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Addressing logistics challenges key to reaping full benefits of manufacturing growth
While the Jokowi government has done much in developing infrastructure to lure investors, logistics is the next hurdle and could prove key to Indonesia achieving its economic ambitions.
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Wharfside: Workers load and unload containers on July 8, 2024 at Tanjung Priok Port in North Jakarta. (Antara/Indrianto Eko Suwarso)
T
he factory floor has been central to Asia’s economic rise. Manufacturing helped China, and Korea and Japan before it, lift huge numbers of people into the middle class, create new markets and drive investment.
Could Indonesia’s manufacturing sector also be the key to achieving its stated goals of becoming a top 10 economy by 2030 and a high-income country by 2045? Absolutely.
We are at a unique historical moment that favors the growth of manufacturing in Indonesia, as multinationals are diversifying their supply chains beyond China. But to grab a bigger slice of the manufacturing pie, the country must accelerate its push to improve logistics infrastructure and digitalize supply chains.
Our Trade in Transition report for this year, led by Economist Impact, shows that many business leaders are hedging against geopolitical friction by creating parallel supply chains, expanding into more neutral markets or switching to suppliers in countries that are regarded as politically aligned. Even within the Asia-Pacific, 47 percent of executives reported diversifying their firms’ supplier bases to mitigate against the trade tensions between the United States and China.
Southeast Asia as a whole now beats out China as the destination of choice for manufacturing investment. According to fDi Markets, foreign investors pledged US$124 billion in 2022 and 2023 to the region, more than double the amount pledged to China.
Interestingly, Chinese companies are also looking to Southeast Asia. The same research found that roughly a third of foreign investment into the region came from Chinese companies chasing lower operating costs. In Indonesia, this has included investments in key industries, such as electric vehicles.
As Southeast Asia’s largest economy, Indonesia is poised to benefit from these shifting investment dynamics. Recent government figures show that overall foreign direct investment was up 13.7 percent last year to $47.34 billion.
