with imported steel products, while the competing ground was narrowed with slump in the construction and property sector.

Textile and footwear industries, which have been the main export earners were also confronted with a host of problems. Even before the global financial storms struck, the two sectors were already in difficulty in maintaining competitiveness with their old and outdated machines. When the demand in export market shrank and domestic market was flooded by Chinese products the two sectors looked doomed to death and recovery seemed impossible.

Fortunately, the manufacturing sector was not as bad as it looked. Not all of the country's manufacturing industries suffered badly during the bad period of 2008-2009. The country's economy even continued to grow thanks mainly to big  public spending that helped prop up the country's manufacturing industries producing consumer goods  both food and non food products.

Consumer goods industry is among the country's industries managing to continue to grow amid the economic turmoil jolting the world in 2009. A fairly y strong growth has been recorded for the country's food and beverage processing industry in the past five years. Other industries including motor vehicle industry including car and motorcycle industries also grew in the past five years despite a decline in 2009. Similarly chemical industries including fertilizer and tire industries also grew.

Most industries outside the manufacturing sector have also expanded in the past five years. Higher growth was recorded by transport and communications sector, utility sector, financial sector and property and construction sector.


Inspired by the strong growth, many investors have been attracted to venture in the food and beverage sector.

Implementation of projects in 2009 was recorded mainly in the pharmaceutical and food and beverage sectors.

Foreign investors also showed interest in the transport, warehousing and communications sectors  although,  based on the Investment Negative List of 2007,  they were not allowed to have share more than 50% in  any venture in those sector.

Logistics service and warehousing industries grew fast with the expanding trade   and industrial sectors, which need the support of logistics and warehousing services. Similarly the telecommunication sector continued to expand in 2009 although not as fast as in previous years.


Investment Opportunity in the Manufacturing Sector, 2010

With the recovery of the global economy and relatively strong growth of the Indonesian economy. Many investors have shown interest in venturing in the manufacturing sector. Demand for manufactured goods is growing both in export and domestic markets.

Pharmaceutical and food industries, which have potential market in the country, will remain interesting in 2010. Similarly investors are also expected to be more interested in the automotive industry with the leapfrogging increase in sales on the domestic market.  Lower interest rates contribute to jack up demand for automotive products mainly cars and motorcycles as most car and motorcycle buyers use credits offered by financing firms or banks.  The potential domestic market alone   will encourage investors to choose Indonesia over other countries in the region to be their place of investment.  In fact a number of major principals have made the country their production base in his region.

However, there are still a lot of hurdles hampering the development of the investment sector. Infrastructure including transport facilities, land, sea and air transport need improvement, the capacity of power supply need expansion. The country is carrying out crash program in the electricity sector. Completion of the project in 2012 is expected to help cope with the problem of power supply shortage.

Other than inadequate infrastructure investors are also discouraged by social instability such as the recent rioting in Tanjung Priok and on Batam. The Tanjung Priok rioting could have caused bigger damage if it was not immediately tacked as the location is close to Koja container terminal, which is a major facility handling exports and imports via the country's largest port.

The Batam rioting, which was triggered by an insulting remark by a foreign manager, could also cause damage to the country's reputation as a safe place for investment.

Indonesia, which has managed to go through the difficult period relatively unscathed in 2009, should have stronger footing to move faster ahead and gain more from the global economic recovery. The big population, the fourth largest in the world, will provide a potential market for manufactured goods. Stability, therefore, is vital to attract and encourage investors.




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FOCUS: TIME FOR THE MANUFACTURING SECTOR TO REBOUND

INDUSTRY PROFILE: DEVELOPMENT OF AUTOMOTIVE INDUSTRY IN INDONESIA

INDUSTRY PROFILE: DEVELOPMENT OF MOTORCYCLE INDUSTRY IN INDONESIA
  • Introduction
  • Production capacity increases
  • Producers invest in new factories
  • Producers increase Production capacity for automatic scooters
  • Production down
  • Production of automatic scooters
  • Sales down in 2009, predicted to shoot up in 2010
  • Yamaha and Kawasaki gaining in market
  • Sales of Honda sustained by cub type        
  • Market down in Jakarta and West Java in 2009, up outside Java
  • Exports remain small
  • Launch of new models strategy to attract buyers
  • Variation in engine capacity a strategy to expand market
  • Strategy of 3 S
  • ACFTA's effects on Indonesian motorcycle industry
  • Prospects and Conclusion
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