Jakarta – Unemployment in Aceh Nangroe Darussalam has increased this year as rebuilding efforts following the deadly tsunami that hit the province in late 2004 have slowed.
A report arranged by the World Bank and Bank Indonesia (BI) under the Multi-Donor Fund for Aceh and Nias scheme put the unemployment rate as of the second half of this year at more than 9 percent, or close to the national rate.
Many jobs were created in the immediate aftermath of the disaster to serve the reconstruction effort, temporarily boosting employment, according to the deputy manager of the Multi-Donor Fund Safriza Sofyan.
"With a gradual exit of reconstruction players, there might be upward pressure on unemployment as the reconstruction comes to an end."
"Significant investment in the private sector, especially in agriculture and manufacturing related to agriculture is necessary to reverse this trend," Safriza said in a recent statement.
Aceh's population stood at 3.97 million as of 2005, 2.06 million of whom were employed, according to the Central Statistics Agency (BPS).
Agriculture continues to be the largest employer in Aceh, absorbing more than 50 percent of the work force, the report said.
Nevertheless, the sector had been shedding workers since before the tsunami and the trend is likely to continue so as productivity increases and more people find employment in other sectors.
At the national level, 41 percent of workers are employed in the agriculture sector; well below Aceh's percentage.
The report shows a significant increase in employment in the services and small industrial sectors, partly as a result of outside assistance for small and medium enterprises as part of the reconstruction effort.
The report says the high wages in the formal sector have constrained Aceh's competitiveness and its ability to attract investment – an issue that has been frequently bemoaned by potential investors.
Analysts believe a high unemployment rate will threaten Aceh's political stability as former combatants of the now disbanded Free Aceh Movement would use the issue as ammunition to challenge the effectiveness of the peace accord signed with the government in 2005.
This is because most of the former combatants are not only unemployed but also live in worse conditions compared to their former leaders. The discord was evidenced by a recent string of armed robberies linked to the former militants.
The jobless rate is expected to continue to rise as economic growth in the region slows.
According to the report, Aceh's preliminary gross domestic product for 2008 stood at 3.1 percent, far below the national growth rate of 6.9 percent.
The World Bank believes sectors linked to the reconstruction effort were showing low or negative growth rates, while other sectors, including agriculture and manufacturing, would need to compensate, although their current rate of expansion is insufficient to boost the economy.
Over the past few years, growth has mainly been fueled by the reconstruction effort and the availability of reconstruction funds.
Despite low growth, according to the World Bank, private consumption has been relatively unaffected as reflected by a large amount of funds being transferred to the province, as well as healthy vehicle sales and electricity consumption.
The agency also revealed inflation in Aceh had declined to below the national level for the first time since the tsunami.
The province's inflation rate has been easing since peaking in December 2005. As of August, 2008, the year-on-year rate had reached 8.2 percent, below the national level of 11.9 percent.
"A reduction in inflation was expected, as demand from the reconstruction effort is slowing down and supply chains are being restored in the province", said World Bank economist for Jakarta Enrique Blanco Armas.
The World Bank and BI forecast economic growth this year is likely to be lower than the 7.4 percent level recorded last year and 7.7 percent in 2006, while reconstruction projects will continue to help fuel the economy into next year. (hwa)