Faisal Basri: Indonesia Experiencing Symptoms of Early Deindustrialization

Illustration (Photo: Doc. Antara)

JAKARTA - Institute for Development of Economics and Finance (Indef) senior economist, Faisal Basri, highlighted the contribution of the manufacturing industry to the total gross domestic product (GDP), which continues to decline.

In fact, he said, Indonesia is experiencing symptoms of early deindustrialization.

Currently, said Faisal, the manufacturing industry's contribution to GDP is only 18.3 percent in the third quarter of 2022. Meanwhile, in 2021, it was at the level of 29.1 percent.

“The growth of the manufacturing industry is practically always lower than GDP. So there are some early symptoms of deindustrialization. Our manufacturing industry sector experienced an untimely slowdown, before reaching its optimal point", he said in an initial note for Indef 2023, Thursday, January 5.

Faisal estimates that Vietnam will overtake the contribution of the industrial sector to Indonesia's GDP. In fact, far below the neighboring countries of Malaysia.

"Soon it will be overtaken by Vietnam, but far below the countries of China, Thailand, and Malaysia. He is the builder of a strong middle class. So if the industry is weak, the middle class will also be 'blessed'. The layer of formal workers is relatively small", he said.

He said that if the manufacturing structure is weak, the products sold overseas will be limited. As a result, Indonesia will depend on commodity exports.

“So we have to depend more and more on commodity exports that only require less brain power. Because all you have to do is pick, then sell, cut down the trees, sell it like that", he said.

For your information, one of the impacts of the emergence of industrialization is the narrowing of job opportunities due to the decline in industrial scale.

This leads to an increase in unemployment and poverty.

Because of that, Faisal asked the government to encourage the manufacturing sector so that it could stretch.

That way, it will increase its contribution to GDP and the added value of these products.

"So we can see that our export structure is also incomplete, other countries rely more on their brains. And manufacturing is less diversified, so our industry is slowing down and then it is very dependent on a handful of industrial sub-sectors", he said.