Asa Optimistic Indonesian Industry Faces the New Year

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Asa Optimistic Indonesian Industry Faces the New Year

Sunday, 3 January 2021

Armed with positive performance during the Covid-19 pandemic, the industrial sector, especially the manufacturing industry, is expected to be a support for the national economic rebound in 2021.
 3 January 2021, 08:39 WIB
 Asa Optimistic Indonesian Industry Faces the New Year
 Workers assemble vehicles at an automotive factory in Karawang, West Java. Photo: ANTARA PHOTO / Rizky Andrianto

 A number of world institutions have conveyed their projections regarding the recovery of Indonesia's economy in 2021. This cash boosts optimism in the country.

 Call it the Organization for Economic Co-operation and Development (OECD) which provides a 4 percent projection. Then, the ADB (5.3 percent), the World Bank (4.4 percent), the IMF (6.1 percent), and the Bloomberg Median (5.6 percent). Meanwhile, the APBN outlook also provides a 5 percent growth projection.

 The projection of a number of prestigious world institutions is certainly a vitamin for this nation's economy to navigate the uncertain world economic conditions. Apart from the pandemic outbreak which has yet to show signs of abating, the existence of a variant of the virus from England also gives a negative nuance to global economic conditions.

 As stated by the Minister of Industry Agus Gumiwang Kartasasmita, Indonesia has sufficiently strong capital to be able to enter the stage of economic recovery. Another supporting factor in the form of global economic parameters is also showing signs of revival amidst the threat of the second wave of the Covid-19 pandemic outbreak.

 "The government is optimistic that the entire series of strategies and policies that have been implemented will be able to take advantage of the opportunities for economic recovery in the future," said Agus Gumiwang in a discussion on the West Merdeka Forum 9 (FMB9) entitled "Kaleidoscope 2020: Maintaining the Continuity of Industry in the Middle of a Pandemic", which took place. on Wednesday (30/12/2020).

 Business actors also expressed the same optimism, especially the Chamber of Commerce and Industry (Kadin). Chairman of the Indonesian Chamber of Commerce and Industry Rosan P Roeslani is optimistic that the momentum for economic recovery next year will be even better, as reflected in several economic indicators that have begun to show recovery.

 "For example, the manufacturing PMI has returned to an expansionary level and the consumer confidence index is starting to increase. This is very encouraging. "

 Recovery Indicator

 The next question, what are the indicators leading to recovery in 2021? This can be seen from the journey of the national economy during 2020. The Indonesian economy experienced a rock button in the second quarter of 2020, especially when the country was declared to have experienced a pandemic outbreak.

 However, in the third quarter of 2020, it began to improve, although it still contracted at -3.4 percent (yoy). This condition is still better than several other countries, such as Germany, Singapore, the Philippines, Spain and Mexico, which contracted by an average of -4 percent.

 Other supportive macroeconomics include improving domestic demand and consumer confidence. Where it is believed to encourage the production or supplay side. Then, the Jakarta Composite Index (IHSG) and the rupiah exchange rate continued to strengthen and returned to the pre-Covid-19 level.

 JCI on Thursday (21/12/2020) closed at the level of 6,165.52, or rose 1 percent (d to d) compared to the previous day's close. On a month to date basis, the JCI has increased by 9.86 percent.

 Likewise, the rupiah exchange rate on the same date was recorded at Rp14,130 (d to d) compared to the previous day's close. On a month-to-date basis, the rupiah has only depreciated by 0.07 percent.

 From that description, the level of the rupiah exchange rate has approached the level before the Covid-19 pandemic. The continuing increase in the flow of Foreign Direct Investment (FDI) also supports the 2021 recovery efforts.

 Another indicator that provides a bright picture of the industrial sector is the Purchasing Managers Index (PMI) report, which is starting to show signs of expansion. After previously experiencing a decline due to the Covid-19 pandemic.

 Indonesia's PMI was recorded at the level of 50.8 in August 2020. However, the index fell again in the following month to the level of 47.2. It rose again in October to 47.8, and in November again showed expansion at the level of 50.6. The indicator for one country starts to expand when the value is above 50 points.

 In terms of utilization, it is also illustrated that the exposure to the Covid-19 pandemic has hit the manufacturing sector. This can be seen from the utilization in January - March 2020, which was 76.29 percent.

 As a result of the Covid-19 pandemic, productivity utilization decreased to 59.20 percent in the April - November 2020 period. In December 2020, the average industrial utilization was approaching 60 percent.

 Investment Processing

 The news that is even quite encouraging is that there is no influence on investment in the processing industry during the Covid-19 pandemic. This indicator can be seen from the data that up to September 2020, investment growth in the manufacturing industry rose 31.7 percent compared to the same period the previous year.

 The description above is the face of the national macro economy. So how is the performance of the processing industry which is predicted to be the driving force in the industrial sector? From the data from the Ministry of Industry, the performance growth of the non-oil and gas processing industry slumped in the second quarter of 2020 at -5.74 percent. But, then began to stretch to -4.02 percent in the third quarter of 2020.

 Although still experiencing contraction, now a number of industries are starting to grow. In particular, industry contributed from the sub-sector. For example, the chemical, pharmaceutical and traditional medicine industries grew by 14.96 percent. Then, there is the basic metal industry (5.19 percent).

 In addition, there are other processing industries. For example, repair services and installation of machines and equipment by 1.15 percent. Likewise, the export performance during January - October 2020, which managed to record a value of USD 118.23 billion and experienced a surplus of USD13.12 billion. The exports were supported by several sectors such as the food and beverage industry with a growth of 27.59 percent, the base metal industry (20.82 percent), and the chemical, pharmaceutical and traditional medicine sub-sectors by 11.85 percent.

 What about the odds in 2021? The government believes that the opportunity in 2021 is still quite large, as long as this nation can take advantage of the game changer during the pandemic, which is the implementation of the Covid-19 vaccination. On the other hand, the key driver is the work creation law.

 Opportunities in the future that must be optimized are a number of activities in international trade cooperation agreements that are increasingly integrated. For example, through a comprehensive Regional Comprehensive Economic Partnership (RCEP) agreement by all Asean countries and five major trading partners, Indonesia-EFTA (European Free Trade Association), the Indonesia-Australia Comprehensive Economic Partnership Agreement (CEPA), and the Indonesia-Korea CEPA.

 For the RCEP agreement alone, the multilateral trade agreement covers 29 percent of the world's population, 27 percent of world trade, 30 percent of world GDP, and 29 percent of world FDI. "The activities of all trade agreements must be optimized to boost export performance and improve Indonesia's position in the global value chain. So, it can increase competitiveness and encourage the entry of FDI."

 Likewise, the generalized system of preference (GSP) facility trade agreement will be upgraded to a limited trade agreement (LTA). "This certainly gives optimism and boosts national export performance."

 In addition to optimization through a number of trade agreements, both multilateral and bilateral, the government has also prepared other strategies, such as remaining siding with the MSME sector, maintaining food security, developing industrial estates, mandating B-30s, labor-intensive programs and digital economy development programs, preparation of a Priority List. Investment (DPI), as well as the establishment of an investment management institution (soverign wealth fund).

 "The activities of all trade agreements must be optimized in order to boost export performance and improve Indonesia's position in the global value chain so as to increase competitiveness and encourage the entry of FDI," said Agus Gumiwang.

 Author: Firman Hidranto
 Editor: Elvira Inda Sari
 Language Editors: Ratna Nuraini