The Increase of Investment in Manufacturing Sector in Indonesia During Pandemic

The COVID-19 pandemic has created a fuss in Indonesia’s economy. Government is currently working hard to prevent recession. However, there is a prospect that the economic will revive soon as the Indonesia Investment Coordinating Board (BKPM) has released an Indonesia investment report. Written in the report, BKPM stated that the investment in the manufacturing sector soars beyond expectation, even higher than the previous year.

As the IMF has predicted that Indonesia will experience economic growth of 8.2% in 2021, the expectation that the investment in the manufacturing sector will keep on increasing remains large.

Investment growth in manufacturing sector

The data from BKPM reported that the investment in the manufacturing sector soars from IDR104.6 trillion in the first quarter of 2019 to IDR129.6 trillion during the first quarter of 2020, reaching a 23.9% growth rate. This has come to a surprise since the growth is during the corresponding quarter of the COVID-19 pandemic.

Minister of Industry, Agus Gumiwang, stated that the industrial growth performance during the first quarter of 2020 drops 2.01% in comparison to the 4.8% growth in the previous year. The Purchasing Managers Index has also reached 27.5 points in February, becoming the lowest record in existence. However, Agus reported that the industrial environment in Indonesia slowly improves, reaching 39.1 points in June.

Despite the low performance, the industrial sector largely contributes to the nation’s foreign exchange earnings in the January-June period, with 32.2% of the total investment value of IDR402.6 trillion. This investment value in the manufacturing sector shows a balance between foreign and domestic investors. The Deputy Chairman of Chamber of Commerce and Industry for the Economic Zone, Sanny Iskandar, reported that there are 29 foreign investors and 21 domestic investors who have entered the industrial zone in June 2020.

The economic impacts

The investment in the manufacturing sector soars 23.9% has become another achievement by the government and BKPM. BKPM itself has declared to prioritize the manufacturing sector along with downstream and medical devices sectors since June and onwards. The high rise of investment in the manufacturing industry directly affects the nation’s economic state, specifically the employment rate.

As of current, Agus Gumiwang stated that the employment within the industrial sector has reached 18.87 million workers. This data is in line with the number of industrial zones that have increased steadily during the last five years by 40%, which equals 16.2 thousand hectares. In 2020, Indonesia has 112 industrial zones and another 27 industrial zones will be added in 2024 across Sumatra, Java, Sulawesi, Kalimantan, Maluku, Nusa Tenggara, and Papua.

The 29 foreign investors have occupied the 99.44 hectares of Indonesia industrial zones, whereas the 21 domestic investors have occupied 44.87 hectares. Furthermore, BKPM and regional government will continuously work hand-in-hand to promote more investors to the manufacturing sector. Confidently, this will help accelerate Indonesia’s target of becoming one of the biggest economic powers in the world by 2030.

Top industrial sectors that contribute

From the total of 29 foreign investors, 10 of them are from South Korea, 7 investors from Japan, 3 investors from China, and 1 investor from the United States. BKPM has accounted that there are 5 main industrial manufacturing sectors that contribute to the high rise of investment in manufacturing.

The first one is the base metal, metal goods, and not machinery industry with the largest contribution of IDR45.2 trillion. The food industry follows with a total of IDR26.6 trillion, as the chemical and pharmaceutical industry gains IDR19.5 trillion. The fourth industrial manufacturing sector is the non-metal mineral industry with IDR6.1 trillion. Lastly, the automotive and means of transportation industry contributes to IDR6 trillion.