The Role of Pulp and Paper Industry in The Economy of Riau Province: Input-Output Analysis

EMILIE AYU HAPSARI

_{. The Role of Pulp and Paper Industry in The Economy}

of Riau Province: Input-Output Analysis (Supervised by

ARIEF DARYANTO

_).

National and regional economic development requires economic growth to

achieve prosperity. The achievement of economic growth as seen from the growth

of Gross Domestic Product (GDP) and Gross Regional Domestic Product (GRDP)

should be achievable by all regions in Indonesia, including Riau Province. In

order to pursue high economic growth, the government of Riau Province and the

public need to know information about what sectors are able to produce the high

Gross Regional Domestic Product (GRDP).

Riau Province is the largest contributor to the GDP of Sumatra and has the

major players in pulp and paper industry operating in Perawang and Kerinci,

where both located in Riau Province. Based on the data from the GDRP of Riau

Province in 2010, manufacturing sector has gave the highest contribution, where

pulp and paper industry is one of the prominent players. Paper industry has been

giving major contribution to regional and national economy through export

increase, investment value added, business opportunities creation and human

resources employment as well as national income from tax and non-tax revenues.

The supporting factors for the above mentioned are the availability of main raw

materials for paper industry which are natural resources especially woods supply,

climate condition that is conducive for raw materials growth; and lower

production costs compared to other producer countries.

With two largest players in paper industry are operated in Riau Province,

this study will analyze the role of the paper industry in the economy of Riau

Province through the contribution in GDRP and the linkages with other sectors.

The method use is through the analysis of Input-Output Table Riau Province in

2010 classification of 112 sectors, aggregated into 22 sectors. The analysis

includes linkage analysis, dispersion analysis, and multiplier analysis. From the

analysis it can be seen that pulp and paper industry has a relatively high value.

Therefore, pulp and paper industry is one of the priority sectors in the economy of

Riau Province. These results can be used as a reference for the development of

pulp and paper industry in Riau Province as an economic sector that has the

ability to increase the economic output and income. The government of Riau

Province is expected to overcome the obstacles in the development of pulp and

paper industry.

Appendix 1. Classification of Economic Sectors in Riau Province Based on

Input-Output Table of Riau Province in 2010

I-O Code 112 Sectors Sector I-O Code 22 Sectors Sector

1 Rice 1 Agriculture

2 Corn 1 Agriculture

3 Cassava 1 Agriculture

4 Tubers 1 Agriculture

5 Peanuts 1 Agriculture

6 Soybean 1 Agriculture

7 Other Peanuts 1 Agriculture

8 Vegetables 1 Agriculture

9 Fruits 1 Agriculture

10 Other Food Plants 1 Agriculture

11 Rubber 1 Agriculture

12 Coconut 1 Agriculture

13 Palm 1 Agriculture

14 Fiber Crops 1 Agriculture

15 Coffee 1 Agriculture

16 Clove 1 Agriculture

17 Cocoa 1 Agriculture

18 Other Crops 1 Agriculture

19 Livestock and Livestock Product 1 Agriculture

20 Fresh Milk 1 Agriculture

21 Poultry and Poultry Product 1 Agriculture 22 Other Livestock Products 1 Agriculture

23 Wood 2 Wood

24 Other Forest Products 3 Other Forest Products 25 Sea Fish and Other Products 1 Agriculture

26 Inland Fish and Other Products 1 Agriculture

27 Shrimp 1 Agriculture

28 Coal 4 Mining and Quarrying

29 Oil 4 Mining and Quarrying

30 Other Mining Products 4 Mining and Quarrying 31 Salting Dried Fish Industry 5 Industry of Food Products,

Beverages and Tobacco Products 32 Processing and Preserving Fish 5 Industry of Food Products,

Beverages and Tobacco Products 33 Processing and Preserving Fruits

and Vegetables Industry 5

Industry of Food Products, Beverages and Tobacco Products 34 Oil and Fat Industry

35 Rice Industry 5 Industry of Food Products, Beverages and Tobacco Products 36 Coffee Industry 5 Industry of Food Products,

Beverages and Tobacco Products 37 Peel Grains Industry 5 Industry of Food Products,

Continued Appendix 1.

I-O Code 112 Sectors Sector I-O Code 22 Sectors Sector

38 Copra Industry 5 Industry of Food Products, Beverages and Tobacco Products 39 Flour Industry 5 Industry of Food Products,

Beverages and Tobacco Products 40 Animal Feed Industry 5 Industry of Food Products,

Beverages and Tobacco Products 41 Bread Industry 5 Industry of Food Products,

Beverages and Tobacco Products 42 Sugar Industry 5 Industry of Food Products,

Beverages and Tobacco Products 43 Chocolate Industry 5 Industry of Food Products,

Beverages and Tobacco Products 44 Noodles, Macaroni, etc. Industry 5 Industry of Food Products,

Beverages and Tobacco Products 45 Tea Processing Industry 5 Industry of Food Products,

Beverages and Tobacco Products 46 Soybean Processing Industry 5 Industry of Food Products,

Beverages and Tobacco Products 47 Other Foods Industry 5 Industry of Food Products,

Beverages and Tobacco Products 48 Alcohol Beverage Industry 5 Industry of Food Products,

Beverages and Tobacco Products 49 Non Alcohol Beverage Industry 5 Industry of Food Products,

Beverages and Tobacco Products 50 Tobacco Processing Industry 5 Industry of Food Products,

Beverages and Tobacco Products 51 Cigarette Industry 5 Industry of Food Products,

Beverages and Tobacco Products 52 Yarn Industry 6 Industry of Textiles and Wearing

Apparel

53 Textile and Material Industry 6 Industry of Textiles and Wearing Apparel

54 Rug, Rope and Other Textiles

Industry 6

Industry of Textiles and Wearing Apparel

55 Cotton Industry 6 Industry of Textiles and Wearing Apparel

56 Garment Industry 6 Industry of Textiles and Wearing Apparel

57 Leather Industry 6 Industry of Textiles and Wearing Apparel

58 Footwear Industry 6 Industry of Textiles and Wearing Apparel

59 Sawn Wood Industry 7 Industry of Wood and Furniture 60 Plywood Industry 7 Industry of Wood and Furniture 61 Building Material From Wood 7 Industry of Wood and Furniture 62 Other Goods From Wood,

Bamboo, and Rattan Industry 7 Industry of Wood and Furniture 63 Household Furniture From

Wood, Bamboo, and Rattan 7 Industry of Wood and Furniture

Continued Appendix 1.

I-O Code 112 Sectors Sector I-O Code 22 Sectors Sector 65 Paper and Paperboard Industry 9 Paper Industry 66 Goods From Paper and

Paperboard Industry 10 Paper Products Industry 67 Oil Refinery Industry 11 Mining Industry

68 Chemical Industry 12 Industry of Fertilizer and Chemical Products 69 Fertilizer Industry 12 Industry of Fertilizer and

Chemical Products 70 Paint, Varnish Industry 12 Industry of Fertilizer and

Chemical Products 71 Drug and Herb Industry 12 Industry of Fertilizer and

Chemical Products 72 Soap and Cosmetic Industry 12 Industry of Fertilizer and

Chemical Products 73 Other Chemicals Industry 12 Industry of Fertilizer and

Chemical Products 74 Other Rubbers Industry 13 Industry of Non Metallic

Products

75 Goods From Plastic 13 Industry of Non Metallic Products

76 Ceramic and Good From Clay 13 Industry of Non Metallic Products

88 Generator Industry 15 Other Industries

89 Electrical Machinery Industry 15 Other Industries 90 Automotive Industry 15 Other Industries

91 Ship Building and Services

Industry 15 Other Industries

92 Other Industries 15 Other Industries

93 Electricity and Gas 16 Electricity, Gas, and Water Supply

94 Water Supply 16 Electricity, Gas, and Water Supply

95 Construction 17 Construction

96 Trade 18 Trade, Hotel, and Restaurant

97 Restaurant 18 Trade, Hotel, and Restaurant

98 Hotel 18 Trade, Hotel, and Restaurant

99 Land Transportation 19 Transportation and Communication 100 Sea Transportation 19 Transportation and

Communication 101 Air Transportation 19 Transportation and

Communication 102 Support Services and

Transportation 19

Transportation and Communication 103 Communication Services 19 Transportation and

Communication

104 Bank 20 Finance, Leasing and Corporate

Services

105 Other Financial Institutions 20 Finance, Leasing and Corporate Services 

Continued Appendix 1.

I-O Code

112 Sectors

Sector

I-O Code 22 Sectors

Sector

106 Building and Land Rent 20 Finance, Leasing and Corporate Services 

107 Corporate Services 20 Finance, Leasing and Corporate Services 

108 General Government Services 21 Services 111 Personal and Household Services 21 Services 112 Other Goods and Services That

Are Not Clearly Defined 22 Other

180 Total Intermediate Demand 180 Total Intermediate Demand 190 Total Intermediate Input 190 Total Intermediate Input

200 Import 200 Import

201 Wage and Salary 201 Wage and Salary 202 Business Surplus 202 Business Surplus

203 Depreciation 203 Depreciation

204 Indirect Tax 204 Indirect Tax

205 Subsidy 205 Subsidy

209 Gross Value Added 209 Gross Value Added

210 Total Input 210 Total Input

301 Household Consumption 301 Household Consumption 302 Government Consumption 302 Government Consumption 303 Gross Fixed Capital Formation 303 Gross Fixed Capital Formation

304 Stock Changes 304 Stock Changes

305 Export 305 Export

309 Total Final Demand 309 Total Final Demand

310 Total Demand 310 Total Demand

407LN Foreign Import 407LN Foreign Import 408AP Domestic Import 408AP Domestic Import

409 Total Import 409 Total Import

501 Wholesale Margin 501 Wholesale Margin 503 Transportation Cost 503 Transportation Cost 509 Total Trading Margin and

Transportation Cost 509

Total Trading Margin and Transportation Cost

600 Total Output 600 Total Output

Appendix 2. Input-Output Table of Riau Province in 2010 Classification of

22Sectors

Sector 1 2 3 4 5

1 12,660,637.87 0.00 0.00 0.00 21,952,732.21

2 1,077,039.02 3,907,444.65 39,943.01 50,142.00 11,415,617.04

3 209,847.03 393,508.01 37,552.01 0.00 2,000.00

4 24.00 0.00 0.00 12,527,658.27 90,008.01

5 120,047.01 0.00 0.00 0.00 38,127,275.93

6 302.00 9.00 12.00 0.00 10,415.00

7 130.00 0.00 0.00 46.00 10.00

8 0.00 0.00 0.00 0.00 0.00

9 29,779.00 1,312.00 10,511.00 87.00 1,459.00

10 3,513.00 0.00 1,471.00 85.00 1,287.00

11 455,096.13 6,844.00 28,052.02 17,392.00 278,351.08

12 1,342,468.05 143.00 11.00 5,019.00 51,770.00

13 1,008.00 86.00 3.00 2.00 3,496.00

14 844.00 41.00 79.00 2.00 8,675.99

15 18,518.99 667.00 1,848.00 476.00 175.00

16 7,490.00 86.00 4,560.00 388.00 17,997.00

17 926,910.12 7,087.00 69,895.03 9,735.00 4,675.00

18 3,272,710.44 44,200.00 109,230.04 30,104.00 4,402,066.54 19 462,160.08 16,373.00 64,264.03 7,096.00 365,692.06 20 1,037,986.18 4,161.00 11,301.00 2,664.00 407,726.06

21 301,781.04 4,003.00 9,258.00 3,987.00 195,183.02

22 0.00 0.00 0.00 0.00 0.00

190 21,928,291.97 4,385,964.66 387,990.15 12,654,883.27 77,336,611.95 200 1,824,872.23 517,865.01 25,245.01 6,337,723.18 700,685.08 201 14,841,060.86 4,093,576.08 1,112,235.43 13,281,853.38 12,497,547.40 202 28,589,320.59 12,426,935.23 3,454,432.32 101,913,668.94 20,643,799.31 203 2,149,996.27 891,643.02 135,573.05 4,168,288.12 1,558,149.17 204 644,259.08 591,065.01 97,726.04 3,713,615.11 808,785.09

205 -2,740.00 0.00 0.00 0.00 0.00

210 69,975,061.00 22,907,049.00 5,213,202.00 142,070,032.00 113,545,578.0 Source: Input-Output Table of Riau Province in 2010 (calculated)

Sector 6 7 8 9 10

1 95.99 338.00 6.00 0.00 0.00

2 0.00 964,475.74 75.00 0.00 3,452.01

3 0.00 52,166.05 0.00 0.00 0.00

4 198.99 3,122.00 3.00 1,239,785.99 0.00

5 0.00 10.00 0.00 0.00 30.00

6 0.00 55.00 0.00 0.00 792.00

7 0.00 504,050.35 0.00 0.00 3,953.01

8 0.00 0.00 16,523,113.00 3,810.00 0.00

9 0.00 59.00 0.00 0.00 145,856.25

10 0.00 22.00 0.00 0.00 1,020.00

11 0.00 2,661.00 1.00 0.00 12,328.02

12 0.00 264.00 0.00 0.00 6,270.01

13 70,689.53 6,145.01 0.00 0.00 79.00

14 0.00 10,334.99 0.00 0.00 34,260.00

15 0.00 33.00 0.00 0.00 43.00

16 0.00 729.00 0.00 0.00 3,066.01

17 0.00 130.00 0.00 0.00 74.00

18 0.00 27,804.02 2.00 0.00 58,295.10

19 0.00 4,105.00 0.00 0.00 14,574.03

20 0.00 1,133.00 0.00 0.00 2,546.00

21 0.00 337.00 0.00 0.00 986.00

22 0.00 0.00 0.00 0.00 0.00

190 70,984.51 1,577,974.17 16,523,200.00 1,243,595.99 287,624.44 200 15,368.02 188,089.16 790,790.00 666,256.00 33,254.06 201 20,747.68 204,577.18 5,893,632.00 641,376.00 125,039.22 202 42,400.29 462,193.40 9,193,395.00 1,354,358.00 152,646.26 203 6,496.59 82,048.07 2,788,363.00 277,118.00 12,036.02

204 1,330.92 15,566.01 335,779.00 51,147.00 5,051.01

205 0.00 0.00 0.00 0.00 0.00 210 157,328.00 2,530,448.00 35,525,159.00 4,233,851.00 615,651.00

Sector 11 12 13 14 15

1 0.00 41,082.92 3,900,154.31 0.00 600.01

2 0.00 0.00 34,039.00 0.00 33,997.34

3 0.00 0.00 0.00 0.00 0.00

4 3,720,140.98 977,468.04 40,672.01 898.00 8,062.08

5 0.00 0.00 0.00 0.00 0.00

6 0.00 0.00 0.00 0.00 16.00

7 0.00 0.00 81.00 0.00 4,306.04

8 0.00 0.00 64,857.01 0.00 0.00

9 0.00 0.00 32.00 45.00 1.00

10 0.00 0.00 73.00 1.00 0.00

11 0.00 0.00 1,355.00 3,992.00 455.00

12 0.00 0.00 24.00 39.00 44.00

13 0.00 0.00 593,781.45 4,325.00 50,528.54

14 0.00 0.00 2,751.00 53,842.94 19,702.17

15 0.00 0.00 1.00 240.00 35,384.33

16 0.00 0.00 82.00 288.00 208.00

17 0.00 0.00 3.00 90.00 79.00

18 0.00 0.00 1,908.00 3,068.00 8,410.09

19 0.00 0.00 683.00 774.00 840.01

20 0.00 0.00 53.00 162.00 201.00

21 0.00 0.00 5.00 42.00 104.00

22 0.00 0.00 0.00 0.00 0.00

190 3,720,140.98 1,018,550.95 4,640,554.76 67,806.95 162,938.62 200 3,549,376.01 383,427.23 130,936.02 25,570.01 112,195.14 201 2,731,347.00 615,093.77 800,182.11 31,553.02 80,045.81 202 10,169,571.02 753,369.49 634,293.09 32,021.02 112,268.14 203 1,153,122.00 109,813.78 124,067.02 12,097.01 21,241.22

204 66,087.00 15,908.97 54,191.01 4,081.00 6,640.07

205 -3,987,781.01 -403,492.19 0.00 0.00 0.00

210 17,401,863.00 2,492,672.00 6,384,224.00 173,129.00 495,329.00 Source: Input-Output Table of Riau Province in 2010 (calculated)

Sector 16 17 18 19 20

1 0.00 0.00 1,109,474.81 40,236.97 1,868.00

2 0.00 167.00 401,915.91 50,442.96 25,954.99

3 0.00 0.00 66,064.99 0.00 493.00

4 995,256.05 28,209,897.47 32,218.00 157,374.89 0.00

5 0.00 0.00 157,421.98 29,009.98 49,558.99

6 4.00 0.00 4,098.00 425.00 118.00

7 0.00 202.00 3,665.00 119.00 130.00

8 0.00 0.00 0.00 0.00 0.00

9 0.00 0.00 251,332.97 8,619.99 94,392.98

10 404.00 0.00 224,617.99 4,274.00 17,662.00

11 4,328.01 4.00 3,435,441.18 3,926,068.01 73,389.00

12 36,909.04 0.00 5,867.00 2,449.00 1,493.00

13 12,808.02 11,156.01 65,795.03 39,185.00 16,700.01

14 6.00 18.00 192.00 1,584.00 653.00

15 132.00 0.00 3,032.00 14,330.98 6,877.99

16 61,323.07 0.00 637,283.95 73,219.95 54,690.99

17 2,220.00 0.00 900,370.90 199,396.87 378,512.94

18 28,431.03 10.00 2,813,848.70 1,393,116.07 358,099.94

19 3,954.00 0.00 2,712,025.80 607,067.62 172,937.98

20 3,466.00 0.00 2,740,749.81 162,867.90 1,560,526.80

21 382.00 0.00 496,383.95 595,951.61 432,931.93

22 0.00 0.00 0.00 0.00 0.00

190 1,149,623.22 28,221,454.47 16,061,799.96 7,305,739.79 3,246,991.54 200 144,573.15 6,379,857.38 1,858,911.78 1,837,920.76 393,738.93 201 228,063.24 7,528,308.45 9,811,576.86 2,829,876.09 1,783,466.69 202 286,406.30 9,663,357.58 19,365,875.76 1,711,067.84 6,113,772.94 203 219,895.23 1,568,663.09 2,214,739.74 2,119,566.57 475,622.92 204 26,088.03 502,578.03 884,158.90 99,356.93 80,509.99

205 -175,906.19 0.00 0.00 -40,080.97 0.00

210 1,878,743.00 53,864,219.00 50,197,063.00 15,863,447.0 12,094,103.00 Source: Input-Output Table of Riau Province in 2010 (calculated)

Sector 21 22 180 301 302 1 2,903,289.67 0.00 42,610,516.74 14,573,148.17 0.00

2 561,052.91 0.00 18,565,758.57 1,974,032.79 0.00

3 1,780,301.91 0.00 2,541,933.00 1,675,359.01 0.00

4 812,022.95 0.00 48,814,810.72 122,963.00 0.00

5 182,703.98 0.00 38,666,057.87 30,092,183.94 0.00

6 5,516.00 0.00 21,762.00 59,663.00 0.00

7 368,267.91 0.00 884,960.31 69,400.99 0.00

8 0.00 0.00 16,591,780.01 0.00 0.00

9 1,902,865.85 0.00 2,446,353.04 240,281.99 0.00

10 42,284.00 0.00 296,713.98 196,354.01 0.00

11 580,066.07 0.00 8,825,823.53 1,142,376.19 0.00

12 158,739.98 0.00 1,611,510.08 183,919.98 0.00

13 157,061.09 0.00 1,032,848.70 226,893.14 0.00

14 1,522.00 0.00 134,508.07 3,297.99 0.00

15 86,125.93 0.00 167,885.23 78,910.94 0.00

16 306,813.99 0.00 1,168,225.97 710,517.03 0.00

17 1,690,219.91 0.00 4,189,398.77 0.00 0.00

18 5,981,379.73 0.00 18,532,683.71 22,018,262.22 0.00

19 1,765,054.98 0.00 6,197,601.58 6,927,669.30 0.00

20 648,222.99 0.00 6,583,766.75 5,213,991.24 0.00

21 1,308,430.95 0.00 3,349,766.51 4,003,282.06 23,655,921.36

22 0.00 0.00 0.00 0.00 0.00

190 21,241,942.80 0.00 223,234,665.14 89,512,507.00 23,655,921.36 200 1,315,376.93 0.00 27,232,031.09 10,199,104.00 0.00

201 9,956,956.44 0.00 89,108,114.70

202 1,722,627.90 0.00 228,797,780.42

203 1,261,136.93 0.00 21,349,676.82

204 49,323.00 0.00 8,053,247.18

205 -7,369.00 0.00 -4,617,369.36

210 35,539,995.00 0.00 593,158,146.00 99,711,611.00 23,655,921.36 Source: Input-Output Table of Riau Province in 2010 (calculated)

Sector 303 304 305 Total Output 1 7,023,419.60 2,746,041.84 3,021,934.83 69,975,061.18

2 0.00 364,467.96 2,002,789.78 22,907,049.10

3 0.00 139,590.00 856,320.00 5,213,202.00

4 10,996,493.92 4,770,746.96 77,365,017.42 142,070,032.01

5 1.00 -2,621,489.91 47,408,825.34 113,545,578.25

6 14.00 7,964.00 67,925.00 157,328.00

7 173,626.97 61,757.99 1,340,701.75 2,530,448.01

8 2,576,559.00 -1,928,685.00 18,285,504.99 35,525,159.00

9 0.00 228,476.99 1,318,738.97 4,233,851.00

10 0.00 2,441.00 120,142.01 615,651.00

11 0.00 362,259.06 7,071,404.20 17,401,862.99

12 29.00 84,959.99 612,252.95 2,492,672.00

13 582,570.36 278,338.17 4,263,573.64 6,384,224.00

14 2,857.00 -4,959.99 37,425.94 173,129.00

15 79,743.94 14,166.99 154,621.89 495,329.00

16 0.00 0.00 0.00 1,878,743.00

17 46,012,087.22 3,662,733.02 0.00 53,864,219.00

18 1,758,644.02 435,051.00 7,452,422.08 50,197,063.03

19 487,565.02 109,766.00 2,140,845.09 15,863,447.00

20 10,099.00 0.00 286,246.01 12,094,103.00

21 252,850.00 0.00 4,278,175.07 35,539,995.00

22 0.00 0.00 0.00 0.00

190 69,956,560.04 8,713,626.10 178,084,866.95 593,158,146.59

200 8,322,241.00 4,687,388.00 0.00 50,440,764.09

201 89,108,114.70 202 228,797,780.42 203 21,349,676.82 204 8,053,247.18 205 -4,617,369.36 210 78,278,801.04 13,401,014.10 178,084,866.95 986,290,360.45

Appendix 3. Technical Coefficient Matrix Classification of 22 Sectors

Sector 1 2 3 4 5 6

1 0.18093 0.00000 0.00000 0.00000 0.19334 0.00061

2 0.01539 0.17058 0.00766 0.00035 0.10054 0.00000

3 0.00300 0.01718 0.00720 0.00000 0.00002 0.00000

4 0.00000 0.00000 0.00000 0.08818 0.00079 0.00126

5 0.00172 0.00000 0.00000 0.00000 0.33579 0.00000

6 0.00000 0.00000 0.00000 0.00000 0.00009 0.00000

7 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000

8 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000

9 0.00043 0.00006 0.00202 0.00000 0.00001 0.00000

10 0.00005 0.00000 0.00028 0.00000 0.00001 0.00000

11 0.00650 0.00030 0.00538 0.00012 0.00245 0.00000

12 0.01918 0.00001 0.00000 0.00004 0.00046 0.00000

13 0.00001 0.00000 0.00000 0.00000 0.00003 0.44931

14 0.00001 0.00000 0.00002 0.00000 0.00008 0.00000

15 0.00026 0.00003 0.00035 0.00000 0.00000 0.00000

16 0.00011 0.00000 0.00087 0.00000 0.00016 0.00000

17 0.01325 0.00031 0.01341 0.00007 0.00004 0.00000

18 0.04677 0.00193 0.02095 0.00021 0.03877 0.00000

19 0.00660 0.00071 0.01233 0.00005 0.00322 0.00000

20 0.01483 0.00018 0.00217 0.00002 0.00359 0.00000

21 0.00431 0.00017 0.00178 0.00003 0.00172 0.00000

22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000

Total 0.31337 0.19147 0.07442 0.08907 0.68111 0.45119 Source: Input-Output Table of Riau Province in 2010 (calculated)

Sector 7 8 9 10 11 12

1 0.00013 0.00000 0.00000 0.00000 0.00000 0.01648

2 0.38115 0.00000 0.00000 0.00561 0.00000 0.00000

3 0.02062 0.00000 0.00000 0.00000 0.00000 0.00000

4 0.00123 0.00000 0.29283 0.00000 0.21378 0.39214

5 0.00000 0.00000 0.00000 0.00005 0.00000 0.00000

6 0.00002 0.00000 0.00000 0.00129 0.00000 0.00000

7 0.19919 0.00000 0.00000 0.00642 0.00000 0.00000

8 0.00000 0.46511 0.00090 0.00000 0.00000 0.00000

9 0.00002 0.00000 0.00000 0.23691 0.00000 0.00000

10 0.00001 0.00000 0.00000 0.00166 0.00000 0.00000

11 0.00105 0.00000 0.00000 0.02002 0.00000 0.00000

12 0.00010 0.00000 0.00000 0.01018 0.00000 0.00000

13 0.00243 0.00000 0.00000 0.00013 0.00000 0.00000

14 0.00408 0.00000 0.00000 0.05565 0.00000 0.00000

15 0.00001 0.00000 0.00000 0.00007 0.00000 0.00000

16 0.00029 0.00000 0.00000 0.00498 0.00000 0.00000

17 0.00005 0.00000 0.00000 0.00012 0.00000 0.00000

18 0.01099 0.00000 0.00000 0.09469 0.00000 0.00000

19 0.00162 0.00000 0.00000 0.02367 0.00000 0.00000

20 0.00045 0.00000 0.00000 0.00414 0.00000 0.00000

21 0.00013 0.00000 0.00000 0.00160 0.00000 0.00000

22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000

Total 0.62359 0.46511 0.29373 0.46719 0.21378 0.40862 Source: Input-Output Table of Riau Province in 2010 (calculated)

Sector 13 14 15 16 17 18

1 0.61090 0.00000 0.00121 0.00000 0.00000 0.02210

2 0.00533 0.00000 0.06864 0.00000 0.00000 0.00801

3 0.00000 0.00000 0.00000 0.00000 0.00000 0.00132

4 0.00637 0.00519 0.01628 0.52975 0.52372 0.00064

5 0.00000 0.00000 0.00000 0.00000 0.00000 0.00314

6 0.00000 0.00000 0.00003 0.00000 0.00000 0.00008

7 0.00001 0.00000 0.00869 0.00000 0.00000 0.00007

8 0.01016 0.00000 0.00000 0.00000 0.00000 0.00000

9 0.00001 0.00026 0.00000 0.00000 0.00000 0.00501

10 0.00001 0.00001 0.00000 0.00022 0.00000 0.00447

11 0.00021 0.02306 0.00092 0.00230 0.00000 0.06844

12 0.00000 0.00023 0.00009 0.01965 0.00000 0.00012

13 0.09301 0.02498 0.10201 0.00682 0.00021 0.00131

14 0.00043 0.31100 0.03978 0.00000 0.00000 0.00000

15 0.00000 0.00139 0.07144 0.00007 0.00000 0.00006

16 0.00001 0.00166 0.00042 0.03264 0.00000 0.01270

17 0.00000 0.00052 0.00016 0.00118 0.00000 0.01794

18 0.00030 0.01772 0.01698 0.01513 0.00000 0.05606

19 0.00011 0.00447 0.00170 0.00210 0.00000 0.05403

20 0.00001 0.00094 0.00041 0.00184 0.00000 0.05460

21 0.00000 0.00024 0.00021 0.00020 0.00000 0.00989

22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000

Total 0.72688 0.39166 0.32895 0.61191 0.52394 0.31997

Sector 19 20 21 22 Total

1 0.00254 0.00015 0.08169 0.00000 0.07184

2 0.00318 0.00215 0.01579 0.00000 0.03130

3 0.00000 0.00004 0.05009 0.00000 0.00429

4 0.00992 0.00000 0.02285 0.00000 0.08230

5 0.00183 0.00410 0.00514 0.00000 0.06519

6 0.00003 0.00001 0.00016 0.00000 0.00004

7 0.00001 0.00001 0.01036 0.00000 0.00149

8 0.00000 0.00000 0.00000 0.00000 0.02797

9 0.00054 0.00780 0.05354 0.00000 0.00412

10 0.00027 0.00146 0.00119 0.00000 0.00050

11 0.24749 0.00607 0.01632 0.00000 0.01488

12 0.00015 0.00012 0.00447 0.00000 0.00272

13 0.00247 0.00138 0.00442 0.00000 0.00174

14 0.00010 0.00005 0.00004 0.00000 0.00023

15 0.00090 0.00057 0.00242 0.00000 0.00028

16 0.00462 0.00452 0.00863 0.00000 0.00197

17 0.01257 0.03130 0.04756 0.00000 0.00706

18 0.08782 0.02961 0.16830 0.00000 0.03124

19 0.03827 0.01430 0.04966 0.00000 0.01045

20 0.01027 0.12903 0.01824 0.00000 0.01110

21 0.03757 0.03580 0.03701 0.00000 0.00565

22 0.00000 0.00000 0.00000 0.00000 0.00000

Total 0.46054 0.26848 0.59769 0.00000 0.37635

Appendix 4. Leontief Inverse Matrix: Closed Input-Output Classification of

22 Sectors

Sector 1 2 3 4 5 6

1 1.24249 0.01031 0.00590 0.01777 0.37164 0.41606

2 0.02943 1.20894 0.01119 0.00577 0.19422 0.02384

3 0.00589 0.02164 1.00796 0.00133 0.00577 0.00476

4 0.02865 0.00220 0.01332 1.09925 0.01586 0.01896

5 0.03010 0.01536 0.00736 0.02679 1.52599 0.06839

6 0.00005 0.00002 0.00002 0.00004 0.00018 1.00010

7 0.00021 0.00006 0.00007 0.00010 0.00016 0.00028

8 0.00001 0.00000 0.00001 0.00001 0.00001 0.00943

9 0.00205 0.00044 0.00258 0.00050 0.00155 0.00173

10 0.00060 0.00014 0.00046 0.00021 0.00059 0.00065

11 0.01937 0.00305 0.01173 0.00369 0.01774 0.01379

12 0.02407 0.00030 0.00021 0.00053 0.00801 0.00840

13 0.00053 0.00016 0.00023 0.00025 0.00056 0.49610

14 0.00011 0.00003 0.00009 0.00003 0.00024 0.00041

15 0.00048 0.00009 0.00043 0.00008 0.00021 0.00031

16 0.00197 0.00050 0.00155 0.00075 0.00211 0.00225

17 0.01970 0.00130 0.01467 0.00103 0.00813 0.00807

18 0.08116 0.01288 0.02906 0.01726 0.09519 0.06240

19 0.01848 0.00461 0.01605 0.00574 0.01700 0.01820

20 0.03030 0.00347 0.00567 0.00517 0.02151 0.02056

21 0.01072 0.00217 0.00369 0.00320 0.00860 0.01024

22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000

200 0.05763 0.03350 0.01562 0.05852 0.04136 0.14695

Total 1.60402 1.32119 1.14786 1.24800 2.33665 2.33188 Source: Input-Output Table of Riau Province in 2010 (calculated)

Sector 7 8 9 10 11 12

1 0.04326 0.01507 0.06221 0.05256 0.07767 0.08315

2 0.58636 0.00450 0.01871 0.02586 0.02328 0.01938

3 0.03890 0.00112 0.00463 0.00420 0.00578 0.00476

4 0.00955 0.00206 0.32969 0.10303 0.24510 0.43915

5 0.06013 0.02274 0.09387 0.07050 0.11720 0.09507

6 0.00012 0.00003 0.00014 0.00140 0.00017 0.00014

7 1.24897 0.00008 0.00034 0.00836 0.00042 0.00034

8 0.00008 1.86955 0.00170 0.00048 0.00002 0.00002

9 0.00143 0.00042 1.00175 0.23964 0.00218 0.00179

10 0.00057 0.00018 0.00072 1.00271 0.00090 0.00074

11 0.01199 0.00298 0.01237 0.04644 1.01541 0.01279

12 0.00133 0.00042 0.00175 0.01182 0.00217 1.00216

13 0.00417 0.00021 0.00086 0.00404 0.00108 0.00088

14 0.00749 0.00002 0.00010 0.08109 0.00013 0.00011

15 0.00024 0.00006 0.00026 0.00045 0.00032 0.00027

16 0.00235 0.00063 0.00260 0.00888 0.00325 0.00266

17 0.00335 0.00080 0.00333 0.00564 0.00415 0.00369

18 0.05551 0.01443 0.05964 0.15102 0.07442 0.06145

19 0.01679 0.00481 0.01986 0.04629 0.02479 0.02032

20 0.01357 0.00436 0.01799 0.02550 0.02246 0.01863

21 0.00785 0.00268 0.01107 0.01272 0.01382 0.01134

22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000

200 0.13109 0.04969 0.20507 0.15228 0.25604 0.20755

Total 2.24510 1.99686 1.84865 2.05490 1.89076 1.98639

Sector 13 14 15 16 17 18

1 0.84553 0.11383 0.19067 0.04770 0.05237 0.06180

2 0.02950 0.02613 0.12621 0.01287 0.01584 0.02106

3 0.00473 0.00638 0.00948 0.00313 0.00389 0.00466

4 0.02829 0.03248 0.03798 0.61748 0.58158 0.05203

5 0.03328 0.12507 0.14581 0.06179 0.07877 0.04818

6 0.00005 0.00019 0.00025 0.00010 0.00012 0.00016

7 0.00021 0.00049 0.01224 0.00024 0.00029 0.00050

8 0.02095 0.00079 0.00237 0.00016 0.00002 0.00006

9 0.00164 0.00301 0.00304 0.00138 0.00147 0.00879

10 0.00052 0.00112 0.00125 0.00078 0.00061 0.00528 11 0.01507 0.05436 0.02520 0.01269 0.01043 0.09556 12 0.01646 0.00330 0.00464 0.02162 0.00148 0.00199 13 1.10305 0.04148 0.12432 0.00840 0.00095 0.00250 14 0.00078 1.45168 0.06250 0.00011 0.00009 0.00049 15 0.00036 0.00254 1.07747 0.00026 0.00022 0.00035 16 0.00171 0.00643 0.00502 1.03572 0.00219 0.01605 17 0.01374 0.00641 0.00736 0.00403 1.00282 0.02496 18 0.06333 0.10929 0.11873 0.05677 0.05013 1.09986 19 0.01535 0.03518 0.03532 0.01646 0.01669 0.07154 20 0.02295 0.02802 0.03181 0.01530 0.01512 0.07711 21 0.00877 0.01602 0.01843 0.00798 0.00930 0.02119 22 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 200 0.06724 0.27261 0.31764 0.13469 0.17208 0.09241 Total 2.29351 2.33680 2.35773 2.05964 2.01643 1.70653 Source: Input-Output Table of Riau Province in 2010 (calculated)

Sector 19 20 21 22 301 Total

1 0.08303 0.03001 0.15096 0.00000 0.36216 4.33615

2 0.02773 0.01202 0.04278 0.00000 0.10811 2.57374

3 0.00762 0.00401 0.05672 0.00000 0.02693 1.23431

4 0.10074 0.03877 0.10547 0.00000 0.04954 3.95118

5 0.10816 0.03867 0.06105 0.00000 0.54652 3.38080

6 0.00020 0.00007 0.00026 0.00000 0.00081 1.00465

7 0.00097 0.00073 0.01377 0.00000 0.00196 1.29078

8 0.00009 0.00007 0.00023 0.00000 0.00011 1.90618

9 0.00571 0.01266 0.05894 0.00000 0.01016 1.36286

10 0.00165 0.00220 0.00264 0.00000 0.00421 1.02872

11 0.28149 0.02069 0.05575 0.00000 0.07170 1.81428

12 0.00271 0.00126 0.00818 0.00000 0.01010 1.13290

13 0.00443 0.00256 0.00667 0.00000 0.00502 1.80845

14 0.00041 0.00034 0.00057 0.00000 0.00060 1.60741

15 0.00144 0.00094 0.00303 0.00000 0.00151 1.09130

16 0.00978 0.00738 0.01398 0.00000 0.01514 1.14290

17 0.02168 0.04057 0.05946 0.00000 0.01925 1.27414

18 0.17315 0.06692 0.23446 0.00000 0.34676 3.03381

19 1.07054 0.02881 0.07838 0.00000 0.11551 1.69672

20 0.04022 1.15845 0.04739 0.00000 0.10470 1.73027

21 0.05511 0.04790 1.05103 0.00000 0.06440 1.39822

22 0.00000 0.00000 0.00000 1.00000 0.00000 1.00000

200 0.22780 0.06753 0.11205 0.00000 1.19395 4.01328

Total 2.22466 1.58255 2.16377 1.00000 3.05915 44.81302 Source: Input-Output Table of Riau Province in 2010 (calculated)

1.1

Background

Industry is one of the most important pillars in the development of a

country. Industrial sector has an important role in adding more value to the factors

of production (input), which produce economic benefits. The basic role of

industry for the development can be boarded into industrialization strategy, which

consists of Import Substitution Strategy (ISS) and Export Promotion Strategy

(EPS). Through those strategies, the industrial sector becomes the main sector

after agricultural sector in Indonesian economy. In Indonesia, industries can be

divided into four groups; big scale industry, medium scale industry, small-scale

industry and home industry. The grouping was based on numbers of workforce

without considering the raw materials usage.

Industrial sector was the biggest contributor for Indonesia’s Gross Domestic

Product (GDP) until 2011. During the

orde baru

_{, the role of non-oil industry was}

the main contributor for national income due to oil boom when Indonesia

experience significant surge in incoming capital,

Badan Pusat Statistik

_(BPS),

2011. The government policy and deregulations on promoting non-oil

commodities export enabled significant increase in non-oil commodities export

volume. Those factors create industrial strength that give boosting power to

national economy from others economics sectors as the result of industrial sector

that able to support economics sectors in national development.

In the period of 2005 until 2010, Indonesia’s national GDP obtained the

largest contribution from non-oil products. This fact showed that non-oil

contribution to Indonesian economy was significant and able to increase

Indonesian economy by empowering its human resources through a synergy with

Indonesia’s abundant natural resources.

0" 1" 2" 3" 4" 5" 6" 7" 8"

2006" 2007" 2008" 2009" 2010"

Percen

tage)

Year)

GDP" Non2Oil"&"Gas" Oil"&"Gas"

Source: BPS Indonesia, 2012

Figure 1.1. The Development of Gross Domestic Product (GDP) of Indonesia

(2006-2010)

From Table 1.1, there are two main islands in Indonesia that have the

highest contribution to the GDP of Indonesia. Sumatra Island has the second

largest contribution to the GDP of Indonesia, after the island of Java. Seen from

2009 to 2011, the island of Sumatra has contributed up to 23 percent of GDP in

Indonesia. According to BPS Indonesia, the provinces that provide the greatest

contribution in Java Island are DKI Jakarta (16.2 percent), East Java (14.8

percent), West Java (14.3 percent) and Central Java (8.3 percent), and as for the

island of Sumatra, the three provinces that provide the greatest contribution are

Riau (6.6 percent), North Sumatra (5.4 percent), and South Sumatra (3.1 percent).

Table 1.1 The Role of The Region/Island in The Formation of National GDP

(percentage)

Region/Island

2009

2010

2011

First quarter Second quarter

Sumatra

22.6

23.1

23.5

23.6

Java

58.6

58.0

57.8

57.7

Bali and Nusa Tenggara

2.7

2.7

2.5

2.6

Kalimantan

9.2

9.2

9.5

9.5

Sulawesi

4.6

4.6

4.6

4.6

Maluku and New Guinea

2.3

2.4

2.1

2.0

Source: BPS Indonesia, 2012

The industry that gave the highest contribution to Indonesia’s GDP is

manufacturing industry, where pulp and paper industry is one of the prominent

players. These industries need forest commodities as their input, where more time

is needed to fulfill the supply for demand. In 2006, the national pulp & paper

production reached 6.29 million tons of pulp (average capacity utilization was

93.04 percent of established capacity) and 8.64 million tons of paper. This

achievement positioned Indonesia as the world major producer of pulp for paper,

major pulp exporter for paper, major paper producer, and major paper exporter –

ranked at 9

th

, 7

th

, 11

th

and 9

th

respectively in the world (FAOSTAT, 2007). The

trend was continuing until 2011. The pulp and paper industry has been giving

major contribution to national economy through investment value added; export

increase, business opportunities creation and human resources employment as

well as national income from tax and non-tax revenues.

The supporting factors for the above mentioned are the availability of main

raw materials for pulp and paper industry which are natural resources especially

woods supply, climate condition that is conducive for raw materials growth; and

lower production costs compared to other producer countries. The costs are

achievements is Indonesian high consumption on paper products. In 2005,

Indonesia’s paper consumption per capita reached 20.67 kg or ranked eleventh in

the world (World Resources Institute, 2007). This fact was putting pulp and paper

as one of the top ten export commodity champions for increasing the country’s

foreign exchange reserves.

Pulp and paper production costs in Indonesia are also relatively cheaper

than the cost in other producer countries. According to the Research Information

Systems Inc. (RISI), the fourth quarter of 2005, cash cost per ton of pulp in

Indonesia was only US$ 184, which in the USA reached US$ 385, in Canada for

US$ 330, and in Brazil US$ 271. Judging from the cash cost, Indonesia has great

potential to expand the pulp and paper industry than others. This potential needs

to be developed further by the government and related companies. The continuing

technological developments in the world does not reduce paper consumption, as

shown by the growth in paper demand by an average of 2.71 percent per year,

with growth in developing countries by an average of 4.1 percent per year and the

average for developed countries by the average of 0.5 percent per year. This fact

shows that Indonesia as a developing country should be able to improve its

production in order accomodating the increasing market demand up to 4.1 percent

per year.

Indonesian Pulp and Paper Association (APKI) and Ministry of Industry,

categorized paper industry into paper upstream industry group and paper industry.

The paper upstream industry group is pulp industry, which can be sub-categorized

into virgin pulp and recovered paper. The virgin pulp is consisting of two types,

which are leaf bleach Kraft pulp and needle bleach Kraft pulp. The upstream

industry is the intermediate products producer to supply the downstream industry,

where they will process the intermediate products to be packaged and marketed

for direct consumption to the end users.

The major players in national pulp and paper industry are Sinarmas Group

(SMG) and Raja Garuda Mas Group (RGM), which own large scale

manufacturing facilities and global network. SMG has subsidiary called Asia Pulp

and Paper (APP), APP Indonesia operated in Riau Province named PT. Indah Kiat

Pulp and Paper (PT. IKPP) and APP China operated in China. While RGM, own

two subsidiaries, Asia Pacific Resources International Limited (APRIL) Indonesia

(PT. Riau Andalan Pulp and Paper (PT.RAPP) and PT. Toba Pulp Lestari) and

APRIL China. PT. IKPP operates in Perawang while PT. RAPP operates in

Pangkalan Kerinci, where both of the companies are located in Riau Province.

The total pulp and paper production capacity is more than 6.29 million tons per

year with 84 mills. The largest producer is Sinarmas Group (PT. IKPP and PT.

Lontar Papyrus) with the capacity of 2.67 million tons per year or 40 percent of

all national capacity, and the second largest producer is PT. RAPP with capacity

of 2.20 million tons per year or 32 percent from total national capacity. The

industrial sector or large scale companies like SMG and RGM are contributing to

national economy growth, including local economy in Riau Province.

PT. Riau Andalan Pulp

& Paper, 2.2 (33%)

PT. Kertas Kraft, 0.17

(2%) PT. Kiani Kertas, 0.53

(8%) PT. Toba Pulp

Lestari, 0.24 (4%) PT. Tanjung

Enim Lestari, 0.5 (7%) Others 0.4 (4,

6%) PT. Indah Kiat Pulp & Paper, 2 (30%)

PT. Lontar Papyrus, 0.67

(10%)

  

Source: Warta Ekonomi, 2007

Figure 1.2 The Capacity of Major Players in National Pulp and Paper Industry

The Law No. 25 Year 1999 on Regional Autonomy, explained that regional

development is integral part of national development and implemented through

regional autonomy and national resources management, which will allow the

improvement of responsibility for local government including Riau Province, to

be able in developing their resources through industries for their economy

development. From 2006 to 2010 (Table 1.2), the contribution of non-oil

manufacturing industry has been increasing to the Gross Regional Domestic

Product (GRDP) of Riau Province. The non-oil contribution was 60.5 percent

from total GRDP of Riau Province. In 2010, non-oil manufacturing industry has

contributed up to 60,179,956.19 million rupiah or 30 percent of Riau Province

GRDP without non-oil sector. This shows manufacturing industry is the main

sector for increasing the GRDP. The pulp and paper industry, with two largest

companies operated in Riau Province, is expected to give contribution that will

increase the economy of Riau Province from the growth of its GRDP.

Table 1.2 Gross Regional Domestic Product of Riau Province at Current Prices Based on The Business Field In 2006 – 2010

Source: Badan Perencanaan dan Pembangunan Daerah (Bappeda) Riau Province, 2011

Field of Business

2006

(million rupiah)

2007

(million rupiah)

2008

(million rupiah)

2009

(million rupiah)

2010

(million rupiah)

Agriculture

36,294,175.88

43,595,169.01

53,137,563.80

60,270,256.01

69,025,079.71

Mining and Quarrying

a.

Oil and gas

b.

Non oil mining

c.

Quarrying

70,427,525.42

69,178,832.03

800,053.40

448,639.99

91,119,826.29

89,103,779.03

1,410,745.53

605,301.67

123,781,863.82

120,771,330.59

2,072,244.81

938,288.43

114,203,564.32

110,038,218.46

2,917,000.99

1,248,344.87

123,077,421.91

118,006,413.36

3,469,704.72

1,601,303.83

Manufacturing Industry

a.

Oil and gas Industry

b.

Non-oil manufacturing industry

32,313,284.03

3,073,755.38

29,239,528.65

39,156,003.58

3,863,797.55

35,292,206.03

50,179,230.71

6,503,557.17

43,675,673.53

59,796,961.91

8,097,487.24

51,699,474.67

70,309,300.89

10,132,344.70

60,179,956.19

Electricity, gas & water

339,751.00

392,735.09

461,086.39

525,583.52

584,546.11

Building

4,258,801.15

7,043,077.64

11,308,251.44

14,758,030.96

19,262,905.24

Trade, Hotel & Restaurant

11,179,723.48

14,064,410.65

19,317,092.67

24,878,634.72

32,276,354.84

Transport & Communication

3,216,185.09

3,853,213.87

4,867,262.36

5,762,017.91

6,719,791.07

Finance, Leasing & corporate services

3,134,172.22

3,924,150.41

5,068,118.69

6,644,795.85

8,453,374.03

Services

5,904,570.60

6,853,973.75

8,279,660.08

10,333,183.11

12,982,674.73

GRDP with oil and gas

167,068,188.88

210,002,560.30

276,400,129.95

297,173,028.31

342,691,448.53

GRDP without oil and gas

94,815,601.47

117,034,983.66

149,125,242.19

179,037,322.61

214,552,690.46

Development is the target of a system placed in the economy with the goals

in achieving social welfare and stability in certain aspects such as economy, social

and politics. As mentioned in

Pancasila

_{, the national ideology of Indonesia, point}

number three, the Indonesia state purposes is to provide social justice, therefore

social welfare becomes the major goal in Indonesian economy. Based on its

national ideology, Indonesian economy system is aiming on economic growth for

improving its GDP and living quality, including Riau Province through the

economy system that geared to economic growth, which can increase both GRDP

and GDP. Pulp and paper industry contribution is expected to improve local,

regional and national community welfare aligned with economic development

main goals. Input-Output Table will be used to understand the role of pulp and

paper industry in the development of the economy of Riau Province.

1.2

Research Problems

The economy of Riau Province has shown positive growth, which can be

seen from its GRDP growth for the past five years. This fact shows Riau Province

has the ability to survive within the global economy challenges. Industrial

contribution, especially manufacturing industry, is one of the main supporting

factor for GRDP growth, this include the pulp and paper industry. Pulp and paper

industry also has linkage with other sectors in the economy of Riau Province,

whether it is industrial sector or non-industrial sector. Reciprocal relationships

between sectors in national economy are the main key for overall growth of the

sectors within the economy.

The ability of paper industry to encourage its upstream and downstream

sectors can be seen by comparing with other sectors and identifying linkages with

other sectors as well. As mentioned above, therefore several issues that can be

identified are:

1.

How is the contribution of pulp and paper industry in the economy of Riau

Province, in term of demand structure, output structure, gross value added,

investment and export–import?

2.

How are the linkages between pulp and paper industry with other sectors in

the economy of Riau Province?

3.

How is the contribution of pulp and paper industry in encouraging and

pulling the growth of its upstream and downstream sectors?

4.

How are the output multiplier and income multiplier of pulp and paper

industry in the economy of Riau Province?

5.

How is the role of pulp and paper industry in key sectors of the economy of

Riau Province?

1.3

Research Goals

The development of pulp and paper industry in the economy of Riau

Province has been increasing from time to time. Therefore we need to analyze the

impact created by paper industry in the economy of Riau Province. According to

the previous issues formulation, therefore the goals of this study are:

1.

To analyze the contribution of pulp and paper industry in the economy of

Riau Province, in term of demand structure, output structure, gross value

added, investment and export–import.

2.

To analyze the linkages between pulp and paper industry with other sectors

in the economy of Riau Province.

3.

To analyze the contribution of pulp and paper industry in encouraging and

pulling the growth of its upstream and downstream sectors.

4.

To analyze the output multiplier and income multiplier of pulp and paper

industry in the economy of Riau Province.

5.

To analyze the role of pulp and paper industry in key sectors of the

economy of Riau Province.

1.4

Research Significances

The study is expected to gain benefits as follow:

1.

As source of information for government decision makers especially for

pulp and paper industry development.

2.

As literature materials in pulp and paper industry development for the

stakeholders within the industry.

3.

As source of information and data for further relevant studies.

1.5 Scope and Limitations of Research

The study will cover the pulp and paper industry that consist of companies

that process raw materials into pulp and paper, which can be consumed directly or

intermediate products that can be used as input materials for other industries.

Therefore, the paper products industry that is not produces their inputs (paper and

pulp), for example printing and publishing industry will not be covered by this

study. The types of pulp in this study are virgin pulp and recovered paper, while

the types of paper in this study are newspaper paper, printing paper, household

tissue paper, money paper, decoration paper, etc.

Analysis in this study will be done by doing the analysis on data written in

Input-Output Table of Riau Province 2010 based on domestic transaction using

producer price with software application Input Output Analysis for Practitioners

(IOAP) 1.0.1 and Microsoft Excel 2011. The analysis will be used to analyze the

role of pulp and paper industry in Riau Province economic growth.

The main limitation of this study is related to the aggregation of sectors and

Input-Output model used in this research. The analysis of this research will only

covered the economic aspects and not include the environmental aspects.

Employment data for Input-Output Table is not available so it is not possible to

analyze the employment multiplier. Input-Output Analysis used in this research is

static so it is not also considering the income distribution aspects.

2.1 Pulp and Paper

2.1.1 Definition of Pulp and Paper

Pulp is a mixture of cellulose material, such as wood, paper, and rags,

ground up and moistened to make paper, while paper (papier) is a human creation

of goods originating from forest commodities, which are very important in life.

Wood pulp is the most common raw material in papermaking. The timber

resources used to make wood pulp are referred to as pulpwood. Wood pulp comes

from softwood trees such as spruce, pine, fir, larch and hemlock, and hardwoods

such as eucalyptus, aspen and birch (Wikipedia, 2012). Paper is a thin material

that mainly used for writing upon, printing upon, drawing or for packaging.

Pressing together moist fibers and cellulose pulp derived from Typically wood,

Rags or grasses, then drying them into flexible sheet produce it.

Paper is a versatile material with many uses. Whilst the most common is for

writing and printing upon, it is also widely used as a packaging material, in many

cleaning products, in number of industrial and construction processes, and even as

a food ingredient particularly in Asian cultures. Thus, paper is unseparateable and

very important for human cultures and daily activities across their lives.

2.1.2 History of Pulp and Paper

The first fairly recent innovation is using wood to make paper. In the 1800s,

fibre crops such as linen fibres were the primary material source, and paper was a

relatively expensive commodity. The use of wood to make pulp for paper began

with the development of mechanical pulping in Germany by F.G. Keller in the

1840s, and by the Canadian inventor Charles Fenerty in Nova Scotia. Almost a

decade later the first commercial sulfite pulp mill was built in Sweden. It used

magnesium as the counter ion and was based on work by Carl Daniel Ekman. By

1900, sulfite pulping had become the dominant means of producing wood pulp,

surpassing mechanical pulping methods.

The oldest known archaeological fragments of the immediate precursor to

modern paper date to second century BC China. Papermaking is considered one of

the Four Great Inventions of China, and the pulp papermaking process is ascribed

to Cai Lun, a second century AD Han court eunuch. Paper spread from China

through the Islamic world to medieval Europe in the 13

th

century, where the first

water-powered paper mills were built. In the 19

th

century, industrial manufacture

greatly lowered its cost, enabling mass exchange of information and contributing

to significant cultural shifts. In 1844, Canadian inventor Charles Fenerty and

German F.G. Keller independently developed processes for pulping wood fibers.

The word "paper" is etymologically taken from Latin papyrus, which comes

from the Greek (papuros), the word for the Cyperus papyrus plant. Papyrus is a

thick, paper-like material produced from the pith of the Cyperus papyrus plant

which was used in ancient Egypt and other Mediterranean cultures for writing

before the introduction of paper into the Middle East and Europe. Although paper

is etymologically derived from papyrus, these two things are actually produced

very differently and the development of modern paper is separate from the

development of papyrus. Papyrus is a lamination of natural plants, while paper is

manufactured from fibres whose properties have been changed by maceration or

disintegration.

2.2 Pulp and Paper Industry

Industry can be broadly defined as any efforts and activities that are

productive in the economic field, while the narrow processing industry including

the paper industry is an activity that changes the basic stuff mechanically,

chemically, or manually creating goods that are ready for immediate consumption

and intermediate goods which can be used as input for further processing.

The pulp and paper industry comprises companies that use wood as raw

material and produce pulp, paper, board and other cellulose-based products. The

industry is dominated by North American (United States and Canada), northern

European (Finland, Sweden, and North-West Russia) and East Asian countries

(such as China, Japan, and South Korea). Australasia and Brazil also have

significant pulp and paper enterprises. The trend is expand globally to countries

like Russia, China and Indonesia with low wages and low environmental

oversight. Pulp and paper industry needs a huge capital because the industry is

capital oriented. Ministry of Industry and the Indonesian Pulp and Paper

Association (APKI) classified pulp and paper industry into (Paper Industry

Roadmap, 2009):

1.

The scope of pulp industry as follows:

a)

Based on the length of fiber is divided into: needle bleached kraft pulp

and leaf bleached kraft pulp.

b)

Based on the manufacturing process is distinguished by: chemical

pulp and mechanical pulp.

c)

Based on raw materials divided into: wood pulp and non-wood pulp.

d)

Also divided into : virgin pulp (pristine pulp obtained from the

processing of wood or non-wood into pulp either by chemical or

mechanical processes) and recycled pulp from waste paper.

2.

The scope of paper industry as follows:

a)

Paper Culture, consists of newsprint; printing and writing paper

valuable paper (paper stock, paper, stamps, etc.).

b)

Paper Industry, consist of sack kraft, kraft liner, Corrugating medium,

board, and paper wrappers.

c)

Tissue Paper, consist of household tissue paper and paper cigarrate.

d)

Specialty Paper, consist of paper money; decor paper; paper overlay;

thermo paper; label paper, and etc.

In production, the paper industry in the past used raw materials, which

mostly comes from virgin pulp sourcing from wood raw material. Along with the

decline in timber stock, and the raises of global awareness on environmental

issues, the usage of waste paper as raw material for paper industry (recycling) is

growing rapidly. The use of recycled paper can also save the company’s

production cost. The need for waste paper for the national paper industry currently

reach 6 million tons per year, whereas 3 million tons of waste paper collection is

domestically supplied and the rest is obtained from import. The uses of waste

paper raw materials will increase along with international pressure on the

environment issues. Development of wood raw material can be carried out by

countries that still have considerable potential in countries like Indonesia.

2.2.1 Vertical Integration on Pulp and Paper Industry

Vertical integration is the incorporation of companies that have a continuing

process of production (Hasibuhan, 1994). Integration is classified into the

integration of upstream and downstream integration. Companies that apply to the

upstream vertical integration strategy is the company that produces its own inputs,

whereas if the company decides to distribute the output to consumers through an

integrated organisation, that company shall perform downstream vertical

integration. Vertical integration can be done in two ways (Ministry of Industry,

2009) :

1.

Full Integration

Full integration occurs when firms produce all the needed input or when the

company is distributing all output generated by subsidiaries integrated with

it.

2.

Taper Integration

Taper Integration occurs when firms purchase resources that are needed for

production from other companies or distribute the products through an

integrated company within its organization body as well as companies that

are not integrated.

According Karseno and Mulyaningsih, in Ramli 2006, vertical integration

by pulp and paper companies will increase the efficiency of companies in the

industry because it can secure supplies of raw materials and minimize transaction

costs in anticipation of growing demand for paper products. The integration of

pulp and paper industries can be seen in figure 2.1 (APKI, 2009).

Source: Department of Industry, 2009

Figure 2.1 The Integration of Pulp and Paper Industry 

Ministry of Industry and Indonesian Pulp and Paper Association (APKI)

grouping of vertical integration in the paper industry as follows:

1.

Core industry : Paper Industry

2.

Supporting industry (upstream industry): Manufacture of pulp, which

consist of virgin pulp and recovered paper industry. There are two types of

virgin pulp such as, Leaf and Needle Bleach, Kraft Pulp Bleach , and Kraft

Pulp. Paper as intermediate products, such as liner and medium paper Kraft

Liner, which is an industrial raw material packaging Cardboard Box Wave.

3.

Industry-related (Downstream): Photocopy paper industry, packaging

industry box, the printing and graphics industry and converting industries

(Such as book industry, household tissue, etc.).

Most of the paper companies have their own integration of downstream

integration to minimize the cost of production, for example PT. Indah Kiat Pulp

and Paper and PT. Riau Andalan Pulp and Paper, which have their own pulp mills

for the input of their paper production.

- Chemicals

- Fiber &

Selulostic

Waste

- Straw

-Wood

- Machinery

- Equipment

Pulp

Industry

Paper

Industry

- Publishing

- Printing

- Packaging

- Paper

Board -

Acoustic

Material

2.3 Theoretical Review

2.3.1 Industrial Theory

Dumairy (1996) explained that there are two definitions of industry in the

economics sense. First, the industry is the set of the company -its peers, for

example the paper industry is a group of companies producing paper. Second, the

industry is the economic sector whereas there are productive activities in

processing raw materials into finished or semi-finished goods. In the second

sense, the industry is more often called as processing or manufacturing industry.

According to Dumairy’s theory, the pulp and paper industry is an activity or

business to process basic goods or raw materials of pulp and paper that have

added value for society by the companies. Industrial development is a major

nation’s objective to create a strong and balanced economy system, which is

supported by agriculture sector.

Industrialization is the process of economic modernization covering all

economics sectors that have a relationship with one another. Industrialization aims

to increase value-added to the sectors of the economy. Industrialization is the

crucial condition for sustaining long-term process of economic development with

a high rate and sustainable economic growth. The process of industrialization can

be defined as the process of changing the economic structure, which there are

increased in the industrial sector's contribution to consumer demand, GDP,

exports and employment (Chenery, 1986).

According to Badan Pusat Statistik (BPS), 2011, industry can be divided

into four types:

a)

Major Industries, are industries that use machine labor force with upwards

of 50 people or industries that do not use the engine power but has a

workforce of 100 people over.

b)

Medium Scale Industries, are industries that use the labor force by as much

as 5 to 49 people or industries that do not use the machine but it has a labor

force of 10 to 99 people.

c)

Small Scale Industries, are industries that use machine labor force by as

much as 1 to 4 people or industries that do not use the machine but it has a

labor force of 1 to 9 people.

d)

Household Industries or Micro Scale Industries, are the industries doing the

processing of an item that has a value-added goods, but that industry has a

workforce that is not to be paid.

2.3.2 Concept of Regional Development

Trickle down effect strategy used in the new order development assumes the

need to prioritize economic growth first, and then do equity. This theory assumes

that the level of living will increase with the economic growth achieved through

accelerated growth and the industry in growth centers (center) which then will

have an impact on surrounding areas (edges or peripheral) so that the

industrialization and development of the central area into a major destination. In

fact, in many countries, including in Indonesia, this theory failed to create

prosperity for the whole society, especially rural communities. The use of natural

resources and human resources in the countryside will provide benefits to the

central region and creating poverty for suburbs. This situation requires a shift in

paradigm towards growth that makes people becoming human centered

development as a primary goal of development through the contribution of each

people participation in the improvement of the economy.

Regional development that concerns to the community development is

shown in the income improvement, decrease of the jobless productive age, as well

as regional physical development facilities of the region. Uses of human resources

and potention of the region shall be developed efficient and effectively. Efficiency

is shown in the natural resources exploration that is fit with the precise uses and

also the sustainability efforts to retain it for the long term use. The objectives of

the development should be reach effectively whereas region would be able to

develop itself becoming the established region.

The purpose of regional

development is to improve living standards, advances the public mindset and

self-reliance of local economies. The local community living standards can be measure

quantitatively by specific indicators, such as the income of the community,

employment (unemployment), food consumption, and cleanliness.

The Law No. 25 of 2004 provide formal legitimacy of regional autonomy to

local governments as an instrument for institutionalizing participatory planning in

development, as well as the obligation to promote and develop the

competitiveness of regional or local economic competitiveness according to Law

No. 32 of 2004. Enhanced regional competitiveness through improving the local

economy by pursuing the creation of or increase in value-added areas that can be

implemented through the principle of all stakeholder both public and private

sectors, linkage between sectors who want to be developed, and local resources

including natural resources, human resources, as well as other potential resources.

2.4 Input Output (I-O) Table

Output Table was first introduced by W. Leontif, in 1930s.

Input-Output quantitative model can provides overall preview of the interdependencies

between sectors within a region. Based on the Input-Output Model, the influence

of economic interactions can be classified into three types includes: direct effects,

indirect effects, and the total effect.

Influence of certain sector description to other sectors development

activities in order to enhance the regional economic is only explainable using the

Input-Output Model, thus through Input-Output Model, it would be clearly shown

which sector that can be the key sector in the regional development (Daryanto,

1993) :

1.

A sector is considered as a key sector if the backward linkage and the

forward linkage are relatively high.

2.

A sector is considered as a key sector if it can produce a relatively high

gross output, which also shows relatively high demand.

3.

A sector seen as key sectors if it is able to produce net revenue is relatively

high.

4.

A sector seen as key sectors if it is able to create high jobs (employment).

Through the four conditions and the development of key sectors through the

existing data, it can be seen whether or not pulp and paper industry could be one

of key sectors in the economy of Riau Province.

Advantages to be gained when using the Input-Output Table:

1.

Detailed description of the national economy and regional economies with

interdependences among sectors and quantify sources of exports and

imports can be provided through the Input-Output Table.

2.

Final demand can be determined by the size of the output of each sector and

the need for production factors and resources.

3.

The detail in the impact in demand on the economy caused by both public

and private of changes can be track and.

4.

Technology and relative prices changes can be integrated into the model

through changes in technical coefficients.

Data are presented in Input-Output Table have detailed information about

the input and output capable of describing the sectorial linkages between sectors

in an economic activity. Input-Output Table is static and closed, in which

households are considered as endogenous or households to determine

consumption inside of the existing economic system. The basic assumptions in

Input-Output Table are:

1.

Homogeneity, namely the assumption that every economic sector produces

only one type of goods or services with a single input arrangement and there

is no automatic substitution at the input and output of other sectors.

2.

Proportionality, assuming that the relation of input and output of each sector

is linear, then any increase and decrease the output of a sector is

proportional to the increase and decrease in input use.

3.

Additively, assuming that the total effect and production activities in

various sectors of the sum effect of each activity

2.4.1 Limitations of Input-Output Table

Input-Output Table also has its limitations where the coefficients input or

technical coefficients assumed to be fixed (constant) during the period of analysis.

Then the technology used in the production process is also assumed to be constant

so that changes in quantity and input prices will always be proportional to the

quantity and price changes in output prices. The more aggregated grouping made

to the existing sectors will lead to violations of the assumption of homogeneity of

the trend higher. Then this will create a lot of detailed economic information is

not revealed in the analysis

2.4.2 Input-Output Table Structure

Input-Output Table provides information about goods and services

transactions that occur between the production sectors in an economy with a

matrix form of presentation. In addition to transactions between sectors,

Input-Output Tables record the balance of consumption, payment of labor services and

capital owners in the line of value-added, and import transactions.

From the Table 2.1 it shows that there are three matrixes (Z, Y, and V).

These matrixes can be calculated to result the output structure, demand structure,

gross value added, export and import of regional economy. The calculated of the

table also produce value of linkages; dispersion and multiplier to define what

sector in the production sector that gives the highest contribution, or defined as a

key sector of the economy.

Table 2.1 Input-Output Table Simplification

Source : Daryanto, 2010

To understand the table, it takes basic notions are used, namely:

1. Output

In Table IO, calculations on the basis of producer prices used in the output to

avoid double calculations, because consumer prices are on the margin trading

and transportation costs that should go into the trade and transport sectors.

2. Intermediate Input

Intermediate input consist items that are usually finished in the input of

single-use, such as raw materials. In Table Input-Output, intermediate input is Zij,

which is described by the production sector j to produce the required input

from sector i as Zij.

3. Primary Input

In the Input-Output Table, the primary input reflected by wages and salaries,

business surplus, indirect taxes and subsidies.

4. Final Demand

Includes household consumption expenditure, government consumption

expenditure, fixed capital formation, stock change, exports and imports.

Output

Input

Production sector

Final

Demand

Total

Output

1

2

....

n

Production

sector

(Intermediate

Input)

1

Z

11

Z

12

...

Z

1n

Y

1

X

1

2

Z

21

Z

22

...

Z

2n

Y

2

X

2

...

...

...

...

...

...

...

n

Zn1

Zn2

...

Znn

Yn

Xn

Input Primer

(value added)

V

V1

V2

...

Vn

Impor

m

m1

m2

...

Mn

5.

Export and import

In the Input-Output Table, export and import is transactions of the goods and

services between residents of an area with a population outside the region, both

other provinces and abroad.

Simplification of the Input-Output tables can be created in the form of

general equation (1) as follows.

�

!"

+

�

! 

=

 

�

!

!

!!!

for i = 1,2,3, ……….

 

(

2.

1)

On the table there are three basic matrix Z the matrix, the matrix Y, and the

matrix V. Matrix Z is a matrix of transactions between the input; matrix Y is a

matrix of final demand consists of demand for household consumption (C),

government (G), investment (I), and exports (X); matrix V describes the primary

input consisting of wages (W), business surplus (S), depreciation (D), and

subsidies (T). There are two equations in the balance sheet as follows:

���

_:

      

_�

_!"

+

_�

_!  

=

 

�

!

!

!!!

,

_∀

i = 1,2,…,n ……

……

_.

_{.. (2}

_.2

₎

������

_:

      

_�

_!"

+

�

_!

+

 

�

_!

₌

 

_�

_!

!

!!!

,

_∀

j= 1,……,n …. (

_2.

3)

Definition of balance is the balance sheet at the time of production (output)

is equal to the number of inputs (input). In the equation, X

ij

is the value of the

flow of goods or services from sector i to sector j; Yi is the total final demand; V

j

is m

j

is the value added and imports. Flow between industries can be transformed

into a coefficients by assuming the purchase amount is fixed for each level of

output (no force of the principle of economies of scale), and do not include the

VI. CONCLUSIONS AND SUGGESTIONS

6.1 Conclusions

Based on the analysis of the Input-Output Table of Riau Province in 2010, the role of pulp and paper industry in the economy of Riau Province can be conclude as follows:

1. In the output structure, pulp industry value is 35,525,195 million rupiah while paper industry value is 4,233,851 million rupiah. In the demand structure, the intermediate demand for pulp industry is 16,591,780 million rupiah while for paper industry is 2,446,353 million rupiah. The gross value added for pulp industry is 18,211,169 million rupiah while for paper industry is 2,323,999 million rupiah. As for the investment, pulp industry value is 647,874 million rupiah while paper industry value is 228,476.99 million rupiah. The value of nett export-import for pulp industry is 17,494,714.99 million rupiah while for paper indutry is 666,256 million rupiah. Overall, the value of pulp industry is higher than paper industry in term of output structure, demand structure, gross value added, investment, and export-import.

2. Based on the linkage analysis, pulp industry has higher linkages to other sectors or to the sector itself whether directly or directly and indirectly than paper industry.

3. Judging from the dispersion analysis, pulp industry has the high ability to attract upstream sectors with a value of 1.10025 and has the low ability to attract its downstream sectors by 0.91889, while paper industry has low

  90 

capability to pull and push the upstream and downstream sectors by 0.92871 and 0.96581.

4. From the multiplier analysis, the output multiplier Type I and Type II for pulp industry are 1.86955 and 1.94717 while for paper industry are 1.32322 and 1.64358. As for income multiplier Type I and Type II, pulp industry has the value of 1.86955 and 2.00383 while paper industry has a value of 1.09145 and 1.16984. Therefore, pulp industry has higher value of multiplier than paper industry.

5. Through the TOM and TIM analysis, pulp industry ranked sixth in key priority sectors while paper industry ranked eighteenth. Pulp and paper industry has the ability to stimulate the economy of Riau Province so both should be developed further to improve the economic growth of Riau Province.

6.2 Suggestions

From the Results and discussions, can be given suggestions on the economy of Riau Province:

1. Pulp and paper industry is one of the key sectors in Riau Province that must be developed further by the government. The integration in pulp and paper industry will improve efficiency but will reduce the value of backward and forward linkages both to the upstream and downstream sectors. Paper industry needs to develop the innovation driven to reach efficiency without diminishing the value of backward and forward linkage to other sectors, so

  91 

every increased in pulp and paper industry will also has impact to other sectors.

2. The government of Riau Province should utilize the extent forest area of the Riau Province as a major supporter of pulp and paper industry through the provision of inputs. Alternative raw materials of non-wood include farm waste or agricultural waste, such as palm, bamboo, and straw should be developed further. This raw materials and the use of wasted paper as input not only will help to meet the national and international demands for paper, but it also can create environmental sustainability and cost efficiency of production.

3. The government should facilitate the cluster teams in order to synergize the core industries, supporting industries and related industries in order to improve the durability of the internal market and competitiveness in the global market. Formation of clusters of institutional collecting scrap paper, starting from scavengers, collectors, until the big shanties, in order to facilitate raw materials from local sources.

4. Licensing system and the business climate should be simplified so that the pulp and paper industry could grow through investment. Relevant agencies such as the forestry department and local governments should be able to coordinate with relevant parties such as the Badan Koordinasi Penanaman Modal _(BKPM), Badan Koordinasi Penanaman Modal Daerah _(BKPMD), Local Government of Riau Province, and Department of Finance to be able to attract investors.

THE ROLE OF PULP AND PAPER INDUSTRY IN THE

ECONOMY OF RIAU PROVINCE: INPUT-OUTPUT

ANALYSIS

BY

EMILIE AYU HAPSARI H14080072

DEPARTMENT OF ECONOMICS

FACULTY OF ECONOMICS AND MANAGEMENT

BOGOR AGRICULTURAL UNIVERSITY

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