Kiki Verico: Preparing the Main Locomotive of Indonesia’s Economy
Indonesia’s economy grew 2.97 percent year-on-year in the first quarter of 2020. The open unemployment rate fell from 5.01 percent in February 2019 to 4.99 percent in February 2020. Despite the slight decrease, the figure still shows that the economic growth rate was higher than the minimum growth needed to increase employment rate by 2.96 percent.
The output gap model also confirms that the economic growth was higher than the natural economic growth of 2.9 percent with an actual inflation rate of 2.96 percent, higher than the expected inflation rate of 2.92 percent. Economic growth in early 2020 was still of high quality despite a decrease in quantity compared to economic growth in early 2019. At the end of the first quarter of 2020, when the 2019-2020 output gap model was compared to the 2018-2019 model, there was a decrease due to the Covid-19 pandemic.
How will the pandemic affect the economic sector? There are two ways of looking at it: “before and after” and “with and without”. The pandemic broke out in Indonesia in the first quarter of 2020. Therefore, the first quarter can be analized by sector. A before-and-after analysis can be carried out by comparing the growth of each sector with the national economic growth. If before and after the pandemic the sector continued to grow higher than the national economic growth, it can be said that the sector played a role as an “economic locomotive”. If the growth of the sector before the pandemic was higher than the national economic growth but was lower after the pandemic, it can be said that the sector was affected by the pandemic. Finally, if before and after the pandemic the sector grew slower than the national economic growth, it can be said that the sector was already facing challenges, which became tougher after the pandemic.
The national economic locomotives include the financial services, health, social activities, information and communication technology, education, and corporate services sectors. Incidentally, these sectors fit the work from home protocol, which explains why Indonesia’s economy is quite capable of surviving the turmoil. The sectors affected are those related to human movement, such as transportation, warehousing, accommodation, restaurants, trade, construction and housing.
Naturally, the affected sectors will move when people resume their activities. Sectors that before and after the pandemic grew slower than the national economic growth are the goods sector, such as manufacturing, mining, quarrying and agriculture. Based on the “with and without” analysis, it is clear that the manufacturing sector is actually “very influential” in Indonesia’s economy. The manufacturing sector gives the biggest contribution to the national gross domestic product (GDP), at 19.98 percent, with high linkages, both in the future as supplier for other sectors and in the past as a source of demand for other sectors.
National economic growth relies on sectors whose contribution to GDP is still low, while the influential sector, namely manufacturing, is growing at a slower pace than the national economic growth. This kind of anatomy makes the national economy quite resilient to change although it moves at quite a slow pace. To encourage national economic growth, manufacturing needs special attention. In times of pandemic, labor-intensive manufacturing needs special attention in the short term while capital intensive sector should be encouraged in the medium term. Indonesia needs to transform its manufacturing sector, from assembler and producer of raw materials to producer of raw materials and machinery. This transformation process is influenced by how strong Indonesia’s relationship with the global investment network is.
Manufacturing development is not an isolated process because it is related to the raw material market and global output. The pandemic has not only affected the economy of one country, but also the entire world, which means it has geopolitical and geoeconomic ramifications. There will be opportunities for Indonesia to penetrate the global production network, especially if plans to relocate the world’s production networks are realized.
By combining the concepts of the locomotive sector and the influential sector, if Indonesia’s human resources are ready, developing an information and communication technology-based manufacturing industry is a viable option. The sophistication of information technology means developing the manufacturing sector needs not start with large-scale businesses; it can start with medium, small, and micro enterprises by utilizing electronic commerce (e-commerce).
Source: https://kolom.tempo.co/read/1348636/menyemai-benih-lokomotif-ekonomi/full&view=ok
(lem)