World Bank: Logistics Costs Reduce Economic Potential of Indonesia
10 September 2013 | Indonesia Investments
ALI, ASEAN, Bandung Institute of Technology, Competitiveness, Export, GDP, Infrastructure, Inventory Costs, Logistic Costs, Logistics, Macroeconomy, MP3EI, Tanjung Priok, Transportation, World Bank
In its most recent report regarding Indonesia's economy, the World Bank states that high logistic costs form a serious impediment to the country's economic growth. The report, titled Annual Logistics Report, is compiled by Bandung Institute of Technology’s Research Center for Logistics and Supply Chains, the Indonesian Logistics Association (ALI), the STC Group, Panteia Research Institute, and the World Bank Indonesia Office. The report provides an analysis and overview of the progress made in tackling the problem of logistics in Indonesia.
The report contains an interesting case study which examines inefficiencies at Jakarta’s Tanjung Priok port. The full report can be accessed here. Below, Indonesia Investments provides a small selection of the report's content:
The geographical nature of Indonesia with its many islands and the uneven distribution of the population put enormous challenges in developing infrastructure and tackling regional disparities. Lack of infrastructure has hampered the effort to develop and realize the national and regional economic potentials. The organization of an efficient logistics system is a crucial factor in the socio-economic development of Indonesia.
Currently, the logistics system is in need to become more efficient. The inadequate performance of the logistics system is dragging its export capacity down and constraining the country from fully participating in the global production network. Indonesia’s share of exports to total GDP has been low over the period 1999-2008 at 28 percent, far smaller than Singapore (150 percent), Malaysia (91 percent) and Thailand (50 percent). Developing an efficient logistics system would increase the competitiveness of Indonesia’s external trade and increase export. It also would contribute to reducing regional disparities and providing easier and cheaper access of the commodities on the domestic market.
Logistics Costs among Advanced and ASEAN Countries:
During the period 2004-2011 there was slight improvement of the performance of Indonesia logistics costs from 27.61 percent of GDP in 2004 to 24.64 percent of GDP in 2011; it means that in average there was 0.37 percent of GDP annual improvement in Indonesia's logistics cost. In 2011, national logistics costs constituted 25.03 percent of GDP, lower than average. The average of Indonesian logistics costs during 8 years (2004 to 2011) was 26.03 percent of GDP, of which the transportation cost component provided the largest contribution (12.04 percent of GDP); administration cost component (4.52 percent of GDP) had the lowest contribution, and the contribution of the inventory costs (9.47 percent of GDP) was in the middle position.
Transportation costs are dominated by land transportation costs (72.21 percent); rail transportation (only 0.51 percent) gave the lowest contribution; the inventory costs were dominated by holding costs (49.37 percent).
From an economic point of view, the significant increment of total amount of national logistics costs was highly correlated with the fuel (BBM) price adjustment; accordingly, it could be used as an indicator to predict the Indonesian logistics costs.