2008-2009 DATA CONSULT. All rights reserved.
INDONESIAN COMMERCIAL NEWSLETTER
December 2010


PROSPECTS OF MANUFACTURING INDUSTRY 2011

Current issues

In 2010, the country's manufacturing industry and exports of manufactured goods began to show signs of recovery after being in the doldrums as a result of the global financial crisis in 2009. The crisis created deep slump in export markets especially in advanced economies which have been the main market destination of manufactured goods from Indonesia. As a result the manufacturing industry which is largely export oriented suffered badly.

In 2009, the country's exports of manufactured goods outside oil and gas sector shrank 16.6% from the previous year.

Exports market as well as domestic market began to revive in 2010 resulting in a strong growth of 33.5% in exports of manufactured goods to US$ 98 billion. The export value was a new record exceeding the previous peak of US$88 billion in 2008.

The revival that followed the recovery of major economies including the United States, Japan and Europe, has given rise to optimism that the healthy growth will continue through 2011.

However, the impact of the global crisis is not yet entirely over. The condition is still volatile. Big challenges are yet to be faced. After the implementation of the Asean-China Free Trade Area (ACFTA) in January, 2010, Chinese products entered the domestic market in floods. Cheap Chinese electronic products began to push aside local products from the market.  Similarly Chinese products gain foothold in the steel, textile and other manufactured goods market in the country.
There is, however, some sector unaffected by the Chinese threat such as the automotive sector which is dominated by highly competitive Japanese brands. The fertilizer industry is also not affected by the implementation of ACAFTA especially as the sector is still subsidized by the government.

Among the factors that keep the country's manufacturing sector less competitive is dependence on imports for basic materials such as plastic, upstream petrochemicals and steel basic materials.

Other factors include shortage in power supply, inadequate transport infrastructure factory machine being too old, etc.

Development of Industrial Sector 2010

After being in the doldrums in 2009 the manufacturing industry revived in 2010. The GDP of the manufacturing industry in 2010 grew 4.48% from 2009. The growth was attributable to the non oil/gas sector which grew 5.09% as a contraction of 2.31% was recorded in the oil and gas manufacturing industry.

In 2010, positive growth was recorded in almost all sectors of the manufacturing industry with the exception of timber manufacturing sector, which declined on difficulties in securing basic materials. There is restriction in the use of timber basic material from natural forests while supplies of basic material from industrial timber estates were not yet enough to meet requirement.

The transport equipment industry, which also declined in 2009 recovered in 2010 with a 10.3% growth. The revival was also marked with the strong sales of cars   exceeding 700,000 units in 2010 or an all time record.

Stable growth was recorded in the sectors of fertilizer, and rubber goods industries Positive growth continued to be recorded in these sectors even at the height of the global crisis in 2009.  In the past five years the two industries grew by 4% annually on the average despite a low growth of 1.6% in 2009.  Strong demand kept the growth rate of the industries in a fairly high level.

Steel industry suffered a steep decline in 2009 with the slump hitting the construction and property sector. In addition, the prices of steel dropped in the world market on weak demand. However, in 2010, the industry began to revive with brisker demand from the construction and property sector.
In general, the growth of the GDP of the manufacturing sector was higher in 2010 to follow the global economic recovery.

Exports of manufactured non-oil/gas commodities recover

A big blow hit the sector of non-oil/gas manufacturing industry in 2009 marked with shrinking exports of manufactured commodities other than oil and gas. In the first nine months of 2009, exports of manufactured commodities other than oil and gas fell 25.5% from the previous year.

However, in 2010, the sector fully revived marked with the sharp increase in the exports of the commodities despite a decline in the exports of cement and fertilizers because of growing demand on the domestic market.

Textile and steel industries, which fell in 2009 show strong growth in 2010. In the first half of 2010, textile exports already reached US$ 5.29 billion and exports of steel and automotive engines US$ 5.24 billion.

ACFTA serves a blow to 5 industrial sectors

A survey by the industry ministry showed that concern of damaging impact of the Asean-China Free Trade Area (ACFTA) agreement proves true saying a number of local industries are badly hit.

Five surveyed sectors - electronics, furniture, metal and metal goods, machinery and textile and apparel TPT) sectors - were among the hardest hit.

Indonesian products have started to lose foothold on the domestic market with cheap Chinese products entering the market in floods following the implementation of ACFTA in January last year, the survey said.

The survey also found that   Indonesian commodities failed in market competition mainly because of high prices of basic materials and energy, shortage in supplies of components and shortage in capital.

The ministry said the survey involving 276 companies also found indications of dumping of 38 Chinese products imported under the ACFTA scheme. 
Based on statistical data, there was strong correlation between the implementation of ACFTA and the decline in the performances of the five sector in production, sales , profit and lay off  and increase in the imports of  basic materials mainly in the  electronic and garment sector.
However, industrial players in the five surveyed sectors acknowledged their products could still face the Chinese products which are cheaper in price, in open competition. The local products are less competitive mainly because of expensive basic materials, shortage in supplies of components, instability in supplies and high cost of energy and difficulties in securing working capital credit from banks.  Not all products, however. Rose in imports as the Most Favored Nation (MFN) scheme is still used for most Chinese products.


Prospects of   manufacturing industry by sectors, 2011

Electronic Industry

The market value of electronic goods on the domestic market reached Rp16.8 trillion in the first nine months of 2010. Data from the association of electronic companies showed that the amount rose 20% from the same period in the previous year. The increase was attributed to improved buying power of the people and the economic condition. The value was 70% of he total market value of Rp24 trillion in the whole of 2010. The high increase promoted expansion by producers.

Sales of electronic goods fell in April and May, 2010. Data from the Electronic Merchant Club (EMC) showed sales in April, 2010 fell 21% to Rp 1.6 trillion from March's Rp 2.021 trillion.

The decline followed the implementation of the Law No 42/2009 on value added tax (VAT) and luxury sales tax (PPnBM). Under the law, distributors of electronic products with a turnover of more than Rp 600 million were required to become a taxable company, before being allowed to buy goods from factories.

In May, 2010, sales turnover of electronic products rose 28.75% from Rp 1.6 trillion in April to Rp 2.06 trillion on smoother process of distribution.

LG dominated the market of electronic products in Indonesia in 2010. The domestic sale recorded by PT LG Electronics Indonesia (LGEIN) was Rp 4.5 trillion in the first 9 months of 2010. The main products of sold by LG included LCD television sets (22%), refrigerators (19%), AC (15%), and washing machines (11%). Its sales of AC and TV LCD grew by a higher rate.

In 2010, LG had a 34% share of the market of Flat Panel Display TV type in the country. In the same year, the division of Flat Panel Display of LG posted sales of 300,000 units of all variants. With a growth target of 50%, LG hoped to sell around 450,000 units of TV of the Flat Panel Display category in 2011 giving it a 40% share of the market of TV of that category.

The optimism was based on the market trend in. Based on data recorded by LG, the market of CRT TV tended to be flat in the past two years.  In 2010, demand for CRT TV totaled 4 million units and the figure is nit expected to increase in 2011. The market trend has been in favor of LCD TV and LED TV.

The market value of electronic products in the country is forecast to reach up to Rp 28 trillion in 2011, or an increase of 20% from around Rp 24 trillion in 2010.

Deputy Secretary General of the Indonesian association of electronic companies (Gabel) Yeane Keet said sales of TV LCD, AC, and washing machines are expected to grow faster as the market penetration by the products is still low in the country. The market, therefore, is still wide open for the products.

Many factors that will boost development of electronic industry in the country such as increase in market demand and improved condition of the country's economy and the revival of the investment sector. Indonesia will be one of the main investment destinations along with China and India in Asia.

Cement industry

See list of contents>>
INDONESIAN COMMERCIAL NEWSLETTER (ICN)
MONTHLY REPORT
HOME            Head Line            Focus            List of Contents          To Subsrcibe