Anissa S. Febrina, Jakarta – The government needs to provide better infrastructure and simplify regulations so as to lower logistics costs and help boost the growth of the country's manufacturing sector, an economist says.
"Manufacturing growth declined last year and if the government wants to see it improve, reducing costs is the key," said M. Chatib Basri, an economist with the University of Indonesia's Institute for Economic and Social Research (LPEM-UI).
An LPEM-UI study based on figures from the Central Statistics Agency (BPS) revealed that the manufacturing sector's growth declined to 4.63 percent last year, as against 6.38 percent in 2004.
Almost all industries were suffering declining growth, with the textile, leather, wood, chemical and cement industries seeing the most drastic drops, especially in the last quarter of 2005.
"Indications of the decline can be seen also in the falling investment trend, both domestic and foreign, in machinery and equipment," Chatib explained during a discussion with members of the Indonesian Employers Association (Apindo).
The decline in investment in capital goods was also partly driven by the tendency for loans to be extended to the trade and services sector due to the appreciation in the exchange rate.
Meanwhile, wages in the real sector had declined, the study says. Construction workers in urban areas, for example, received 4 percent lower pay in January 2006 compared to January 2005.
Among the factors leading to the decline in the overall growth of the manufacturing sector were high logistics costs, Chatib said.
The study showed that logistics costs accounted for 14.08 percent of total operating costs in manufacturing companies, a high ratio compared to the perceived efficiency rate of 8.5 percent.
"Inefficiency in loading and unloading processes in ports and poor infrastructure quality contribute to the high costs," he said.
The infrastructure package launched last month looked pretty good, but any improvements would depend on its implementation, Chatib stressed.
"The government should also continue to reduce the current high costs by lowering import tariffs on raw materials and capital goods, as well as simplifying import procedures," he said.
The private sector had previously called on the government to adopt policies that would support the real sector, saying that growth in the sector would boost overall economic growth.
Chatib said that the country's economy would continue to put in a sluggish performance in the first quarter of 2006. This would continue in the second quarter before a recovery in growth in the third quarter.