Accelerate Industry 4.0 Adoption in Economy

Ready or not, Indonesia must immediately implement Industry 4.0 in its economic system. This technological transformation will be key to Indonesia’s economic growth, which has stagnated at around 5 percent thus far.

KOMPAS/PRIYOMBODO

People visit the Start Up Indonesia booth in the NextDev Summit 2019 at the Jakarta Convention Center in Central Jakarta in December (7/12/2019). The NexDev Summit 2019 was a technology conference that focused on generating positive social impacts to inspire and produce new ideas for the progress of the Indonesian nation.

JAKARTA, KOMPAS – Technology adoption will boost productivity, energy efficiency and product quality. However, work remains that must be solved immediately, including improving technical skills, preparing human resources and rearranging various regulations.

Research by the Asian Development Bank (ADB) and the Finance Ministry’s Fiscal Policy Agency show that technology transformation will increase the country’s gross domestic product (GDP) by US$2.8 trillion in 2040. New technology adoption will also potentially increase economic growth by around 0.5 percent.

The head of the Indonesian Institute of Sciences’ (LIPI) Center of Science, Technology and Innovation Management and Policy Studies, Dudi Hidayat, said that implementation of Industry 4.0 in artificial intelligence (AI), robotics and automation would be inevitable. “Implementation of Industry 4.0 is important to boost Indonesia’s competitiveness,” he said.

Furthermore, Dudi continued, Industry 4.0 would reduce the development gap between regions, especially in remote areas, border zones and small islands. However, currently, only a handful of big industries, through the subsidiaries of multinational corporations, have implemented Industry 4.0 in Indonesia. In general, many industries, especially micro, small and medium enterprises (MSMEs), have yet to implement Industry 1.0.

Implementation of Industry 4.0 is important to boost Indonesia’s competitiveness.

ABD country economist Yurendra Basnett said that there were five obstacles in technology transformation in Indonesia, namely big costs, poor manpower skills, technical uncertainties, resistance to mindset changes and inadequate digital infrastructure development.

In Indonesia, less than 6 percent of manufacturing companies are actively innovating and doing research. Only around 30 percent of companies have adopted new technologies, while up to 54 percent of conventional companies are not actively doing innovative research. “Awareness over adopting new technology in doing business must be improved, in order to nurture an ecosystem or research and innovation,” Yurendra said.

KOMPAS/PRIYOMBODO

Crafts are produced for the export market at CV Tashinda Putraprima in Kasihan district, Bantul, Yogyakarta, in November (22/11/2019). On this occasion, the deputy speaker of the House of Representatives, Rachmat Gobel, had a look at production in the handicraft and furniture industry in Yogyakarta to learn firsthand the problems faced by business actors and the efforts to find ways to increase exports.

Economic contribution

Technology adoption in the era of Industry 4.0 will boost industries’ contributions to national economic growth. On the contrary, without any technology adoption, industries’ contributions to the economy may decrease.

Indonesian Employers Association (Apindo) deputy chairwoman Shinta Widjaja Kamdani said that business players and industries had adopted technologies to boost speed, accuracy and output of quality products. “Indirectly, the contribution of gross domestic product increases if the output is in line with market needs, in terms of type, quality and quantity,” she said.

Statistics Indonesia (BPS) data in 2018 showed that the processing industry contributed 19.82 percent of GDP. In this period, Indonesia’s economy grew 5.17 percent from the previous year. In 2011, the industry contributed 24.3 percent to the GDP, with the economy growing 6.17 percent at the time.

The comparison shows that the processing industry’s portion in the GDP decreased and affected economic growth. Research by the Industry Ministry show that the portion of the processing or manufacturing industry in the GDP structure will decrease without intervention. In 2030, the portion is expected to decrease to 16 percent.

Without any technology adoption, industries’ contributions to the economy may decrease.

Coordinating Economic Minister Airlangga Hartarto said the government had created a digital transformation road map in several sectors, including trade, infrastructure and manpower. Digital-based bureaucracy and taxation regulations are continuously improved.

In finance, the financial services industry has begun to transform in line with economic digitalization. Banks are collaborating with financial technology (fintech) companies to develop business segments and broaden financial inclusion.

Bank Indonesia (BI) has improved Indonesia’s payment system ecosystem. BI assistant governor and payment system policy department head Filianingsih Hendarta said that the bank launched its National Payment Gateway (GPN) ecosystem last year. The bank encouraged the creation of an open banking ecosystem by standardizing the application programming interface (API) that connects banks as the main finance agencies with other finance industry players.