The Jakarta Post
2 Feb 2018
We can understand President Joko “Jokowi” Widodo’s disappointment about Indonesia’s export performance, which though increased by 16.22 percent in 2017 was utterly poor compared to other, much smaller ASEAN countries. Our total exports of only US$169 billion in 2017 pale compared to the $214 billion earned by Vietnam, which started building its economy only in the late 1970s, let alone to the more than $230 billion each booked by both Thailand and Malaysia.
Yet more discouraging is the fact that, even though more than 75 percent of our exports are categorized as manufactured goods, most of them — such as palm oil, cocoa and coffee beans and crumb rubber — are products with low added value. Take, for example, palm oil exports, which rose to $23 billion last year. Most of these exports are crude palm oil, a product of low added value.
The President’s so open an expression of disillusionment at the Trade Ministry’s working conference on Wednesday should rudely jolt the trade minister to critically reevaluate the export promotion programs in traditional and new markets and to realign the location of Indonesia’s trade promotion centers overseas to tap new markets.
But we should not blame the poor export performance solely on the acute lack of well-designed promotion overseas. Trade Minister Enggartiasto Lukita, like his predecessors, has been overwhelmed with the politically sensitive task of maintaining price stability and the smooth distribution of basic staples to help check inflation.
This task alone has forced him to always conduct a balancing act between fulfilling the need for imports to cover any deficit in the basic necessities and maintain price stability and the interests of farmers in getting fair prices for their products.
Hence, besides improving overseas promotion, the government also should step up efforts to strengthen the competitiveness of our exports by reducing logistics costs and lowering bank lending rates, which are among the highest in the ASEAN region. Exporting manufacturers need credits at the pre-shipment stage to allow them to procure raw materials, cover their processing costs and pay for the packing, freight and insurance for export operations.
In fact, the operations of our exporting manufacturers involve a wide range of cross-sectoral activities: import of inputs, port handling, transportation to processing plants and shipment. Any hurdle at one of these points of activity can adversely affect the competitiveness of exports due either to delayed delivery or increased costs.
The Jokowi administration has set the right top priority programs for accelerating infrastructure development to improve connectivity within the country and between the country and the international market. Sixteen reform packages have also been launched to improve the ease of doing business and slash transaction costs.
But we still need a higher pace of progress with these reforms to make seaport handling, land transport services and customs clearance much more efficient. Cumbersome customs clearance, for example, delays the release of imports, while the manufacturing sector depends mainly on imported basic and intermediate materials, components and parts.
(First published in The Jakarta Post – http://www.thejakartapost.com/academia/2018/02/02/editorial-our-utterly-poor-exports.html)