Maintaining Industrial Pace Amid COVID-19 Pandemic

The industrial sector in Indonesia faces a hard blow amid the COVID-19 pandemic. As a contributor to 20% of national GDP, it affects the country economic growth in 2020. Read the summary of KSIxChange # 22 with Bappenas, Ministry of Industry, PT Pan Brothers Tbk, Ribka Furniture, PEKKA Foundation and SMERU

Maintaining Industrial Pace Amid COVID-19 Pandemic

Non-oil and gas industry sector is experiencing effects of the coronavirus or COVID-19 pandemic. According to the Deputy for Economic Affairs at the Ministry of National Development Planning/National Development Planning Agency, Bambang Prijambodo, the industry has been impacted by the decline in demand for goods/services from domestic and global markets. As a result, the industry is seeing disruptions in company balance sheets and termination of employment.

“Unemployment increased, people’s consumption has slowed down due to loss of income,” Bambang said as a speaker at the 22nd KSIxChange online discussion with the theme of ‘Indonesian Industries Amid COVID-19 Pandemic’ on Thursday, May 14, 2020.

Data from the Central Statistics Agency showed a decline in the economy and non-oil and gas industries in the first quarter of 2020 compared to previous years. Whereas it has always remained above 5 percent in the previous years, in 2020 economic growth has dropped to 2.97 percent. Likewise, the growth of the non-oil and gas industry or manufacturing dropped to only 2.01 percent, in contrast to previous periods which always remained above 4 percent.

In relation to reduction of industrial labor, data from the Ministry of Industry shows that 5.5 million industrial workers are already unemployed due to terminations or leave without pay. Of those, around 3 million are small and medium industry workers and around 2 million are from medium and large industrial sectors. This figure represents 28 percent of the total national industrial workforce of around 19.8 million.

Ministry of Industry Secretary General, Achmad Sigit Dwiwahjono, said the industrial sector began to feel the impact of COVID-19 since February 2020. Some export destinations experienced lockdowns and physical distance restrictions within the country reduced product demand. Coupled with a significant increase in dollar exchange rate, the industrial sector is increasingly experiencing difficulties in getting raw materials and has choosen to reduce imports.

“All of this has eroded industry utilization (production capacity) to below 50 percent,” Sigit said.

This decline in industrial utilization is also observed in leading subsectors, such as food and beverage, chemical and pharmaceutical, automotive or transportation, metal and electronic goods, and textile and apparel industries. Whereas, according to Sigit, these are the five industrial subsectors that contribute substantially to the Gross Domestic Product and generate the country's foreign exchange from exports.

The impact of COVID-19 is also felt by micro and small industry. Founder and Director of the Women Heads of Household Foundation (Yayasan Perempuan Kepala Keluarga – PEKKA), Nani Zulminarni, said that although the micro and small industry does not contribute a large portion to the GDP, this sector absorbs most of the labor, especially women workers in the informal sector. Nani hopes that the government’s policy in facing COVID-19 would also address the micro and small industry groups.

“Especially the informal industry workers who often are not compensaed when work stops,” Nani said.

For this reason, the government came up with a strategy to support the survival of non-oil and gas amid the COVID-19 pandemic. Bappenas Deputy Bambang said that economic stimulus in the form of social assistance to vulnerable poor groups is an effort to maintain the people’s purchasing power so that demand for non-oil and gas industry goods is maintained and production can continue.

Ministry of Industry Secretary General Sigit ecpounded the strategic steps taken by the government, such as optimizing use of domestic industrial raw materials and tax and excise incentives for industries. Sigit hopes that the industries continue to operate by instituting health protocols because worker safety remains the main concern. The Ministry of Industry issued a Minister of Industry Circular Number 4/2020 regarding Implementation of Factory Operations during 2019 Corona Virus Disease Public Health Emergency Period for companies and industrial areas so that ongoing production continue to prioritize worker safety.

“For small industries, the Ministry of Industry is coordinating with the Ministry of Cooperatives and Creative Economy and other ministries to increase resilience in this sector,” Sigit said.

In response, Deputy Chairman of Industrial Textile Association (API), Anne Patricia Sutanto, appreciated the steps taken by the government with respect to the manufacturing industry sector. She also recommended that the government should encourage the State Electricity Company (PLN) and the Social Security Administration (BPJS) to provide payment relief in response to reduced industrial utilization. Anne also asked the government to continue promoting Indonesian products abroad.

“Indonesian PPE (Personal Protective Equipment) and textile products are renowned worldwide for their far better quality compared to other ASEAN countries, competing even with China,” said Anne, who is also the Vice President of PT. Pan Brothers Tbk.

This assertion was seconded by the Chairman of the Indonesian Furniture and Crafts Industry Association (HIMKI) Surakarta, Adi Dharma Santoso, who said Indonesian products, including furniture, are known for their quality in the global market. Adi, who is also the Director of Ribka Furniture, hopes that the government will support the fulfilment of raw materials and relaxation of loans. Raw material demand for furniture can be linked with wood-producing SOEs such as Perhutani and Inhutani.

“Decline in international demand, order cancellations, bankruptcy of buyers resulting in their inability to pay, have certainly caused financial problems for entrepreneurs. We hope that there will be relaxation in interest principal and rescheduling from banks,” Adi said.

Asep reminded that the COVID-19 pandemic is now a very severe crisis. However, there is optimism from both the government sector and industry players that we will get through this crisis. Adjustments must of course be made and improved at policy level, including expediting the application of health protocols. For this optimism to come true, there needs to be cooperation and synergy across sectors, including ministries and central institutions, the central government and regional governments, as well as the government and the industries. Synergy is also needed within the industry actors, for example, employers and labor unions need to harmonize. There is also an urgency to realize these adjustments to accelerate the recovery phase that is projected to take place in 2021.

The 22nd KSIxChange online discussion brought together the government, non-oil and gas industry actors, and observers to find the right solutions for industries to survive in the midst of COVID-19 pandemic. Attended by nearly 200 people, this discussion was held in collaboration between the Knowledge Sector Initiative and Bappenas, Ministry of Industry, API, HIMKI, The SMERU Research Institute, PEKKA Foundation, and to provide public policy recommendations based on research data and evidence in the current industrial world.**


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