Exports Need Support
Facilitating low tariffs is not enough. Indonesia needs to create value-added products and enter into regional and global supply chains to optimize exports.
JAKARTA, KOMPAS — (22/10/2021) The trade sector, especially exports, will still be a support for Indonesia’s economic recovery in the future. In order for its contribution to be greater, this sector needs to be supported by investments that lead to downstreaming, industrial estate development, and integration in regional and global supply chains.
This was raised at the Trade, Tourism and Investment Forum (TTI), which is part of the 2021 Trade Expo Indonesia Digital Edition (TEI DE) series that will be held in a hybrid fashion in Jakarta, Thursday (21/10/2021) afternoon. The international trade exhibition with the theme “Reviving Global Trade” will take place on October 21-20 December 2021.
The World Bank’s Managing Director for Development Policy and Partnership, Mari Elka Pangestu, said that in the last six months, global trade had begun to swell. Its growth is expected to be 9.2 percent in 2021 and will decrease slightly in 2022 to 6.7 percent.
However, the global trade recovery is still full of uncertainty. Various trade challenges still arise, such as global supply chain bottlenecks, scarcity of containers, and high trade costs in terms of imposition of import duties.
“The rapid recovery from the effects of the Covid-19 pandemic also depends on each country, namely whether the country is part of the global and regional supply chain or not,” he said.
According to Mari, every country needs to have an integrated market, keep the market open, and diversify the market, as well as become partners with other countries and various companies. As for the long term, each country needs to diversify its products and sources of raw materials.
Indonesia and national companies have the opportunity to be part of this diversification strategy. The opportunity comes from various free trade agreements and comprehensive economic partnerships that have been made with other countries, such as the Regional Comprehensive Economic Partnership Agreement (RCEP).
However, Mari said, these depend on how to manage trade, the ability to bring in investment, and improve trade and investment facilities. Regional economic integration needs to be strengthened and leads to deep integration.
“It is not enough just to facilitate cheap trade tariffs, but also to enable Indonesia to enter regional and global supply chains, create value-added products, gain investment, and absorb labor.” she said.
Trading direction
Minister of Trade Muhammad Lutfi stated that, amid the Covid-19 pandemic, Indonesia’s trade balance was in surplus for 17 consecutive months. However, Indonesia remains aware of various challenges, such as the ongoing Covid-19 pandemic, energy crisis, rising food prices, digital era competition, changes in global supply chains, as well as environmental and climate change issues.
The Ministry of Trade seeks to improve Indonesia’s trade competitiveness through market and product diversification, as well as entry into regional and global supply chains. To realize this, policies that are aligned between trade, investment and industry are needed.
“The investment will support the downstream industry and encourage changes in the structure of Indonesia’s exports, which are dominated by raw goods, into value-added products.” he said.
In terms of trade, the Ministry of Trade seeks to establish bilateral, multilateral and regional partnerships with other countries. For example, on November 1, 2021, Indonesia together with Switzerland, Norway, Iceland, and Liechtenstein will implement the Indonesia-European Free Trade Association Comprehensive Economic Partnership Agreement (IE CEPA).
Indonesia will also implement RCEP in early 2022. In addition, Indonesia is in the process of negotiating the Indonesia-United Arab Emirates Comprehensive Economic Partnership Agreement (I-UAECEPA), which is targeted to be completed in less than a year.
“In essence, we are committed to continuing trade reforms so that the sector is more integrated with the global economy. Indonesia wants to realize fair trade while also being able to bring in investment.” Lutfi said.
On the same occasion, the Minister of Investment and also the Head of the Investment Coordinating Board, Bahlil Lahadalia, said that Indonesia’s current investment direction is downstreaming of industries and special economic zones. One of the goals is to support Indonesia’s exports, which have been dominated by raw materials into value-added products and prioritize environmental sustainability.
The government has prepared a special industrial and economic zone for investors. Bahlil guarantees that the land price in the area is cheap, and that permits will be handled by the government. The government will also provide incentives for investors interested in investing outside Java, as well as encouraging import substitution and product added value.
The incentives include exemption from corporate income tax for a certain period, tax reduction based on invested investment, and exemption from import tax. (HEN)
Source: Kompas Daily. Edition: Friday, October 22, 2021. Economics and Business Rubric. Page 10.
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