Six Economic Pillars Not Yet Competitive
Rosmiyati Dewi Kandi, Nurul Fitriany & Rheza Andika. The Indonesia Finance Today. Jakarta - 09/06/2011
Six of twelve economic pillars which served as Indonesia competitiveness indicators against other countries were low and below ASEAN averages. The 2011 Indonesia Competitiveness Report from the World Economic Forum stated that in terms of institutional condition, infrastructure, goods market efficiency, manpower efficiency, financial market development and technological readiness, Indonesia was below ASEAN average values.
The ASEAN competitiveness index was compiled from the average of eight countries, excluding Laos and Timor Leste. Such low competitiveness placed Indonesia at number five in ASEAN, after Singapore, Malaysia, Brunei Darussalam and Thailand. In the world, Indonesia is number 44 of 139 countries, up ten notches from 2005.
Thierry Geiger, an economist from the World Economic Forum and the main author of the report, said Indonesia must focus on three main sectors to increase competitiveness, including infrastructure, health and corruption eradication.
Infrastructure is the main problem of Indonesia. Other barriers include limited electrical power for industry, low information and communication technology use and low informal worker health condition. “Indonesia must strengthen its institutional framework and reduce corruption in policy-making process,” said Geiger.
Mari Elka Pangestu, Trade Minister, said infrastructure is still below foreign investors' criteria. The government is preparing the master plan for domestic transportation integration and logistics development in the form of six economic corridors which will be completed by end of 2015.
Gita Wirjawan, Head of the Capital Investment Coordinating Board (BKPM), believes Indonesia is still attractive for investments. The government even targeted a minimum of US$ 10 billion in investment from the World Economic Forum in Jakarta, to be held on June 12-13.
BKPM already pocketed several investment commitments, including from the Coca Cola Company worth US$ 500 million, Nestle SA worth US$ 300 million-US$ 400 million and Procter & Gamble Co at US$ 200 million. “The commitments will be followed up in the forum,” said Gita.
Goldman Sachs Group Inc in its report also stated that Indonesia macroeconomic and capital market conditions are still attractive. The investment agency upgraded Indonesia and Malaysia status to overweight.
In the research, Goldman Sachs said that Indonesia capital market has bright growth prospect coupled with lower investment risks compared to regional markets. “Jakarta Composite Index may increase again if listed companies' second quarter financial statements are in line with market expectations,” said Ferry Budiman Tanja, President Director of PT Ciptadana Securities.
The IFT Research Department said the ASEAN market stole Goldman Sachs attention as business profit growth in the region is among the strongest in the short and long-term. Sluggish economic growth in Europe and the USA opened an opportunity for Indonesia and other Southeast Asian countries to support investment growth, particularly by improving infrastructure and education.
Challenge for Indonesia is to prepare national companies for international competition and extending focus not only to domestic market. Foreign capital inflow can be used as a market for Indonesia, while technology transfer and national competence development are vital in the long run for national companies, to equip them in being able to cater to the foreign markets. The government must also support physical infrastructure, technological readiness and financial market development, which in turn will increase efficiency.
Gita said new investments will largely depend on the completion of several regulations, including Land Acquisition Bill and elimination of overlapping central and regional regulations