Indonesia turns to manufacturing to counter commodities slump
At a factory surrounded by towering steel mills on the west side of Indonesia's Java island, German engineering giant Siemens is ramping up production of steam condensers, turbines and other specialist parts to fit out power stations across the world.
The plant, a small repair shop 30 years ago but now covering the area of six soccer pitches, is a rare manufacturing success that Indonesian President Joko Widodo needs more of, as he tries to spur economic growth in the resource-rich archipelago amid tumbling commodity prices.
In pursuit of that goal, Widodo last week liberalized dozens of sectors of the economy in what one minister called the biggest opening to foreign investors for 10 years. It was the latest policy move to improve competitiveness and stimulate growth in Southeast Asia's largest economy, which last year expanded by 4.8 percent, the slowest since 2009 and well below a 7 percent target.
So far, Widodo, a former furniture exporter, has little to show for his push toward manufacturing.
Growth in the sector has lagged the overall economy since he took office in late 2014, and last year there were declines in output of major products including clothing, textiles and electrical equipment.
Tom Lembong, once a Wall Street banker and now Widodo's trade minister, said turning things around would not be easy. "We realize we've fallen very far behind," he told Reuters, pointing to creaky infrastructure, patchy power sup- plies and slow progress on free-trade pacts to prise open Western markets.
"We're changing direction after 10 years of drift toward narrow nationalism and protectionism."
The government has accelerated reforms, including cutting bureaucracy, promoting special economic zones and boosting spending on infrastructure projects like ports and roads.
It has also signaled greater openness to foreign trade by stating its intention to sign the Trans-Pacific Partnership, a U.S.-led trade pact, in what some see as a sign liberals are winning the argument over Indonesia's economic future. Trade tariffs, local-content requirements and other restrictions are still common, but Lembong said the benefits of free trade were now recognized more widely.