Indonesia's manufacturing industry was worth IDR 2,097.7 trillion (approx. USD $156 billion) in 2015, contributing 18.1 percent to the country's gross domestic product (GDP), up from 17.8 percent of GDP in the preceding year. However, this higher contribution of manufacturing to the economy is mainly caused by the declining roles of oil & gas, commodities, agriculture and mining within the Indonesian economy. These sectors have all seen their roles decline amid persistently low commodity prices.
In fact, it is important to stress that Indonesia's manufacturing industry remains subdued as well, reflected by the Indonesia Manufacturing Purchasing Managers' Index (PMI) that has been contracting for 16 straight months.
Indonesia - Purchasing Managers' Index (PMI):
Within Indonesia's (non-oil & gas) manufacturing industry the most important sector is the food and beverage industry. This industry accounts for 30.8 percent of the total non-oil & gas manufacturing industry of Indonesia and therefore constitutes a key engine for the overall economy. The food and beverage industry is also one of the most popular destinations for (foreign and domestic) investment in Indonesia. Late last year, the Indonesia Investment Coordinating Board (BKPM) said applications for principle licenses in the food sector between the period 1 January to 28 December 2015 were worth a total of IDR 184.9 trillion (approx. USD $14 billion). Most - IDR 163.7 trillion - originated from foreign investors, the remainder from domestic investors.
The food and beverage industry is attractive because Indonesia is a huge market (with a population of more than 255 million people) including an expanding middle class segment.
Syarif Hidayat, Secretary General at Indonesia's Ministry of Industry, said the government targets to see the manufacturing industry growing 5.7 percent year-on-year (y/y) in 2016, contributing 18.5 percent to Indonesia's GDP. He added that by 2035 the manufacturing industry's contribution share is targeted to have risen to 30 percent of GDP.
Since September 2015 the Indonesian government has released ten economic policy packages. A central focus of these packages is the support for domestic industrialization - particularly export-oriented industries that absorb a significant number of worker in order to combat unemployment - through tax incentives and deregulation in a bid to reduce Indonesia's over-dependence on (raw) commodity exports.
Indonesia's Manufacturing Industry:
|Sector|| Contribution to
|Food & Beverage||30.84%|
|Metal Goods, Electronics & Electrical Equipment||10.81%|
|Chemicals, Pharmaceuticals & Traditional Medicines||9.98%|
|Textiles & Apparel||6.65%|
|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%|
Source: Bisnis Indonesia