Adrian Wail Akhlas, Jakarta – The government needs to ramp up research and development (R&D) and develop human resources in the manufacturing industry, the business sector contributing the most to gross domestic product (GDP), to support the country's economic recovery, experts have stated.
"The government must take a more active role in spearheading R&D to facilitate job creation and attract sustainable investment in the future," Institute for Development of Economics and Finance (INDEF) economist Faisal Basri said on Thursday.
Investment in R&D remained low as it only made up 0.3 percent of GDP in 2018, mostly by the government, according to data from the Research and Technology Ministry.
Indonesian Chamber of Commerce and Industry (Kadin) deputy chairwoman Shinta Kamdani urged the government to develop human resources in the manufacturing industry.
"We need to boost the quality of human resources to address the skill mismatch issue by improving the integration between the educational system and industry needs," Shinta said.
The manufacturing industry contributed around 19 percent to GDP, the highest among all business sectors, but contracted 6.19 percent in the second quarter and 4.31 percent in the July-September period as a result of cooling domestic and global economic activity.
Manufacturing gauge the Purchasing Managers' Index (PMI) survey data published by IHS Markit on Nov. 2 show that the PMI rose from 47.2 in September to 47.8 in October, which was still below August's 50.8. Index readings below 50 indicate a contraction, while those above 50 signify an expansion.
The latest reading marked a "further deterioration" in the health of the sector, with production and sales both decreasing further, according to IHS Markit principal economist Bernard Aw at the time.
Southeast Asia's largest economy plunged into recession for the first time since the 1998 Asian financial crisis as the government struggled to contain the pandemic and its economic fallout.The economy shrank 3.49 percent in the third quarter, after recording a 5.32 percent contraction in the second quarter. The government expects the economy to contract 0.6 to 1.7 percent this year as the pandemic hit economic activity hard.
According to Statistics Indonesia (BPS), the contribution of the manufacturing industry to employment shrank by 1.3 percentage points year-on-year to 13.61 percent in August compared to a year earlier.
Shinta also said that productivity remained one of the challenges in the industry.
A survey by the Japan External Trade Organization (JETRO) from August to September last year showed that Indonesia's productivity in the manufacturing industry was lower than that of its peers in Southeast Asia.
The survey captured Japanese companies' perception of the business climate in 20 countries in Asia and Oceania, including in Indonesia. According to the survey, Indonesia's manufacturing plants productivity only scored 74.4 with an assumption that the respondents' Japanese companies' productivity was 100.
The country's score is lower than those of the Philippines, Singapore, Thailand and Vietnam, at 86.3, 82.7, 80.1 and 80.0, respectively.
However, economic recovery will also require an effective pandemic response and swift stimulus spending, she said, calling for the government to step up measures to control the outbreak.
Meanwhile, the Industry Ministry is planning to boost the use of a supertax deduction incentive for businesses conducting vocational and R&D activities, according to the ministry's head of human resources development Eko Cahyanto.
Eko referred to Finance Ministerial regulation No. 153/2020 on the reduction of gross earnings for R&D activities.
"We already have a policy to provide tax incentives for businesses undertaking vocational and R&D activities to create new innovation and jobs," he told the same discussion.