Economic outlook for the remainder of the year 2021 depends greatly on the development of the pandemic as well as its effectiveness (and scale) support offered by respective governments. For Indonesia, the pandemic and efforts to speed up vaccinations will likely dominate the narrative in the near future.
Authorities have long had plans to transform the economy from one dominated by upstream commodities to downstream processing and led by the manufacturing/industrial sector. Apart from creating conducive conditions for domestic producers, attracting foreign investment is a priority because:
Domestic profit, namely to achieve a more balanced growth model, with a larger footprint for the industrial/manufacturing sector. In addition to strengthening external balance, This will also help in exploiting the benefits of the demographic bonus (The working age population makes up two-thirds of the total population)
Geopolitical: The heated US-China trade and investment war, compounded by the dislocation caused by the pandemic, has led to a reconfiguration in global supply chains within 2-3 last year. Foreign investors are increasingly looking for alternative investment destinations in the region as manufacturers' priorities shift from a 'just in time' strategy to a 'just in case' strategy
Indonesia's investment growth was relatively good last year compared to several neighboring countries in the same region. For example, compared with a double-digit contraction in investment growth in the Philippines last year, Indonesia experienced a contraction of 5% and/and.
Entering the year 2021, while higher spending needs for stimulus/recovery support may require reprioritization in fiscal spending, Private sector activity is likely to benefit from broad gains in the global commodity bull cycle as well as downstream activity.
The investment climate has improved in recent years, as reflected in the score Ease of Doing Business (EoDB) World Bank as well as in Global Competitiveness Index. Although Indonesia's overall ranking remains the same between 2019 and 2020, the score increases.
Another barometer, the report Global Competitiveness (latest level 2019) pegs Indonesia as close to its regional peers but lagging behind China.
Some areas where there are still gaps, including weaker infrastructure readiness, logistical obstacles, strict labor regulations, complex regulatory structure, and others necessary to materially increase competitiveness.
The 'Making Indonesia 4.0' initiative which was announced in 2018 encourage five main food and beverage sectors, textiles and apparel, automotive, electronic, and chemicals to account for two-thirds of the economy's manufacturing output as well as exports.
Under automotive, the government views the Electric Vehicle sector as important, with interests spanning the entire downstream commodity processing industrial chain to enable battery production and drive domestic EV adoption. This will help the economy, not only in utilizing its natural powers (like resources), but also making progress in the low-carbon energy transition.
Achieving the ultimate goal of manufacturing EV power generation and faster adoption will require hard work through policy support, consumer interests, and an efficient infrastructure backbone. Meanwhile, fossil fuel-based transportation is still dominant, EVs are expected to lower energy consumption and support state finances when fully implemented.
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