Opinion

Indonesia: An industry-led
growth economy

Arwana may not be a household name yet in Jakarta. Yet, the ceramic tiles manufacturer has been a stellar performer in the stock market. At the closing of stock trading on Dec. 28, 2012 its stock price shot up to Rp 1,640 (17 US cents), more than four times its price at the beginning of the year.

In the ceramic tile industry, Arwana is truly an awakening giant. Founded in 1995, the company now boasts a production capacity of over 40 million square meters annually, ranking second only to Mulia Ceramics.

But, with plans to open new factories in South Sumatra, Arwana will be closing the gap with the market leader very rapidly. Arwana currently stands as the 16th largest ceramic tile company in the world with the production cost that can compete with China.

A similar story is also shared by South Pacific Viscose. This rayon company, part of Lenzing Group of Austria, is finishing its fifth factory in West Java that will increase its capacity to 325,000 tons annually, making it the largest single-site rayon factory in the world. The company, founded in the 1980s, was invited by the owner of Bhirla Group of India, which had initiated a factory nearby in West Java by the name of Indo Bharat.

That story can be read in one of the Harvard Business School case studies on the development of such a company in Indonesia.

I will not be surprised if the company will further expand its facilities in Indonesia, given the strong growth of the country’s and the ASEAN region’s economy.

There is no doubt that the demand for textile fibers will continue to climb rapidly.

These two companies do not generally make headlines. It is, for sure, much easier to focus on the automotive industry, led by Toyota and Daihatsu, which has achieved a landmark domestic sale of 1 million vehicles in November 2012. That month, the total sales topped 1.02 million units.

LG and Samsung, meanwhile, have been competing as the leading electronic manufacturers in Indonesia and are expanding their production capacity quite aggressively here.

The domestic demand of electronic products, especially LCD and LED TVs, refrigerators, air conditioners and other household appliances has been growing by over 30 percent annually. All these stories lead to the conclusion that the Indonesian manufacturing industry has been developing at a rapid rate. Arwana has been surging at 23 percent
this year.

Meanwhile, Indonesian car sales have also grown (in terms of units) by around 24 percent. Unilever’s sales have ballooned at a rate of almost 18 percent, while its competitor, Mayora, has been growing by 30 percent.

It is no wonder that the growth of the non-oil manufacturing sector in creating gross domestic product (GDP) has increased to 7.27 percent in the third quarter of 2012, much higher than the growth rate of the overall economy, which grew at 6.17 percent in the same period. At the same time, the growth rate in the first nine months of 2012 of the non-oil manufacturing sector was 6.50 percent, higher than the 6.29 percent in overall GDP growth.

The manufacturing sector has been the largest contributor to Indonesian economic growth at 1.62 percent, followed by the trade, hotel and restaurant sector with 1.22 percent.

While Central Statistics Agency (BPS) data has been showing robust growth of the manufacturing sector, I feel that the performance of the sector has been grossly understated. There are at least four factors that lead me to this conviction.

First, several sectors have been understated. The cement industry, for instance, has reportedly grown at 8.75 percent. At the same time, data from the Indonesian Cement Producers Association reports a 15 percent increase in volume in the first nine months of 2012. The automotive industry has grown by 8.24 percent, although domestic car sales, in terms of units (which is real growth), has grown at a rate of 24 percent.

Pulp, paper and printed products have been reported to suffer negative growth, dropping 4.5 percent in the first three quarters of 2012. At the same time, Asia Pulp and Paper, which has a market share of over 30 percent, has grown at a rate of around 10 percent.

There have been reports of expansion in the corrugated paper industry, which produces carton containers for other industries such as food and beverage, electronic products and others. With such a high growth in the food and beverage and tobacco industry as well as electronic industry, it is highly unlikely that the performance of the pulp, paper and printed products sector is negative.

Second, electricity consumption increased very significantly in 2012. If in the first nine months of 2011, the electricity sector enjoyed production growth of 5.85 percent, it grew by 10.15 percent in the same period of 2012 according to state power company PT PLN. BPS, however, reported the growth rate at only 5.56 percent.

Third, the statistics of GDP have been based on the survey of 2000, when many new industries did not yet exist.

New industries, such as diapers, have been growing very rapidly and currently stand at Rp 6 trillion in value. In fact, Procter and Gamble is currently investing US$1 billion to build a diaper company in Indonesia.

The rapid growth of automotive components might not have been accurately captured by the 2000 survey. So, what may be reported so far by the statistics is more similar to “same store growth”, while the performance of new stores has been largely ignored.

These factors lead me to believe that the Indonesian manufacturing industry has been blossoming at such a rapid rate that other sectors followed suit.

The writer is an Indonesian consultant for Global Source Partners in New York.

Paper Edition | Page: 7

Post Your Say

Selected comments will be published in the Readers’ Forum page of our print newspaper.

From Our Networks