Revisiting Sectoral Economic Strategy
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Revisiting Sectoral Economic Strategy

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Revisiting Sectoral Economic Strategy Revisiting Sectoral Economic Strategy Presentation Transcript

  • Indonesia’s Sectoral Economic Development Strategy and FTA Arrangement Keywords: Sectoral targeting, FDI, FTA Today’s Presentation: Revisiting Sectoral Economic Strategy Prayoga Wiradisuria May 2008 Supervisor: Professor Shujiro Urata
  • Today’s presentation Final analysis and Conclusion Formulation and data analysis Literature Survey & Data gathering Scoping and Assessing and Prioritizing Economic Sectors: an Economics Perspective focusing Initial Literature Survey Last presentation was about: Sectoral Economic targeting in a glance, Topic selection FDI and its spill-over effect
  • Chapter view Chapter 1 – Introduction, Scoping, and Methodology Chapter 2 – Sectoral Economy Chapter 3 – FTA and Regional Integration in East Asia Chapter 4 – Indonesia’s Key Sectors and FTA Strategy Chapter 5 – Analysis and Summary
  • EXAMPLES OF PROACTIVE SECTORAL-TARGETING STRATEGIES SUCCESSFULLY IMPLEMENTED BY EMERGING NATIONS Country Key sectors Key comparative advantages Malaysia • Infrastructure Working Draft - Last Modified 2/8/2006 10:40:49 PM Electronics Palm oil • Availability of raw materials Singapore Service • Geographic location High-value manufacturing Printed Tunisia Olive oil • Availability of raw materials (olives) 3
  • There can be a set of forces, shaping sectoral economy priority High-level state interest Socio-economic (e.g., national security) history/background Economic indicators Sectoral Urgency of (GDP growth, Targeting/ reform employment, trade, Priority Consumer trend FDI performance) Political agenda/ Economic ideology Competitive advantage
  • DEFINITION AND RATIONALES OF SECTORAL TARGETING Sectoral targeting is.. RATIONALES OF PRIORITIZING SECTOR FROM ECONOMIC PERSPECTIVE Identification by the state or • Mobilizes and focuses public resources (public funds, region of activity sectors administrations, political decisions) on a limited number of Working Draft - Last Modified 2/8/2006 10:40:49 PM for priority resource projects or sectors to gain a favorable position relative to allocation with the objective competitor countries of accelerating economic • Identifies the fields of action that offer the most development/growth productivity for public investment to prioritize state intervention • Enables more effective, transparent public communication with international lenders, investors, and local economic actors Printed • Narrows the scope of state action so that sectoral strategies can be defined in greater depth with long-term continuity/consistency Out of discussion scope for the moment: • War of ideas between state intervention (Keynes) and Market mechanism (Hayek) • Administrative segregation between Central and Regional Government 5
  • ILLUSTRATION OF GOVERNMENT POLICY Gov Central “AUTOMOTIVE & OTHER TRANSPORTATION” SECTOR Local Category Initiative / Government policiy Target • Competitiveness of semiskilled workforce Labor Labor • Competitiveness of skilled workforce • Secured sources of workforce Working Draft - Last Modified 2/8/2006 10:40:49 PM Capital Capital • Efficiency of local finance systems (for SMEs) • Electricity supply quality GDP Growth Energy Energy • Competitive cost of energy through FDI • Access to energy resources spill-over Natural Natural • Secured access to local metal and chemical resources and Semi-skilled Resources Resources manufacturing industries and skilled • Open access to the European Union market Employment Customs and Customs and growth • Open access to the U.S. market Printed trade access trade access Export growth Taxes and tax Taxes and tax • Reduce corporate tax for domestic supporting spare-part industries incentives incentives Transfer of technology Special Special • Establishment of special economic zones for Automotive industry economic zones economic zones • Increase quality of transport infrastructures Utilities Utilities • Establish dedicated port for automotive export and import Business Business • Local (provincial) stability climate climate • Facilitation for supporting industries • Administrative efficiency 6
  • APPROACH OF SECTORAL ANALYSIS Approached by: Characteristics 1 Categorization of Economic Sectors Central Statistic Bureau Standard 2 Economic Impact Analysis GDP contribution Time series data Cross-Sectoral GDP contribution growth Panel Data (if necessary) Employment FDI Main source: Central Statistic Bureau Export Central Bank Ministry of Industry 3 Regional Competitiveness Regionalism trend impact analysis FTAs impact on Assessment Regional positioning and trend analysis Economic Sectors Absolute and relative export value and Exports Data (by country, contribution by sector, time series) Main source: ADB, ASEAN, 4 Sector-focused Investigation Understanding the nature and characteristic Interviews -Strengh & Weaknesses Literature study -Potentials and challenges Assessing historical government policies
  • 1 2 3 4 CATEGORIZATION OF ECONOMIC SECTORS Categorization dictates data availability and level of analysis Sectors Include Crop Paddy rice, wheat, cereal grains, vegetable, fruit, nuts, oil seeds, sugar cane, sugar beet, plant-based fibers, other crops Livestock Cattle, sheep, goats, horses, other animal products, raw milk, wool, silk worm, Forestry Forestry Working Draft - Last Modified 2/8/2006 10:40:49 PM Fishing Fishing Mining Coal, oil, minerals Food processing Produced meat, vegetable, diary products, sugar, other food products Beverages Beverages and tobacco products Wood Wood products, paper, publishing Automobile Motor vehicles and parts Other transportation Transportation equipment Printed Chemical Coal products, chemical products, plastic products, other material products Machinery Machinery and equipment Electronics Electronics equipment Textiles Textile and wearing apparels Metal Iron and non-iron metals Leather Leather products Utility Electricity, gas manufactures and distribution, water Construction Construction Services Public and private services 8
  • 1 2 3 4 ECONOMIC IMPACT ANALYSIS The Economic Sectors will then be measured against key economic indicators for growth Static / cross-sectional GDP 28 contribution (%)* 17 Manufacturing 14 Agriculture Working Draft - Last Modified 2/8/2006 10:40:49 PM 9 9 9 Ø Trade, hotel & Resto 6 7 1 Employment 23 contribution 19 Agriculture (%)** 15 13 Manufacturing 7 8 Ø Mining 6 5 Services 4 Printed Export 32 29 Contribution Manufacturing (%)* 19 Mining Agriculture 6 6 Ø 3 2 2 1 Agricultur Constructi Electricity Financial Manufact Mining Services Trade, Transport e, on , Gas, & uring and Hotel, and ation and Livestock, and Business Quarrying Restaura Communi Forestry, Water Services nt cation Fisheries Supply *2006 data at 2000 base prices Source: Indonesian Center Statistic Bureau **Hypothetical (data gathering in progress) 9
  • 1 2 3 4 ECONOMIC IMPACT ANALYSIS The Economic Sectors will then be measured against key economic indicators for growth Dynamic / cross-sectional GDP 2006* GDP Growth* FDI 2007** FDI Growth** Sectors (IDR Billion) 2004-2006 (%) (USD Million) 2002-2007 (%) Agriculture, Livestock, Forestry, Fisheries 261 6 1,385 201 Working Draft - Last Modified 2/8/2006 10:40:49 PM Construction 112 17 1,590 324 Electricity, Gas, and Water Supply 12 20 1,090 1,111 Financial & Business Services 170 13 N/A N/A Manufacturing 514 10 850 139 Mining and Quarrying 168 5 758 1,447 Printed Services 170 12 373 -56 Trade, Hotel, and Restaurant 311 15 N/A N/A Transportation and Communication 124 29 435 58 SECTOR Preliminary Situation Analysis Electricity, Gas, and Water Supply Vastly under-developed capital-intesive sector but on the right track by successfully inviting FDIs Transportation & Communication Fast growing sector, focusing on largely driven by domestic consumption and investment – less exposure ot foreign investment *Source: Indonesian Center Statistic Bureau at year 2000 base prices **Source: National Investment Coordination Board at current prices 10
  • 1 2 3 4 REGIONAL COMPETITIVENESS ASSESSMENT Regionalism trend: Indonesia participation in FTA’s and the impacts on economic sectors (CGE approach) FTA China- ASEAN+ East East Ind- Ind- Ind- Economic sectors ASEAN ASEAN 3 Asian* Asian** APEC China Japan* Japan** Crop -0.09 -0.34 0.62 0.68 0.83 1.39 -0.36 0.07 0.21 Livestock 0.08 0.07 0 0.02 0.07 -0.13 0.01 0.13 0.16 Working Draft - Last Modified 2/8/2006 10:40:49 PM Forestry -0.09 1.47 2.95 3.05 2.98 1.47 1.45 1.14 1.08 Fishing 0.14 0.24 0.32 0.43 0.43 0.33 0.11 0.24 0.24 Mining -0.61 -1.23 -0.44 -0.22 -0.23 -1.56 -0.99 -0.45 -0.47 Food processing -0.05 0.02 0.15 0.19 0.23 -0.07 0.05 0.24 0.27 Wood -0.18 1.71 3.44 3.59 3.5 1.68 1.76 1.23 1.16 Chemical -0.25 0.81 0.61 0.57 0.54 0.14 1.08 -0.35 -0.37 Automotive 1.53 1.65 -6.72 -6.6 -6.64 -6.74 0.23 -5.41 -5.45 Other transport means 8.41 -0.71 -1.29 -1.22 -1.28 -1.77 -5.01 0.86 0.83 Printed Electronics 0.13 3.35 2.42 2.68 2.45 -0.44 4.78 0.84 0.69 Machinery 4.06 4.06 5.14 5.86 5.69 3.85 -0.4 1.51 1.36 Metal 1 -0.96 -2.68 -2.59 -2.72 -4.65 -2.44 -2.1 -2.21 Textile 0.93 0.98 -0.16 -1.36 -1.39 9.63 0.87 1.32 1.28 Leather -1.07 -5.22 -2.97 -4.04 -4.01 7.05 -4.18 6.64 6.6 Utility 0.45 0.66 0.3 0.3 0.27 0.16 0.33 -0.06 -0.08 Construction 1.07 2.65 3.29 3.29 3.31 3.73 2 1.57 1.58 Services 0.05 0.03 -0.75 -0.83 -0.85 -0.76 0.07 -0.25 -0.27 ASEAN integration priority sectors * removal of tariffs ** removal of tariffs and agricultural subsidy Source: Djoni Hartono, D.S. Priyarsono, Tien Dung Nguyen, Mitsuo Ezakil (2007) 11
  • 1 2 3 4 REGIONAL COMPETITIVENESS ASSESSMENT Sectoral positioning based on regional trade Hypothetical Total volume of exports 600 Relative regional growth mapping “Fast-growing” “Flagship” – Evolution of the share of 400 Indonesia’s exports relative Growth in regional export market share (%) 200 to total regional exports Working Draft - Last Modified 2/8/2006 10:40:49 PM Mining and 75 Quarrying Agriculture, – Evolution of Indonesia’s Livestock, exports in absolute and % Forestry, 50 Fisheries terms Electricity, Gas, and Water Supply – Evolution of the volume of Manufacturing total regional exports 25 Services Printed 15 Trade hotel and Restaurant Financial & Business Services 10 Construction Transportation 5 and communication “For investigation” 0 0 5 10 15 50 100 150 200 Growth in absolute value (USD Million) 12
  • 1 2 3 4 SECTOR-FOCUSED INVESTIGATION Sector-focused investigation (through interview and literature study) Priority Sector Selected Current condition* Expected* Current strength Current strength Sub-sector performance Sub-sector performance Major government Major government Working Draft - Last Modified 2/8/2006 10:40:49 PM Performance policy (historical or policy (historical or • The largest employer planned) planned) metrics • Resilience against external shock (Asian crisis: least affected, fastest to recovery • Cocoa TBD 1990 – Deregulation.. • Rise in commodity prices 1991 – Tax holiday.. • Increasing diversity of the use of • Palm Oil TBD 1993 – Export incentive.. agricultural products (demand push) 1997 – Economic crisis, • Micro credit works in rural agriculture • Rice TBD high interest rates • 20-100% gap between current 2000 – Export to EU.. productivity and potential 2002 – Port expansion.. 2003 – Promotion of Printed “made in Indonesia” Challenges Challenges product 2006 – Tax break for • Urgency to expand arable land hypothetical investment in Cocoa, Palm • Unfair WTO terms in global trade Historical overall performance Historical overall performance 6 oil,… • Still characterized by small farmers 5 Volume Future – Commodity • Investment in R&D is lagging behind 4 production centers dev… other countries 3 …. • Infrastructure is not yet at optimum 2 Employment level (irrigation, transportation, 1 electricity) 0 •… 2003 2004 2005 2006 *Data source: Interviews, Literature study 13
  • ILLUSTRATION OF GOVERNMENT POLICY Gov Central “AUTOMOTIVE & OTHER TRANSPORTATION” SECTOR Local Category Initiative / Government policiy • Competitiveness of semiskilled workforce F1 Labor Labor • Competitiveness of skilled workforce • Secured sources of workforce Working Draft - Last Modified 2/8/2006 10:40:49 PM F2 Capital Capital • Efficiency of local finance systems (for SMEs) • Electricity supply quality F3 Energy Energy • Competitive cost of energy • Access to energy resources F4 Natural Natural • Secured access to local metal and chemical resources and Resources Resources manufacturing industries Customs and Customs and • Open access to the European Union market F5 • Open access to the U.S. market Printed trade access trade access F6 Taxes and tax Taxes and tax • Reduce corporate tax for domestic supporting spare-part industries incentives incentives Special Special • Establishment of special economic zones for Automotive industry F7 economic zones economic zones F8 • Increase quality of transport infrastructures Utilities Utilities • Establish dedicated port for automotive export and import Business Business • Local (provincial) stability F9 • Facilitation for supporting industries climate climate • Administrative efficiency 14
  • Overall Policy Summary Priority Policy options Category Sectors Working Draft - Last Modified 2/8/2006 10:40:49 PM F1 F2 F3 F4 F5 F6 F7 F8 F9 Flagship Sector 1 Sector 2 Sector 3 Fast Growing Sector 4 Printed Sector 5 Central government-led facilitation Short-medium term Regional government-led facilitation Long-term 15
  • Limitation and Further Study LIMITATION FURTHER STUDY Working Draft - Last Modified 2/8/2006 10:40:49 PM • Difficulty of determining the appropriate • Deeper analysis for each sector depth/granularity of sectors • Further economic modeling can be used to • Data might not be easily available (some forms justify the findings of triangulation from substitute data might be necessary) • Regional autonomy movement can influence the dynamics of policy making as regions have • It does not provide and attempt to get exact different interests and priorities number. But it gives right sense of magnitude • Sectoral priority can change over the time. Printed • Purely targets economics progress. It does not Further study is required to observe this issue. mix with social, political, etc targets • Tends to aligned with centralized perspectives. It does not incorporate the impact of regional autonomy movement to central policy making • Increase in oil and commodity prices might disrupt the data 16
  • Working Draft - Last Modified 2/8/2006 10:40:49 PM Printed 17 Thank you for listening and the suggestions