Rizal Ramli: The Indonesian Industry Is Increasingly Uncompetitive

Senior economist, Rizal Ramli. (Photo: Instagram @rizalramliofficial)

JAKARTA - National industrial growth in the last five years has been stagnant. In 2019, the national industrial growth was recorded at 5.4 percent, which is not very far from the realization of Indonesia's 2019 economic growth which grew by 5.02 percent.

In fact, according to senior economist Rizal Ramli, ideally as a developing country, industrial growth must be higher than economic growth. For example, economic growth is 6 percent, then industrial growth should be 10 percent to 15 percent.

Unfortunately, according to Rizal, this condition has never happened again at least in the last 5-6 years. In fact, according to him, the situation reversed, namely economic growth of around 5 percent, while industry was growing at a slower rate of around 3 percent to 4 percent.

"This means that the industry is getting smaller and smaller, showing that the industry in Indonesia, especially manufacturing, is getting less and less competitive," he said, in a virtual discussion, Thursday, July 23.

Not only that, according to Rizal, industry in the country cannot even be a source of formal job creation and in fact more of those who grow are informal workers.

Furthermore, Rizal said, industrial growth greatly affects the absorption of labor. With the increase in domestic industry, there will also be an increase in wages and high productivity.

"Indonesia in the 80s like that, the industrial sector growth was around 15 percent to 18 percent. Its economic growth was only 6.5 percent which is true. Until we enter the stage of developed countries, the industry will decrease," he said.

For information, the performance of the manufacturing industry experienced deep pressure during the second quarter of 2020 as a result of the COVID-19 pandemic. This condition is estimated to cause economic growth in the third quarter of 2020 to slow down again.

Bank Indonesia noted that BI's prompt manufacturing index (PMI) in the second quarter of 2020 was 28.55 percent, down from 45.64 percent in the previous quarter and much lower than the PMI in the second quarter of 2019 which was recorded at 52.66 percent.

Based on the PMI-BI report released on Monday, July 13, the PMI contraction in the second quarter of 2020 occurred in all components that make up the PMI-BI. The deepest contraction occurred in the production volume component in line with falling demand due to the COVID-19 pandemic.