Growth of Indonesia’s non-oil and gas manufacturing industry in the first half of 2014 reached 5.49 percent (year-on-year) and thus outpaced the country’s general economic growth of 5.17 percent (yoy) over the same period. Indonesia’s manufacturing industry growth was particularly supported by growth in a number of sectors: Food, Drinks and Tobacco (+9.62 percent), Wood and Other Forest Products (+6.35 percent), Transportation Equipment Industry and Machinery (+4.52 percent), and Other Industrial Products (+15.77 percent).
Indonesian Industry Minister MS Hidayat said that investments in the country’s manufacturing industry have indeed slowed in the first half of 2014 as investors have been waiting for the formation of the new Indonesian government. The July presidential election was a tight race between market favourite Joko Widodo (known as Jokowi) and controversial candidate (former army general) Prabowo Subianto. Although Jokowi won the race securing 53.15 percent of the votes, Subianto is currently challenging the result in the country’s Constitutional Court claiming that there has been massive fraud at polling stations as well as during the counting process. Few expect Subianto to win this court case, but it does lead to some political uncertainties.
Growth of the Indonesian Manufacturing Industry 2009-2014:
annual % change
¹ Government projection
Source: Ministry of Industry
Hidayat added that Indonesia needs more investments in order to provide more employment opportunities to its people. It is of particular importance that investors will look beyond the island of Java (Indonesia’s political and economic center as well as the country’s most densely populated island) and invest in the more eastern located ‘outer islands’ to make economic development more equal in terms of geography.
Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (Gapmmi), expects that growth of Indonesia’s food and beverage industry will slow in the third quarter of 2014. This is a normal pattern after the holy fasting month of Ramadan and subsequent Idul Fitri celebrations have ended (these festivities always trigger increased spending on food products because of frequent dinner parties to break the daily fasting). According to data from Statistics Indonesia, the country’s large and middle scale food industry grew 11.27 percent (yoy), while the beverage industry grew 4.12 percent (yoy) in the second quarter of 2014. In the third quarter, however, this growth will slow. Lukman added that domestic uncertainty about whether the fuel subsidies will be reduced further contributes to reduced industrial activity. If subsidies are erased, then distribution costs will increase by about 5 to 8 percent.