Rising foreign investments in Indonesia’s manufacturing sector
Indonesia’s manufacturing sector employed over 19 million people in 2022, making it one of the sectors with the largest workforce in Indonesia. By 2024, the government targets to boost employment to more than 20 million workers in this sector. Compared to other Asian countries, labor costs in Indonesia are relatively low, with the average monthly net wage of manufacturing workers ranging from around 95 to 350 U.S. dollars. The subsectors that account for a significant portion of employment include food manufacturing, apparel manufacturing, and textile manufacturing.Due to its cost-effective and abundant labor, Indonesia is becoming a more enticing destination for foreign investments. Basic metals, food, and coal manufacturing are among the subsectors receiving the most foreign direct investments. Basic metals manufacturing received the most substantial foreign investment among these subsectors, at over 155 trillion Indonesian rupiah in 2022. The surge in foreign investment into Indonesia’s basic metals manufacturing can be attributed to the increasing global demand for nickel due to its usage in steel and electric-vehicle battery production, with Indonesia being home to the world’s largest nickel reserves. The country has also relaxed its investment and labor laws to further attract foreign ownership to its economy.
Indonesia’s strategies to improve its manufacturing sector
The manufacturing industry is pivotal to Indonesian exports, accounting for over 70 percent of the country's overall export value in 2022. However, Indonesia's exports in several sectors have been primarily centered on intermediate exports, most notably for mining, wood, paper, petroleum, chemicals, rubber, and basic metals. One of the government's current priority programs is implementing industrial downstream policies to increase the added value of domestic raw materials, which have a more significant effect on the national economy.To boost the industrial sector's growth, the Indonesian government has been working on the Industry 4.0 transformation. This initiative involves the integration of modern and advanced technologies in production processes to improve efficiency, product quality, and reduce production costs. Some industrial sectors, such as cement, refined petroleum, automotive, and F&B, are at the forefront of entering Industry 4.0 in Indonesia. As part of a national priority program, the government established Indonesia's Digital Industry Center 4.0 (PIDI 4.0) to develop the essential worker capacity and technical skills required for Industry 4.0. PIDI 4.0 also serves as a learning hub for assisting enterprises in developing value chains. Investing in human capital and high-tech infrastructure, facilitating research, development, and knowledge transfer from international corporations to local manufacturers, and acquiring more investments are Indonesia's current main strategies to improve its vital manufacturing sector.
