Indonesia’s manufacturing sector has been transformed from being a driver of economic growth to a sector that is almost completely dependent on the growth of domestic demand. The commodity boom that took place between 2005 and 2012 has resulted in a Dutch disease situation in which the expansion of one sector has reduced the incentive for manufacturing to export, given that domestic demand is readily available. Recent data show that Indonesian manufacturing has been lagging behind its nearest neighbours in reaping the benefits of international value chains. Being more inward-looking, manufacturing now depends on other sectors to generate growth. While some industries such as textiles and automotive are still promising, in order to keep the momentum going on manufacturing exports, Indonesia needs additional reforms including: better logistics; fewer non-tariff barriers; and improved human resource quality.
- Dutch disease
- Non-tariff barriers