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19 October 2020 (closed)
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Indonesia's manufacturing sector has seen its contribution to overall Indonesian macroeconomic growth sliding over the past two decades. The cause is the lack of new and innovative products in this sector. This is the conclusion of Ricardo Hausmann, Director of the Center for International Development and a Professor of the Practice of Economic Development at the John F. Kennedy School of Government at Harvard University.
Hausmann did research on the topic of obstacles to Indonesia's economic growth (binding constraints) and came to the conclusion that the lack of creativity in the manufacturing industry is a key problem. As a consequence, few new products appear on the market, while research shows that the diversification of manufactured products is actually required to turn the country into an advanced economy.
In the 2000-2015 period, few new manufactured products appeared in Indonesia and therefore the contribution of the manufacturing industry towards Indonesian gross domestic product (GDP) continues to slide. This is in contrast to countries such as Thailand and Vietnam, where 13 times more new manufactured products were launched over the aforementioned period compared to Indonesia.
The low amount of diversification of products in Indonesia's manufacturing industry, according to Hausmann, is caused by the major focus of the Indonesian manufacturing sector on textiles, while it would be best for the development of the manufacturing sector to focus on new and innovative electronics and machinery products. This is what turned South Korea in an advanced nation. Meanwhile, regions in the eastern part of Indonesia, such as Nusa Tenggara Timur and Kalimantan are still too dependent on natural resources.
Indonesian Minister of National Development Planning Bambang Brodjonegoro acknowledged that the Indonesian economy is still dependent on natural resources and less focused on manufacturing. Therefore, it is necessary to improve the investment climate in order to attract investment in this sector. This would then deliver new products (suitable for export) that would help push Indonesia's GDP growth to 6 percent (year-on-year) and turn Indonesia into an advanced economy within the next two decades.