Indonesia’s Higher Import Duties on Consumer Goods to Backfire?
In an effort to boost the domestic consumer goods industry, the Indonesian government today (23/07) raised import tariffs for food, cars, clothes and many other consumer goods. This seemingly protectionist measure is aimed at reducing Indonesia’s dependence on imported goods as well as to boost the country’s general economic growth, which has slowed to a six-year low of 4.71 percent (y/y) in the first quarter of 2015, by supporting development of the local consumer goods industry.
With a total population of over 250 million people, and about 80 million 'middle class and affluent' consumers, Indonesia contains a huge consumer force. However, recently Indonesian purchasing power has declined due to the country’s slowing economic growth, low commodity prices, high inflation and weak rupiah.
The import tariff for various items was raised effective from today (23/07), including meat (raised from 5 to 30 percent), coffee/tea (raised from 5 to 20 percent), cars (fixed at 50 percent from the range of 10-40 percent previously), and beverages with alcohol content of at least 25 percent (now subject to an import tariff of 150 percent).
However, analysts do not expect to see a marked improvement in the development of the local consumer goods industry as a result of these higher import tariffs as the industry is facing bigger problems than foreign competition. These problems include weak infrastructure (seriously raising logistics costs) and bureaucratic problems. Tackling these issues would cut local firms operational costs and make it possible to offer their products to the consumer at a cheaper rate. If only import tariffs are raised then Indonesian manufacturers will indeed obtain a larger market share. However, it will also boost inflation which was already at 7.26 percent (y/y) in June 2015.