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NEWS UPDATES Asean Affairs     6 October  2011                    

Lack of infrastructure hurting Indonesia

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Shortcomings in Indonesia’s infrastructure have contributed to a major lack of competitiveness for domestic manufacturers, causing many to get out of the business altogether, according to the outgoing chairman of a business association here.

Erwin Aksa, the outgoing chairman of the Indonesian Young Entrepreneurs Association (Hipmi), which represents more than 25,000 business owners, the majority of which operate small- to medium-sized enterprises, delivered his assessment on Monday to a handful of media organizations.

“Many manufacturers choose to become traders because it is more profitable,” said Erwin, who was coming off a 15-city trip to assess economic conditions in the country.

“It is very sad. Can you imagine household equipment makers, producers of nails, toys, they struggle to compete with cheap imported Chinese goods.”

Erwin said that while Indonesian businesses struggle with high logistics costs, an erratic power supply, high interest rates and a perception among lenders that they are high-risk, Chinese goods were flooding the nation.

The influx of goods has contributed to a $3.5 billion trade deficit with China since January, data from the central statistics agency (BPS) showed.

The difficulty in competing has in the last five years caused the number of medium- to large-sized companies to dwindle. Erwin cited another BPS statistic that showed the number of such companies had fallen from 29,500 in 2006 to 25,000 now.

“I haven’t seen significant changes in infrastructure here,” said Erwin, president director of the Bosowa Group, a conglomerate whose activities span infrastructure, power plants, shipping, energy, cement production, automotive dealerships, media and banking.

Erwin cited the lagging development of national ports and a stable energy supply as major stumbling blocks for business competitiveness. He also singled out stalled construction on a number of planned toll roads. Since four years ago, he said, only three new toll roads had been built in Indonesia.

The sorry shape of Indonesia’s infrastructure, Erwin said, is responsible in part for the country’s low ranking in the World Economic Forum’s Global Competitiveness Report. Indonesia placed only 82nd out of 144 countries surveyed, far behind neighbors Singapore at number 2 and Malaysia at 23.

Erwin said these factors had limited the country’s manufacturing sector to an annual growth rate of only 5 percent, far below what it was before the Asian financial crisis of 1997-98 when the industry grew at rates of up to 20 percent per year.

“The government must have a breakthrough to make our businesspeople more competitive,” he said

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