Diversifying Industrial Products

KOMPAS/RADITYA HELABUMI

Front view of the Glodok LTC trading center, West Jakarta, Thursday (21/10/2021). With the increasingly controlled number of Covid-19 cases, the operation of various economic activities while still implementing health protocols is expected to be maintained, so that the acceleration of national economic recovery can be realized.

Economic recovery from the pandemic can provide leverage for sustainable high growth through the diversification of industrial products and exports.

During the Kompas Collaboration Forum webinar last Friday (29/10/2021), National Development Planning Minister Suharso Monoarfa, who also heads the National Development Planning Agency, raised the development issue with a reference to the Economic Complexity Index (ECI) developed by the Center for International Development (CID) at Harvard University.

Economic complexity is the knowledge accumulated in a population expressed in economic activities. The basis for measuring the economic complexity of a country is the diversification of the country's exports compared to the other countries that produce the same product.

Also read:

> Beware of Pandemic-Induced Economic Inequality

> The Divergence of Economic Recovery

A country that can sustainably accumulate knowledge in diversification, including sophistication, product uniqueness and appropriate education generally can produce diversified products and goods that only a few countries can make.

The ECI helps assess the economic growth based on the country’s current income levels and forecasts of natural resource exports. Of the 133 countries, Indonesia was ranked 61st in 2019, which put it in the middle of the board. The top ranking was occupied by Japan.

Indonesia's position showed an improvement given the country’s 1995 ECI ranking of 77th. However, our increasing trend has been slow, especially in the last 10 years. Vietnam made an impressive leap, from 107th in 1995 to 56th in 2019.

KOMPAS/AGUS SUSANTO

Trucks unload palm kernel shells used for coal-fuel mixture at the Sintang Steam Power Plant (PLTU), Sintang Regency, West Kalimantan, Tuesday (12/10/2021).

With the ECI being used to measure the progress of industrialization and economic growth, our opportunity lies in the abundant natural resources gifted to an archipelagic country at the equator and the world's volcanic rings.

This unique geographic landscape bears fertile soil, year-round sun, catered rainfall enough to produce palm, coffee, cocoa, spices, tubers, sago, sugar cane and much more.

Also, the sea is a breeding ground for high-value fish such as tuna. Indonesia is also rich in mining resources, such as coal. The huge population, the majority of whom are of productive age, is our demographic advantage. They are the market as well as the workforce that can give birth to innovation.

Also read:

> Outbreak Comes at Height of Demographic Bonus

> Taking Advantage of Demographic Bonus

The challenge is how to turn those comparative advantages into competitive advantages. The accumulation of knowledge through education carried out in accordance with our comparative advantages will shape up a capacity to produce sophisticated, unique and diversified products that not many countries have.

The advent of the digital era opens up opportunities for economic diversification and innovation. This requires a lot of entrepreneurs who can be produced through education.

We need to envisage an industrialization strategy and create a supporting ecosystem, involving institutions, to provide certainty over the policies in order to ensure large-scale and long-term investment from abroad and at home, including the small and medium scale enterprises (SMEs).

This article was translated by Musthofid.