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| July and August 2014
Manufacturing Hubs Across Southeast Asia
Indonesia
Manufacturing was a major driver of economic growth in Indonesia
through the 80s and 90s, and today it contributes 24 percent of national
GDP. With a population of 250 million, the world’s fourth largest, this
translates to 14.4 million Indonesians employed by the manufacturing
sector as of 2011. Moreover, in a year of political uncertainty across the
ASEANregion,Indonesiahasremainedabastionofstability.This,combined
with some of Asia’s lowest volatility in economic growth over the past
decade, has recently attracted the attention of manufacturing giants
General Electric, LG, andToyota.
The country’s primary manufacturing industries include automotives,
electronics, textiles, footwear, food & beverage, palmoils, metal products,
and chemicals. Like Vietnam, Indonesia has struggled to move up the
value added chain and is likely to inherit some runoff from China.The
relativelylimitedgrowthofmid-andhigh-techmanufacturinginIndonesia
prompted the government to emphasize scientific research in its Long
TermDevelopment Plan for 2025. According to Deloitte, the archipelago
nation is expected to jump up inmanufacturing competiveness to 11th
overall by 2018.
IndonesiaisdistinguishedamongitsSoutheastAsianneighborsbyitshigh
degreeofurbanizationandrobustdomesticmarket.Asof2012,53percent
oftheIndonesianpopulationwaslivingincities,afigureexpectedtogrow
to 71 percent by 2030. Among urbanites, a 45 million member strong
consumingclass(estimatedtogrowto135millionby2030)hasformedthe
bedrockofIndonesia’seconomicstabilityandexertsanaddedpullonFDI.
ThetimelinessofinvestmentintoIndonesiaisunderscoredbythepresence
ofa“demographicdividend,”whichreferstoalargeworkingagepopulation
coupledwithadecliningpopulationofdependents.Indonesiawill inherit
the mantle of the world’s largest demographic dividend from India
sometime before the country’s populationbegins to age in 2020. Aswith
Vietnam,however,difficultyinfindingqualifiedemployeeshasbeencited
as an impediment to further growth in Indonesia’smanufacturing sector.
Policy decisions to invest in education over the next decade will strongly
determine whether Indonesia will be able tomeet the 113 million semi-
skilledandskilledworkersrequiredby2030,basedonMcKinseyestimates.
The minimum wage in Indonesia is set locally by provincial/municipal
governments, and varies by sector or occupation within each province.
Theresultantvariationbetweenwagesacrossdifferentdistrictshassparked
something of an exodus of manufacturers from urban areas like Jakarta
tomore remote regions.
Meanwhile, faced with notoriously inadequate infrastructure, Indonesia
launchedacampaignin2013toinvestUS$35billionintoitstransportation,
power, and water networks. Underdeveloped infrastructure has been
identified as a limiting factor on FDI flows into the country, with logistics
costs accounting for some 24 percent of GDP. In the country’s third
presidentialelection,happeningnow,bothleadingcandidateshavemade
infrastructure improvement a key part of their campaign platforms.
Today's Leading
Manufacturers
in
ASEAN
Emerging
Manufacturing
Nations
Singapore
Thailand
i
il
Malaysia
l
i
Vietnam
i
Indonesia
I
i
Average
monthlywage
(USD)
CIT (%)
Employment to
populati on ratio
(%, ages 15-24)
Average
monthlywage
(USD)
CIT (%)
Employment to
population ratio
(%, ages 15-24)
Philippines
3375
17
33
871
25
29
363
20
39
107
22
57
165
25
31
169
30
31
