In 2015 the manufacturing industry of Indonesia contributed 20.84 percent to nation's gross domestic product (GDP), of which 18.8 percent was generated by the non-oil & gas industry. It is a bad sign that Indonesia's manufacturing industry grew only 4.25 percent (y/y) in 2015, lower than the nation's overall economic growth of 4.79 percent (y/y).

And even more alarming is that its contribution toward Indonesia's GDP declined from 28.0 percent to 20.8 percent of GDP over the past decade. Ideally, the manufacturing sector would account for at least 35 percent of GDP. During the last years of the Suharto regime Indonesia was on its way to achieve this figure. However, after the Asian Financial Crisis rocked the financial foundations of the country in the late 1990s, Indonesia has struggled to revive its manufacturing industry. This is problematic because an underdeveloped manufacturing industry gives rise to a fragile economy as Indonesia remains highly dependent on raw commodity exports and on the services industry.

Contribution Manufacturing Industry to Indonesian Economy:

Year Contribution
2009     26.35%
2010     24.79%
2011     24.32%
2012     23.97%
2013     21.03%
2014     21.01%
2015     20.84%

Source: Bisnis Indonesia

Since the birth of Law No. 4/2009 on Mineral and Coal Mining (New Mining Law), miners in Indonesia have been encouraged to develop domestic processing facilities (smelters) to produce higher value mining output. Based on data from the Processing and Smelting Companies Association (AP3I), 32 smelters were built in the 2012-2014 period, including 24 nickel smelters. The total investment value is estimated at USD $18 billion, 95 percent of which was invested by Chinese investors.

I Gusti Putu Suryawirawan said one of the obstacles in terms of smelter development in Indonesia is the lack of skilled local labor and therefore foreign workers need to be moved (temporarily) into Indonesia to conduct the technical studies and to construct the smelters. After construction finished they head back abroad.

Indonesia's Manufacturing Industry:

Sector        Contribution to
Manufacturing Industry
Food & Beverage                30.84%
Metal Goods, Electronics & Electrical Equipment                10.81%
Transport Equipment                10.50%
Chemicals, Pharmaceuticals & Traditional Medicines                 9.98%
Textiles & Apparel                 6.65%
Tobacco Processing                 5.19%
Primary Metals                 4.31%
Paper Products, Printing & Reproduction of Recorded Media                 4.19%
Rubber, Rubber Products & Plastics                 4.10%
Excavation goods (non-Metals)                 3.98%
Wood, Wood Products                 3.71%
Machinery & Equipment                 1.78%
Leather, Leather Products & Footwear                 1.50%
Furniture                 1.49%
Others                 0.99%

Source: Bisnis Indonesia