5 2 DIAS SATRIA young economist FEB UB
Addressing competitiveness and
productivity in Indonesia
Hotel Grand Hyatt, Nusa Dua - Bali
10-11 December 2015
Presented by:
Dias Satria
Department of Economics, Universitas Brawijaya
Outline
1. Highlights of Indonesian economy
2. Competitiveness and productivity
3. Policy challenges
Indonesia
¡ Population: 254 Million
¡ GDP: $ 888 Billion
¡ Lower Middle Income
¡ Source: World bank
Economic growth 2015
1.8
Singapore
2.8
7
India
Malaysia
5
Indonesia
4.7
4.7
5.6
7
7
China
-4.6
Russia
-1.9
-2.6
-1.6
Brazil
1.6
1.5
2
EU
Austalia
US
-4
-2
7.5
0
2.5
2.7
2.9
2
Q2
4
Q1
6
8
Global monetary
architecture
¡ US Dollar standard and Global imbalance
¡ US Economy dominates for about 25-30% of the
world economy
¡ US $ dominates 70% of currency reserve
¡ Shrinking US$ liquidity triggers financial crisis
¡ In progress > using Reninmbi as a reserve currency
(promoted by Germany, UK and Korea)
A
O
S
N
2013-J
D
F
M
M
A
J
A
J
S
O
N
2014-J
D
M
F
A
M
J
A
J
O
S
N
2015-J
D
M
F
M
A
J
A
J
S
3000
J
2000
J
1000
M
0
A
-1000
F
-2000
-3000
M
Source: Bank Indonesia, 2015
2012-J
Current account balance
Juta USD
Capital account balance
Source: Bank Indonesia, 2015
Perkembangan PMA dan PMDN
600
519.5
500
PMA*
PMDN
Target on Going
463.2
Total
398.6
(Triliun Rp)
400
156.1
313.3
128.2
394.9
300
251.3
92.2
206.6
76.0
200
154.3
129.4
100
135.2
60.6
307.0
20.4
270.5
37.9
36.2
221.1
145.9
134.0
42.5
175.3
97.3
93.2
82.1
0
2007
2008
Source: BKPM (2015)
*Konversi kurs berdasarkan asumsi BKPM
*2015 sampai dengan Q1
2009
2010
2011
2012
2013
2014
2015
Other economic indicators (1)
¡ Inflation - September 2015 > 6.83% (yoy)
¡ Administered price (11.26%) and Volatile foods
(8.52%)
¡ Gini-ratio
¡ 2010 (0.38) – 2013 (0.41) – 2014 (0.42)
¡ inclusive growth
¡ External risk score (Fragile 5)
¡ Rank 4 in Q2 2015 – currency risk, current account
deficit
Other economic indicators (2)
¡ ICOR (Incremental Capital to Output Ratio)
¡ 2001-2014 (4.2%)
¡ Indonesian competitiveness index (WEF)
¡ Efficiency driven
¡ Indonesia (Rank 34)
¡ Long-term competitiveness
¡ TFP (Total Factor Productivity)
¡ Value-added per employee (Services, Manufacture
and Agriculture)
Trade performance
¡ Trade deficit 2012 – 2014, 2015 Trade surplus US$ 7.13bn
¡ Slow down in external demand (Including Chinese
economy)
¡ The depreciation of Rupiah has small impact to
export performance
¡ Import is slowing down faster than export (capital
goods and intermediate goods)
¡ Shift from manufacture to commodity (natural
resources)
¡ Where are we in a Global Value Chain?
Manufacturing industry
¡ Is manufacturing industry being driver of job
creation and productivity growth?
¡ TFP (Total Factor Productivity)
¡ Manufacturing value-added per employee
¡ Innovation (Technological and Knowledge
development)
¡ Business network and supporting industries
Opportunities in services
industry (ASEAN)
Goods
Services
Agro-based products
Air travel
Automotive
E-ASEAN
Electronics
Healthcare
Fisheries
Tourism
Rubber-based products
Logistics services
Textiles & apparels
Wood-based product
Issues (1) macroeconomic
¡ Global economic pressures (External)
¡ Inflation
¡ Currency and financial risks
¡ Maintaining macro and financial stability
¡ Fiscal space (revenue target?) – Effective spending
¡ Monetary policy – interest rates? VS Reserve
requirements? – financial inclusive
¡ Inclusive growth and disparity income
Issues (2) trade and industry
¡ Local economic fragmentation
¡ High costs economy
¡ Not flexible Labor market(decline productivity)
¡ Logistics and transaction costs
¡ Marginalization in Global Value Chain
¡ Issues = competitiveness and productivity
¡ Cant rely on natural resources (commodity prices)
¡ Cant rely on cheap labor
Issues (3) Policies
¡ Political issues
¡ Implementing the Policy is not easy (multi party) –
political stability and economic reform.
Source: WEF, 2015
Policies
1. Structural reforms
2. Sound Investment climate
3. Human capital improvement
4. Good Infrastructure
Policies
5. Efficient services (support competitiveness)
6. Flexible labor market
7. Intellectual property rights
8. Policies to support Inclusive growth.
9. Tax incentives for Research and Development.
Industrial policies
Involve in a Global Value chain
Increasing the value added
Deepening industrial sector
Cluster reform
Trade policies
Keeping our
markets open
Involve in GVC
(Manufacture and
services)
Clear strategy of
use NTB (Non tariff
barrier)
Diversification
export and product
structure
(innovation and
creative)
Domestic policies
(trade facilitation,
custom).
Thank you
productivity in Indonesia
Hotel Grand Hyatt, Nusa Dua - Bali
10-11 December 2015
Presented by:
Dias Satria
Department of Economics, Universitas Brawijaya
Outline
1. Highlights of Indonesian economy
2. Competitiveness and productivity
3. Policy challenges
Indonesia
¡ Population: 254 Million
¡ GDP: $ 888 Billion
¡ Lower Middle Income
¡ Source: World bank
Economic growth 2015
1.8
Singapore
2.8
7
India
Malaysia
5
Indonesia
4.7
4.7
5.6
7
7
China
-4.6
Russia
-1.9
-2.6
-1.6
Brazil
1.6
1.5
2
EU
Austalia
US
-4
-2
7.5
0
2.5
2.7
2.9
2
Q2
4
Q1
6
8
Global monetary
architecture
¡ US Dollar standard and Global imbalance
¡ US Economy dominates for about 25-30% of the
world economy
¡ US $ dominates 70% of currency reserve
¡ Shrinking US$ liquidity triggers financial crisis
¡ In progress > using Reninmbi as a reserve currency
(promoted by Germany, UK and Korea)
A
O
S
N
2013-J
D
F
M
M
A
J
A
J
S
O
N
2014-J
D
M
F
A
M
J
A
J
O
S
N
2015-J
D
M
F
M
A
J
A
J
S
3000
J
2000
J
1000
M
0
A
-1000
F
-2000
-3000
M
Source: Bank Indonesia, 2015
2012-J
Current account balance
Juta USD
Capital account balance
Source: Bank Indonesia, 2015
Perkembangan PMA dan PMDN
600
519.5
500
PMA*
PMDN
Target on Going
463.2
Total
398.6
(Triliun Rp)
400
156.1
313.3
128.2
394.9
300
251.3
92.2
206.6
76.0
200
154.3
129.4
100
135.2
60.6
307.0
20.4
270.5
37.9
36.2
221.1
145.9
134.0
42.5
175.3
97.3
93.2
82.1
0
2007
2008
Source: BKPM (2015)
*Konversi kurs berdasarkan asumsi BKPM
*2015 sampai dengan Q1
2009
2010
2011
2012
2013
2014
2015
Other economic indicators (1)
¡ Inflation - September 2015 > 6.83% (yoy)
¡ Administered price (11.26%) and Volatile foods
(8.52%)
¡ Gini-ratio
¡ 2010 (0.38) – 2013 (0.41) – 2014 (0.42)
¡ inclusive growth
¡ External risk score (Fragile 5)
¡ Rank 4 in Q2 2015 – currency risk, current account
deficit
Other economic indicators (2)
¡ ICOR (Incremental Capital to Output Ratio)
¡ 2001-2014 (4.2%)
¡ Indonesian competitiveness index (WEF)
¡ Efficiency driven
¡ Indonesia (Rank 34)
¡ Long-term competitiveness
¡ TFP (Total Factor Productivity)
¡ Value-added per employee (Services, Manufacture
and Agriculture)
Trade performance
¡ Trade deficit 2012 – 2014, 2015 Trade surplus US$ 7.13bn
¡ Slow down in external demand (Including Chinese
economy)
¡ The depreciation of Rupiah has small impact to
export performance
¡ Import is slowing down faster than export (capital
goods and intermediate goods)
¡ Shift from manufacture to commodity (natural
resources)
¡ Where are we in a Global Value Chain?
Manufacturing industry
¡ Is manufacturing industry being driver of job
creation and productivity growth?
¡ TFP (Total Factor Productivity)
¡ Manufacturing value-added per employee
¡ Innovation (Technological and Knowledge
development)
¡ Business network and supporting industries
Opportunities in services
industry (ASEAN)
Goods
Services
Agro-based products
Air travel
Automotive
E-ASEAN
Electronics
Healthcare
Fisheries
Tourism
Rubber-based products
Logistics services
Textiles & apparels
Wood-based product
Issues (1) macroeconomic
¡ Global economic pressures (External)
¡ Inflation
¡ Currency and financial risks
¡ Maintaining macro and financial stability
¡ Fiscal space (revenue target?) – Effective spending
¡ Monetary policy – interest rates? VS Reserve
requirements? – financial inclusive
¡ Inclusive growth and disparity income
Issues (2) trade and industry
¡ Local economic fragmentation
¡ High costs economy
¡ Not flexible Labor market(decline productivity)
¡ Logistics and transaction costs
¡ Marginalization in Global Value Chain
¡ Issues = competitiveness and productivity
¡ Cant rely on natural resources (commodity prices)
¡ Cant rely on cheap labor
Issues (3) Policies
¡ Political issues
¡ Implementing the Policy is not easy (multi party) –
political stability and economic reform.
Source: WEF, 2015
Policies
1. Structural reforms
2. Sound Investment climate
3. Human capital improvement
4. Good Infrastructure
Policies
5. Efficient services (support competitiveness)
6. Flexible labor market
7. Intellectual property rights
8. Policies to support Inclusive growth.
9. Tax incentives for Research and Development.
Industrial policies
Involve in a Global Value chain
Increasing the value added
Deepening industrial sector
Cluster reform
Trade policies
Keeping our
markets open
Involve in GVC
(Manufacture and
services)
Clear strategy of
use NTB (Non tariff
barrier)
Diversification
export and product
structure
(innovation and
creative)
Domestic policies
(trade facilitation,
custom).
Thank you