Indonesia sees need to further toughen up

AS THE LARGEST economy in Southeast Asia, Indonesia has a lot at stake in the full implementation of the Asean Economic Community.

With the 10-member states of the Association of Southeast Asian Nation creating a single market with gross domestic product of $2.4 trillion and a production base of 600 million people, Indonesia needs to have the edge to reap the benefits from the regional bloc that is now the world’s seventh largest economy.

By technical measurement, Indonesia is ready for the AEC, given that its scorecard shows the country’s readiness at 94 percent, higher than the Asean average of 92 percent.

Concrete plans

The country has a blueprint that spells out the measures and initiatives that need to be implemented to achieve the AEC goals, including specific programs to empower its workforce and small and medium enterprises (SMEs) and prepare them for tougher competition in the Asean. There are dozens of local ministries and government agencies in charge of the implementation of the programs.

The biggest areas of concern for Indonesia, however, remain its services and SME sectors.

First, it needs to solve its human capital issues, particularly the slow progress in its professional certification system and the low ratio of certified professionals to total population compared to those in several other Asean countries.

Also, in comparison with their peers in Singapore, Malaysia, Thailand and the Philippines, Indonesians still lack English speaking skills and the ability to speak any other Asean language to be able to work in other parts of the region, let alone the skills required by some countries in the regional bloc.

Some Asean neighbors have even upped their English and Asean language skills training offerings in schools and educational centers in anticipation of AEC.

Small business in the dark

In the meantime, many SMEs, which account for more than half of Indonesia’s GDP and employ the majority of workforce, are still in the dark when it comes to the benefits and threats of the AEC. The benefits are of course the opportunity for them to widen the reach of the goods and services they offer and expand their operations. The threats could also be daunting. Many feared that Indonesian SMEs could be crushed by Asian giants and multinationals that were eager to invest in the single production base.

There have been concerns in the domestic market that, given its huge population of 240 million people but low business investment spending, Indonesia will turn out to be a mere huge market (consumer), instead of becoming an investor (supplier) in the economic integration.

There are fears that the AEC will benefit only Asian and multinational giants wanting to invest in the regional grouping. While investment flows into the region will create jobs for the locals, many expressed fears that the investors would only exploit local resources without the local industries gaining competitive edge.

Low investment spending

Investment spending of Indonesian companies remained low compared to those of its peers in the Asean, although some big state companies had been quick to tap the AEC opportunities by establishing footprints in the region, including Semen Indonesia, Bank Negara Indonesia, Wijaya Karya and Pertamina in Burma; Bank Mandiri in Malaysia and Tiga Pilar in Vietnam.

Indonesia needs to strengthen its services sector, SMEs and workforce so they can thrive in what will become a highly competitive environment in the region. The country faces the risk of becoming too complacent, relying solely on its huge market base.

So while technically the country is ready for the AEC, its readiness may not translate to its active involvement in the single market. The most important thing now is for the country—from policymakers, businesses to the labor force—to work on how the services sector, SMEs and the workforce can make the most of the regional integration.