Linda Yulisman, Jakarta – Indonesia, Southeast Asia's biggest economy, may be set to take advantage of the myriad benefits of the ASEAN Economic Community (AEC) single market due in 2015.
However, a lot of work lies ahead before the country can compete on level terms with its neighbors, with competitiveness being among the top challenges facing manufacturing industries, more so than those based on the country's main commodities.
"The question should go beyond our competitiveness [...] Our neighbors are much better prepared," Indonesian Employers' Association (Apindo) deputy chairman Franky Sibarani said recently, referring to government policies regarding logistics, low interest rates, sufficient power supply and conducive fiscal policies, among other issues.
He also said manufacturers from other ASEAN countries could make use of a trade facility, namely certificates of origin, that gives them zero percent duty on intra-region exports thus allowing the flow of goods to run more smoothly.
As a consequence, he said, Indonesia – if it remained uncompetitive – would import a greater number of goods from its neighbors than it already did.
Around 15.8 percent of Indonesia's total imports in 2011 benefited from certificates of origin, while the trade facility covered 30 percent of Indonesia's exports of US$40 billion to its regional peers, according to Trade Ministry statistics.
Under the facility, which has been effective since January 2010, six members – Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand – can trade nearly all goods across their borders under the ASEAN Free Trade Area (AFTA) scheme free of duty.
The outlook could be even bleaker for Indonesia, said Indonesian Institute of Sciences (LIPI) economist Latif Adam.
The economic crisis and relapse into recession in Europe and the US, respectively, both of which remained key markets for most Southeast Asian producers, would likely prompt ASEAN members to seek alternatives by trading among themselves, he said, and Indonesia offered just what they needed.
"Indonesia is a promising market due to its huge population, rising income and emerging middle class," he said, adding competition would be fiercer because Indonesia and its neighbors produced quite similar products – so Indonesia needed to be more efficient.
Titik Anas, an economist at the Centre for Strategic and International Studies (CSIS), said that the struggle had in fact started early for local manufacturers.
"In terms of exports, we certainly face hurdles because our logistics costs are higher compared to those of other ASEAN countries," she said, adding that improvements had to be made in logistics and infrastructure – particularly roads and ports – to cut costs.
Indonesia's logistics performance is one of the poorest in the region, ranked 59th on the World Bank's 2012 logistics performance index, out of 155 developing and high-income economies, lagging behind neighbors Vietnam and the Philippines.
Indonesia shipped $31.27 billion in non-oil and gas products to other ASEAN countries last year, down by 2.94 percent from a year earlier, while its imports totaled $31.72 billion, up by 6.48 percent in the same period.
Trade Ministry director general for international trade cooperation Iman Pambagyo noted the need to put a clear focus on several manufacturing industries in which Indonesia was more competitive, and to create "financial support and research and development" to help develop those industries.
Industry Ministry director general for international industry cooperation Agus Tjahajana said the government had already mapped out the sectors that would be intensively developed ahead of the ASEAN community.