Don’t be afraid of China
Notes made at the end of 2011, as input from me to the government to prepare well to the ACFTA. Hopefully there are parts that are relevant to current conditions. Happy reading.
Indonesia government has realized, energy subsidies are very burdensome. With current policies, estimated energy subsidies (fuel, electricity, and gas) for 2012, will swell to 180T. For anticipation, popular steps taken by government is to reduce it. That is, there will be possibility of rising fuel prices and electricity.
Rising energy prices always cause immediate impact to industry. The average increase 10% of electricity tariff (TDL) since July 1st, 2010, it’s effect is quite significant for industry. Although government estimates the impact of about 4.5% only, but industry recognize the production cost increased more than 33%. In other words, the competitiveness of national industries to fizzle.
China considered scary monsters
Keep in mind, since ACFTA applied since January 1st, 2010, demand for industrial competitiveness is increasing, especially compounded with TDL increase. The strength of cheap Chinese products, would be more freely raided Indonesian market. China feared like monster that swallows exhausted prey. If no match, many local industry will die. Mass layoffs can not be avoided.
It’s no secret, China can be like this because of the high efficiency, from raw materials, energy, and labor, supported also by the chain of upstream-downstream industry and bureaucracy. In addition, with its high flexibility in capacity and delivery, China attractive as place to order short trend products. Perhaps, the quality is still underestimated until now, but in line with ability to duplicate and innovate, be cautious for few more years. The yellow fellow neighbors, Japan and South Korea have proved it. Indonesia must admit it all.
Thus, more pressure to government to cancel or renegotiate ACFTA immediately. Now, there are already similar invitation was initiated by USA, Trans Pacific Partnership (TPP). Several neighbors have expressed interest, while Indonesia is considering. Perhaps, Indonesia is still traumatized by ACFTA, afraid to decide. This is evidence that Indonesian industry is not ready to respond the global competition. If fundamentals of domestic industry more robust, the offer of cooperation may be dealt quickly.
In the era of globalization and free trade, it is difficult for Indonesia to be closed. Indonesia would not want to be excluded from world trade. So, whatever will be done against ACFTA and TPP, should be clear what must be repaired or prepared at home now.
Lack of government action
As usual, any planned increase in fuel and electricity prices, there used to oppose or request the delay of implementation. The main reason is unready. Apparently, many of which carried away with subsidies. Of course, the question here is, how well prepared the industry to anticipate it.
In fact, many great ideas how to improve the competitiveness of national industries, has been delivered by experts. However, the idea of government also needs to be appreciated. There have been a discourse to build the national raw material industry soon, in order to protect and build its derivatives. Expected, import of raw materials can be reduced. Then, there are also inter-sectoral collaborative efforts, between central and local governments, which must be supported by a number of related parties. Furthermore, there is also a discourse to develop the logistics infrastructure, and improvements in the bureaucratisation to create the business certainty. In addition, there is also idea to strengthen the potential of resource-based, such as agricultural products and mining with a higher level of processing.
The question, “Where is the position of these ideas now?” That must be answered by evidence and clear parameters. If not, is considered as a hoax or still as discourse.
Anticipating of fuel and electricity price increases in 2012
Supposedly, do not be surprised by the planned increase of fuel or electricity prices in 2012. Gradual reduction of subsidies has been a clear policy direction from government, except for some particular parties. This is a tough test for industry which are highly dependent on electricity. For anticipation, there are two things that must be done immediately.
First, it should be done efficiency program simultaneously, both energy and production. Not only the electrical energy savings program which involve all levels, but there are other opportunities without impacting productivity. In some industries, main electrical energy used is to drive machines using electric motor. Only a small part is used for lighting, computers and more. Some electrical energy is lost due to the low efficiency of engine, low power factor dueb to unbalance of cable and electric motors, and lost during production process. Industry must have the courage to invest by installing inverters on electric motors, installing power factor controller for high power factor.
Second, should dare to do the innovation process. The aim is to improve the production process, using specific techniques and methods in order to be more efficient in terms of resources usage, such as raw materials, energy, labor and time. The aim is to simplify the process. Of course, should be assisted with the engineering aspects related to the products and others. This is where the importance of human to be able to innovate, so more efficient in energy consumed, also simultaneoulsy improve quality..
Those are matter of willingness and seriousness to invest. Investment into machinery is accounting issue, while investment to humans is regeneration one. The point here is how fellow industry will openly share their experiences, such as in workshops, company visits, benchmarking, etc.. In global competition, industry must have quick and creative anticipation. The challenge now is how industry can do those two things much faster, in order to keep pace with China. Ideally, this should be done from upstream to downstream for nationally impact. If all parties change immediately and do things in accordance with scope of duties and responsibilities, the result will be enormous. To reach, it must be with a real strategy, not a discourse.
Never thought to maintain the domestic market from attacking another countries by expecting subsidy. Reduction or elimination of subsidies should be a challenge to improve competitiveness. Stay optimistic for globalization and do not be afraid to China!