Highlights on Indonesia's Competitiveness_KK (11 Feb 08)_ALL

8/7/2019 Highlights on Indonesia's Competitiveness_KK (11 Feb 08)_ALL

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ASIA COMPETITIVENESSINSTITUTE

Ng Kwan KeeResearch Fellow


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ASIACOMPETITIVENESSINSTITUTE

Definitions of competitiveness

Definitions linked to outcome of prosperity and sustainable

growth

Competitiveness [should] be understood as the ability ofcompanies, industries, regions, nations and supranationalregions to generate, while being and remaining exposed tointernational competition, relatively high factor income andfactor employment levels on a sustainable basis (OECD, 1994)

Michael Porter believes that competitiveness is theunderpinning of prosperity, based on productive potential of anations economy, which in turn is ultimately set by theproductivity of its companies determined by:

o sophistication of company operations and strategy ando quality of microeconomic business environment (Porter, Ketels, &

Delgado, 2006)

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Framework of competitivenessSanjaya Lalls Triangle of Competitiveness

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Entrepreneurialskills

INCENTIVEMARKETS

FACTOR MARKETS

INSTITUTIONALMARKETS

Macropolici

es

Traderegim

e

Industrial

regime

Skills Technology

Supplierclusters

Education &training

Technologysupport

Finance

ENTERPRISECOMPETITIVENESS


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Framework of competitivenessMichael Porters Diamond Framework of Competitiveness

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Source: (Porter M. ,2006)


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Framework of competitivenessThe Resource, Capabilities and Markets (RCM) and Institutions (I) Framework of Competitiveness

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RESOURCES

Natural resources e.g. land,untrained human capital

Created assets, e.g.

technological capacity,machines, buildings

CAPABILITIES

Intangible assets, skills,educated/trained labour,accumulated experienceand wisdom

Organizational capacity andgovernance

Vision/judgement instrategic decision taking

Ability to frame andexecute appropriatepolicies

MARKETS Information/knowledgeabout/availability of bothdomestic and foreignmarkets; both product andfactor markets

Ability to tap into, exploitand coordinate markets;

and to understand andcater for specific e.g.localised needs

RESOURCES, CAPABILITIES ANDMARKETS

(The ingredients of wealthcreation)

A.FORMS B. AREAS OF INSTITUTIONAL INFLUENCE

(IN COMMERCIAL DOMAIN)

Formal institutions

Economic adjustment and stabilization Intellectual property protection

Strengthening economic

motivation/entrepreneurship

Rule setting and societal guidance (e.g.

reducing bads e.g. crime, drugs, etc.)

Promotion of entrepreneurship and

competitive market structure

Adequate and effective financial

institutions

Education and training upgrading Security of people and physical assets

Innovatory development

Incentives/regulation of foreign direct

investment

Social equity and access to opportunity

Constitutions, treaties, laws,

regulations: provision for learning,

upgrading cognition, knowledge,

etc.

Informal institutions

Tradition, cultural mores, trust,

goodwill, reputation

Enforcement mechanisms

Less formal - self regulation, fear,

retaliation, blackballing

More formal - Incentives/penalties,

(fines, enforced transparency,

cancellation of contracts,

imprisonment, etc.

INSTITUTIONS(The motivation for and regulation of

wealth creating activities)

Source: summarised by John H Dunning and Feng Zhang in a

draft and not-ready-to-be-quoted paper


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Framework of competitivenessHmlinens Systemic Framework of Economic Competitiveness and Growth

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GOVERNMENT ROLE

INSTITUTIONAL FRAMEWORKCulture-dependent behavioural

normsLaws and regulations

RESOURCESNatural/Basic

vsCreated/Advan

ced

TECHNOLOGIESInnovation and

diffusion

ORGANISATIONALEFFICIENCYAllocative,technical,

coordination &dynamic

PRODUCT MKTSophisticationof demand &

quality ofsupply

EXTERNALBUSINESSACTIVITIES

Feedbackinformation,

financialresources and

incentives

Source: (Hmlinen, 2003)


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ASIACOMPETITIVENESSINSTITUTEConceptual blocks of competitiveness

indicators

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CompetitivenessPerformance

National level outputindicators

Sectoral level outputindicators

Real GDP per capita Real GDP Labour productivity World export market share Share of country GDP in

world GDP

GCR ranking BCI ranking WCY ranking Index of Economic Freedom Economic Freedom of the

World Chain-Linked

Summary Index

Real GDP

Value added Persons employed Labour productivity World export market share


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indicators

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Competitiveness

DeterminantsHuman Capital(National level

input indicators) Human Development

Index Total population Total labour force,

participation rate,

employed andunemployed

Students studyingabroad

Internationalstudents

Educationinfrastructure

Technologicalinfrastructureindicators

Transport/logisticnetwork andinfrastructureindicators

Access to water,power, land

PhysicalInfrastructure(National level

input indicators)

Soft Infrastructure(National level

input indicators)

Scientificinfrastructureindicators

Legal infrastructureindicators

Financeinfrastructureindicators

InstitutionalEnvironment

(National levelinput indicators)

World Bank Ease of DoingBusiness Indicators

World Bank WorldwideGovernance Indicators

Corruption Perceptions Indexby Transparency International

Corruption perception surveyby PERC

World Bank InvestmentClimate Survey

Country credit rating byInstitutional Investor

Magazine ranking Government efficiencyindicators by WCY

BusinessEnvironment

(National levelinput indicators)

Inflation Components from

BCI Components from

WCY World Bank

Investment Climate

Surveys Business efficiency

Innovation Environment (Nationallevel input indicators)

Scientific infrastructure indicators suchas:

Total R&D expenditure Total R&D expenditure as % of

GDP Business R&D expenditure Business R&D expenditure as %

of GDP Total R&D personnel nationwide Scientific articles published Number of patents granted to

residents Number of patents secured

Environment (Nationallevel input indicators)

Share of world total greenhousegas emission

Carbon dioxide emissions percapita

Energy consumption per capita Energy efficiency GDP per unit

of ener used


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indicators

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Competitiveness

DeterminantsTrade (National

level input/outcomeindicators)

Global ranking inworld trade

Share of world trade Total trade in value Trade to GDP ratio Total trade annual

growth Export and import

growth, averageannual

Global ranking asexporter

Global ranking in inward FDI flow &stock

Share of global inward FDI flow & stock Inward FDI flow & stock in value

Inward FDI stock as % of GDP Inward FDI flows as % of Gross FixedCapital Formation

Investment risk Euromoney countrycredit-worthiness scale

World Bank Investment ClimateSurveys

Investment (Nationallevel input/output

indicators)

ManufacturingIndustry (Industry


Gross fixed capital formation Number of employees Number of establishments Industry output Value added Wages and salaries of

employees Top industry sector by share

within industry based ontechnology classification

Value added as % of GDP bytechnology classification

Value added per employee bytechnology classification

Share of total employment bytechnology classification andkey sectors

Employment structure bysector

Trade (Industry


Export portfolio bycluster

Goods export shareto leading tradingpartners

Investment

(Industry levelinput/outcome

indicators) Inward FDI flow &

stock by sector byinvesting country


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ASIA COMPETITIVENESSINSTITUTE


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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national

competitivenessCompetitiveness Performance - Standard of Living

In terms of GDP per capita growth, above ASEAN-4average before 1997, worst hit during the AsianFinancial Crisis, on par with ASEAN-4 average from1998-2006.

In all periods, behind Asian NIEs average, behindVietnam, China and India

In terms of level of GDP per capita, behind ASEAN-4 average (lowest among ASEAN-4), Asian NIEs,above CLMV average for all periods.

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competitiveness

13Source: International Monetary Fund, World Economic Outlook Database, April 2007


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competitiveness


Growth of GDP Per Capita, PPP adjusted

(compound annual growth rate, %)

1980-1990 1990-1997 1997-1998 1998-2006

China 12.2 12.8 8.0 11.0

Japan 7.7 3.6 (0.9) 3.8

India 7.8 5.9 5.1 7.1

Asian NIEs 11.3 8.2 (2.6) 6.8

Hong Kong 9.9 5.8 (5.4) 7.0South Korea 12.0 8.6 (6.5) 7.6

Taiwan 11.0 8.4 4.8 5.7

Singapore 9.4 7.6 (3.6) 6.3

ASEAN-4 7.2 6.9 (9.9) 5.7

Indonesia 7.8 7.6 (13.5) 5.7

Malaysia 7.5 8.9 (8.5) 5.5

Philippines 3.4 3.2 (1.7) 4.7

Thailand 10.3 8.0 (10.6) 6.3CLMV 7.1 7.8 4.3 9.0

Vietnam 8.2 8.9 5.3 8.1

Cambodia 9.0 3.8 3.6 9.5

Lao People's Democratic

Republic

7.2 6.3 2.7 6.4

Myanmar 3.5 6.3 3.0 12.3

Note: Cambodia's growth rate for the category 1980-1990 is from 1986-1990


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competitiveness


GDP Per Capita, PPP adjusted

(current international dollar)

1980 1990 1998 2000 2006

China 418 1,318 3,302 3,913 7,598

Japan 9,060 19,046 24,226 25,695 32,647

India 648 1,375 2,159 2,392 3,737

Asian NIEs 3,275 9,525 16,099 19,027 27,304

Hong Kong 6,170 15,834 22,247 25,864 38,127

South Korea 3,674 10,462 19,336 22,067 30,084

Taiwan 2,588 8,022 13,346 16,179 23,926

Singapore 5,104 12,485 20,167 24,066 32,867

ASEAN-4 1,295 2,592 3,734 4,139 5,814

Indonesia 909 1,922 2,776 3,045 4,323

Malaysia 2,265 4,657 7,728 8,738 11,858

Philippines 2,139 2,999 3,673 3,997 5,314

Thailand 1,362 3,623 5,561 6,182 9,084

CLMV 413 819 1,443 1,674 2,886

Vietnam 430 942 1,807 2,037 3,367

Cambodia n/a 1,146 1,537 1,867 3,170

Lao People's Democratic Republic 446 889 1,398 1,570 2,304

Myanmar 384 543 855 1,074 2,161


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competitivenessCompetitiveness Performance - Economic Performance

Real GDP grew faster than ASEAN-4 average beforeAsian Financial Crisis but lagged behind after that

Lagged behind China and Vietnam for all periods

Grew faster than India only in 1990-1997

Indonesia has the largest share among the ASEAN-4in terms of Share of World GDP (PPP terms)

Greater than CLMV in total, in fact doubled CLMVtotal for 2006

However, share quite stagnant since 1990

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competitiveness


Real GDP Growth

(compound annual growth rate, %)1980-1990 1990-1997 1997-1998 1998-2006

China 9.2 11.5 7.8 9.3

Japan 3.9 1.7 (2.0) 1.4

India 5.8 5.4 6.0 6.7

Asian NIEs 8.1 7.0 (3.0) 5.1

Hong Kong 6.8 5.3 (5.5) 5.3South Korea 8.7 7.2 (6.9) 5.7

Taiwan 8.0 7.0 4.5 3.9

Singapore 7.4 8.6 (1.4) 5.6

ASEAN-4 5.3 6.6 (9.4) 4.8

Indonesia 5.5 6.9 (13.1) 4.4

Malaysia 6.0 9.2 (7.4) 5.4Philippines 1.7 3.1 (0.6) 4.6

Thailand 7.9 6.7 (10.5) 4.9

CLMV 7.0 6.8 5.1 8.8

Vietnam 5.9 8.3 5.8 7.2

Cambodia 6.8 6.3 5.0 9.5


Republic

5.6 6.5 4.0 6.5

Myanmar 1.3 5.8 5.8 11.9Note: Cambodia's growth rate for the category 1980-1990 is from 1986-1990


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competitiveness

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Source: International Monetary Fund, World Economic Outlook Database, April 2007

Share of World GDP (PPP terms,

%)

1980 1990 1998 2000 2006

China 3.2 5.6 10.3 11.0 15.1

Japan 8.2 8.8 7.7 7.2 6.3

India 3.4 4.3 5.2 5.4 6.3

Asian NIEs 1.6 2.6 3.2 3.4 3.4

Hong Kong 0.2 0.3 0.4 0.4 0.4

South Korea 0.8 1.3 1.5 1.7 1.7

Taiwan 0.5 0.8 1.1 1.1 1.0Singapore 0.1 0.1 0.2 0.2 0.2

ASEAN-4 2.6 3.0 3.4 3.4 3.5

Indonesia 1.0 1.3 1.4 1.4 1.4

Malaysia 0.2 0.3 0.4 0.5 0.5

Philippines 0.8 0.7 0.7 0.7 0.7

Thailand 0.5 0.8 0.9 0.9 0.9CLMV 0.3 0.4 0.5 0.5 0.7

Vietnam 0.18 0.23 0.34 0.35 0.43

Cambodia n/a 0.04 0.05 0.05 0.07


Republic

0.01 0.01 0.02 0.02 0.02

Myanmar 0.10 0.08 0.10 0.12 0.18

Total from above 19.2 24.6 30.2 31.0 35.3


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competitivenessCompetitiveness Performance - GDP per Capita,

Labour Productivity and Employment

GDP per capita can be seen as a product of tworatios: Labour productivity and employment rate ofpopulation

Labour productivity and GDP per capita growth ratesgenerally on an upward trend after Asian FinancialCrisis

Population growth trending downwards

Unemployment growing since 1996, with a blip in2000

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Source: International Monetary Fund, World Economic Outlook Database, April2007

World Bank World Development Indicators on-line database, 2006;International Labour Organisation LABORSTA database, 2007


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Source: International Monetary Fund, World EconomicOutlook Database,

April 2007World Bank World Development Indicators on-line

database, 2006;International Labour Organisation LABORSTA

database, 2007


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competitivenessIndonesias Performance among Competitiveness Indices

The Business Competitiveness Index (BCI) by World Economic Forum (WEF)ranked 121 countries (GCR 2006-2007 Edition) according to overall businesscompetitiveness made up of the two dimensions in Porters Microeconomicfoundation of productivity:o Sophistication of company operations and strategy, and

o Quality of the national business environment

The World Competitiveness Yearbook (WCY) by the International Institute forManagement Development (IMD) ranked 55 countries (WCY 2007 Edition)according to their ability to create and maintain an environment that sustains thecompetitiveness of enterprises. The national environment is divided into 4 factors:o Economic performance

o Government efficiency

o Business efficiency

o Infrastructure

Each of the 4 factors are further sub-divided into 5 sub-factors

Sub-factors are further made up of criteria

Altogether 323 criteria (127 are hard data, 119 are survey data, 77 forbackground information)

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competitiveness

23Source: GCR, 2006-2007


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competitivenessIndonesias Performance among Competitiveness Indices

The 2007 Index of Economic Freedom by the Heritage Foundationand The Wall Street Journal ranked 157 countries across 10 equally-weighted factors of economic freedom. They are:

o Business Freedom

o Trade Freedomo Fiscal Freedom

o Freedom from Government

o Monetary Freedom

o Investment Freedom

o

Financial Freedomo Property Rights

o Freedom from Corruption

o Labour Freedom

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competitivenessIndonesias Performance among Competitiveness

Indices

Economic Freedom of the World Chain-Linked Summary Indexby the Fraser Institute ranked 38 countries by the degree to

which policies and institutions of these countries aresupportive of economic freedom. It is divided into 5 areas ofeconomic freedom:o Size of government

o Legal structure and security of property rights

o

Access to sound moneyo Freedom to trade internationally

o Regulation of credit, labour and business

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Selected Competitiveness

Determinants of Indonesia


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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national

competitivenessBusiness Environment

The Business Competitiveness Index (BCI) by World Economic Forum(WEF) ranked 121 countries (GCR 2006-2007 Edition) according tooverall business competitiveness made up of the two dimensions inPorters Microeconomic foundation of productivity:o Sophistication of company operations and strategy, and

o Quality of the national business environment Sophistication of company operations and strategy" is further

divided by into 15 components (all are survey data), and

"quality of the national business environment" is divided into 44components (38 are survey data, 6 are hard data)

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competitiveness

32Source: GCR, 2006-2007


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competitiveness

33Source: GCR, 2006-2007


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competitivenessBusiness Environment

From BCI, it seems that there was a great improvement in thenational business environment for Indonesia for the year 2006which led to an improvement in the BCI score and ranking.

The improvement in BCI ranking for Indonesia from 2005 to2006 is due to the following most improved factors:

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Top 10 Most Improved Factors for BCI from 2005 to 2006

Code Variable Change in index

scores

I. COMPANY OPERATIONS & STRATEGY

uq0803be Ease of access to loans 2.85

uq0907be Extent of market dominance 2.09

uq0906be Effectiveness of antitrust policy 2.01uq0804be Venture capital availability 1.91

uq0909be Local availability of process machinery 1.69

II. NATIONAL BUSINESS ENVIRONMENT

uq1011cos Willingness to delegate authority 1.77

uq1012cos Extent of incentive compensation 1.70

uq1013cos Reliance on professional management 1.62

uq1009cos Breadth of international markets 1.44

uq1007cos Control of international distribution 1.18


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competitiveness

Business Environment

However, it should be noted that the following factors shownthe most decline from 2005 to 2006:

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Top 10 Most Deteriorated Factors for BCI from 2005 to 2006

Code Variable Change in

index scoresI. COMPANY OPERATIONS & STRATEGY

uq0604be Quality of port infrastructure -0.79

uq0307be University/industry research collaboration -0.76

uq0601be Overall infrastructure quality -0.74

uq0603be Railroad infrastructure -0.68

uq0801be Financial market sophistication -0.49

uq0508be Reliability of police services -0.40

uq1101be Stringency of environmental regulations -0.35

uq0315be Laws relating to ICT -0.26

II. NATIONAL BUSINESS ENVIRONMENT

uq1002cos Value chain breadth -0.47

uq1001cos Nature of competitive advantage -0.24


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competitivenessHuman Capital

The Human Development Index (HDI) by United Nations DevelopmentProgramme (UNDP) is a summary measure of human development.

It measures the average achievements in a country in three basicdimensions of human development:o A long and healthy life, as measured by life expectancy at birth.o Knowledge, as measured by the adult literacy rate (with two-thirds weight) and

the combined primary, secondary and tertiary gross enrolment ratio (with one-third weight).

o A decent standard of living, as measured by GDP per capita in purchasingpower parity (PPP) terms in US dollars.

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Human development classificationsAll countries included in the HDI are classified into one of three clusters by achievement in human development:high human development (with an HDI of 0.800 or above), medium human development (HDI of 0.5000.799) andlow human development (HDI of less than 0.500).Income classifications

All countries are grouped by income using World Bank classifications: high income (gross national income per capitaof USD10,066 or more in 2004), middle income (USD826USD10,065) and low income (USD825 or less).


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HDI

rank

Selected

Countries

State of

human

developmen

t

Human

development

index (HDI)

value, 2004

Life

expectanc

y at birth

(years)

2004

Adult

literacy

rate

(% ages

15 and

older)

2004

Combined

gross

enrolment

ratio for

primary,

secondary and

tertiary

schools

(%)

2004

GDP per

capita

(PPP US$)

2004

Life

expectan

cy index

Education

index

GDP

index

7 Japan High 0.949 82.2 85 29,251 0.95 0.94 0.95

22 Hong Kong,

China (SAR)

High 0.927 81.8 77 30,822 0.95 0.88 0.96

25 Singapore High 0.916 78.9 92.5 87 28,077 0.9 0.91 0.94

26 Korea, Rep. of High 0.912 77.3 98 95 20,499 0.87 0.98 0.89

61 Malaysia High 0.805 73.4 88.7 73 10,276 0.81 0.84 0.77

74 Thailand Medium 0.784 70.3 92.6 74 8,090 0.75 0.86 0.73

81 China Medium 0.768 71.9 90.9 70 5,896 0.78 0.84 0.68

84 Philippines Medium 0.763 70.7 92.6 82 4,614 0.76 0.89 0.64

108 Indonesia Medium 0.711 67.2 90.4 68 3,609 0.7 0.83 0.6

109 Viet Nam Medium 0.709 70.8 90.3 63 2,745 0.76 0.81 0.55126 India Medium 0.611 63.6 61 62 3,139 0.64 0.61 0.58

129 Cambodia Medium 0.583 56.5 73.6 60 2,423 0.52 0.69 0.53

130 Myanmar Medium 0.581 60.5 89.9 49 1,027 0.59 0.76 0.39

133 Lao People's

Dem. Rep.

Medium 0.553 55.1 68.7 61 1,954 0.5 0.66 0.5

East Asia

and the

Pacific

0.76 70.8 90.4 69 5,872 0.76 0.84 0.68


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competitivenessHuman Capital

Based on HDR, Comparing Indonesia with countries similarly classifiedas having a medium level of human development but ranked higher, ithas competitive weaknesses in life expectancy, adult literacy rate, lowercombined gross enrolment ratio for primary, secondary and tertiaryschools and GDP per capita but generally speaking, the extent of theweaknesses is greater for life expectancy and gross enrolmentratio.

Comparing Indonesia with Vietnam, it has competitive strengths in adultliteracy rate, higher combined gross enrolment ratio for primary,secondary and tertiary schools and GDP per capita, but it hascompetitive weakness in life expectancy.

Based on trend analysis of HDI, the gap is narrowing between Indonesiaand Malaysia, Thailand and Philippines (catching up with the ASEAN-4),but the gap is widening between Indonesia and China (lagging furtherbehind China), and Vietnam is following closely behind.

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competitivenessTrade Competitiveness

Although trade volume increases over the years, global rankingand share of world trade drops in 2005 (global ranking of 26 in2000 vs 34 in 2005; share of world trade of 0.8% to 0.7% from2000 to 2005)

In fact, share of world trade remained constant since 1980 (0.8%in 1980 vs 0.7% in 2005)

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1980 1990 2000 2005Global Ranking in World

Trade

31 28 26 34

Share of World Trade (%) 0.8% 0.7% 0.8% 0.7%

Total Trade of Indonesia, Bil

US$

32.7 47.5 109.0 155.0

World Trade, Bil US$ 4,109.0 6,999.0 13,175.0

21146.0

Source: World Trade Organisation The following indicators to be added later:

o trade to GDP ratio

o total trade annual growth

o export and import growth, ave annual %

o global ranking as an exporter


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competitivenessCompetitiveness in Foreign Direct Investment

Indonesias share of the worlds inward FDI flows remained fairlyconstant in 1980-2005 (0.5% in 1980 vs 0.6% in 2005), but share ofinward FDI stock declined (0.8% in 1980 vs 0.2% in 2005)

In 2005, inward FDI stock as percentage of GDP at 7.7% - ranked 13 thout of 15 selected Asian countries

In 2005, inward FDI flows as percentage of GFCF at 8.5% - ranked 7 th outof 15 selected Asian countries

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1980 1990 2000 2005

Global Ranking in Inward FDI

Flow

21 26 209 37

Share of Inward FDI Flow (%) 0.5% 0.5% -0.3% 0.6%

Inward FDI Flow of Indonesia, Mil

US$

300 1,092 -4,550 5,260

World Inward FDI Flow, Mil

US$

55,272 201,614 1,409,56

8

916,277

Source: World Investment

Year end 1980 1990 2000 2005Global Ranking in inward FDI

stock

22 32 37 55

Share of inward FDI stock (%) 0.8% 0.5% 0.4% 0.2%

inward FDI stock of Indonesia,

Mil US$

4,680 8,855 24,780 21,118

World inward FDI stock, Mil

US$

561,4031,789,30

3

5,802,93

3

10,129,73

9


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competitiveness

43Source: World Investment

Inward FDI Stock as a

Percentage of Gross

Domestic Product

1980 1990 2000 2005

Hong Kong, China 73.2 59.4 275.4 299.9

Singapore 45.7 82.6 121.7 158.6

Vietnam 33.3 25.5 66.1 61.2Cambodia 3.0 2.2 43.8 45.6

Myanmar 0.0 5.4 54.8 43.6

Malaysia 21.1 23.4 58.4 36.5

Thailand 3.0 9.7 24.4 33.5


Republic

0.7 1.6 32.1 24.5

Philippines 3.9 7.4 16.9 14.4

China 0.4 5.4 17.9 14.3

Taiwan 5.8 6.1 5.7 12.1

South Korea 2.0 2.0 7.3 8.0

Indonesia 6.5 7.7 16.5 7.7

India 0.2 0.5 3.8 5.8

Japan 0.3 0.3 1.1 2.2

Inward FDI Flows as a

Percentage of Gross

Fixed Capital Formation

1980 1990 2000 2005

Hong Kong, China 7.6 16.3 138.9 97.0

Singapore 25.9 46.8 59.8 78.9Cambodia .. .. 22.1 31.5

Malaysia 12.2 17.9 16.4 15.2

Viet Nam .. 21.2 15.0 11.3

China 0.1 3.5 10.3 9.2

Indonesia 2.0 3.4 -13.9 8.5

Philippines 1.3 5.4 13.9 7.5

Thailand 2.1 7.5 12.4 7.2


Republic

.. 6.1 9.4 5.8

India 0.2 0.3 3.5 3.5

South Korea 0.1 0.8 5.4 3.1

Taiwan 1.2 3.7 6.4 2.3

Japan 0.1 0.2 0.7 0.3


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competitivenessInflation

Indonesia experienced very high inflation in consumer prices from 1998 to 1999 Thereafter still higher than China and India

Higher than Vietnam from 1996 to 2006, except 2004

44Source: International Monetary Fund, World Economic Outlook Database, April


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competitiveness

45Source: International Monetary Fund, World Economic Outlook Database, April

Inflation, consumer prices

Annual percent change

Country China India Indonesia Vietnam1980 6.0 11.4 18.0 25.2

1981 2.4 13.1 12.2 69.6

1982 1.9 7.9 9.5 95.4

1983 1.5 11.9 11.8 49.5

1984 2.8 8.3 10.5 64.9

1985 9.3 5.6 4.7 91.6

1986 6.5 8.7 5.8 453.5

1987 7.3 8.8 9.3 360.41988 18.8 9.4 8.0 374.4

1989 18.0 6.2 6.4 95.8

1990 3.1 9.0 7.8 36.0

1991 3.4 13.9 9.4 81.8

1992 6.4 11.8 7.5 37.7

1993 14.7 6.4 9.7 8.4

1994 24.1 10.2 8.5 9.5

1995 17.1 10.2 9.4 16.9

1996 8.3 9.0 7.0 5.6

1997 2.8 7.2 6.2 3.1

1998 -0.8 13.2 58.0 7.9

1999 -1.4 4.7 20.7 4.1

2000 0.4 4.0 3.8 -1.6

2001 0.7 3.8 11.5 -0.4

2002 -0.8 4.3 11.8 4.0

2003 1.2 3.8 6.8 3.2

2004 3.9 3.8 6.1 7.72005 1.8 4.2 10.5 8.3


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competitivenessCompetitiveness in Institutional Environment

The Ease of Doing Business database by World Bank provides objectivemeasures of business regulations and their effects on businesses since2004

Document the degree of regulation, gauge regulatory outcomes, measureextent of legal protections of property, measure the flexibility ofemployment regulation and document tax burden on businesses.

The Ease of Doing Business ranking is computed based on the following

ten factors and sub-measures:o Ease of starting a businesso Ease of dealing with licenseso Ease of employing workerso Ease of registering propertyo Ease of getting credito Ease of protecting investors

o Ease of paying taxeso Ease of trading across borderso Ease of enforcing contractso Ease of closing a businesso Recovery rate (cents on the dollar)

Coverage increased from 130 economies in 2004 to 175 in 2007

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Note: Positive numbers indicate an increase in ranking from2006 to 2007 whereas negative numbers indicate a decrease

in ranking and zero indicates no change

Notes:Total numbers of countries ranked are 155 (2006) and175 (2007);

Selected countries are ordered by their 2007 Ease ofDoing Business ranking.


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49Notes:Total numbers of countries ranked are 155 (2006) and 175 (2007); Selected countries are ordered by the years Ease of Doing


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Indonesia is one of the five countries that suffered a drop inranking in the 2007 Ease of Doing Business Ranking. These othercountries are Vietnam, Philippines, Taiwan and Cambodia.

Comparing the 2006 and 2005 data, the top three factors thatcaused the biggest drop in Indonesias rankings are ease of

closing a business, ease of getting credit, and ease of tradingacross borders.

Indonesia maintained at 161 in starting a business, dropped 2places to 131 in dealing with licenses, improved by one place to140 in employing workers, dropping 2 places to 120 inregistering property, dropping 7 places to 83 in getting credit,

dropping 2 places to 60 in protecting investors, dropped 4 placesto 133 in paying taxes, dropped 5 places to 60 in trading acrossborders, dropped 1 place to 145 in enforcing contracts, dropped10 places to 136 in closing a business.

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The Worldwide Governance Indicators by World Bank reports aggregate andindividual governance indicators for 212 countries and territories over theperiod 19962006, for six dimensions of governance: Voice andAccountability, Political Stability and Absence of Violence, GovernmentEffectiveness, Regulatory Quality , Rule of Law, and Control of Corruption.The details are:o Voice and Accountability the extent to which a countrys citizens are able to

participate in selecting their government, as well as freedom of expression,freedom of association, and a free media.

o Political Stability and Absence of Violence perceptions of the likelihoodthat the government will be destabilized or overthrown by unconstitutional orviolent means, including domestic violence and terrorism.

o Government Effectiveness the quality of public services, the quality of thecivil service and the degree of its independence from political pressures, thequality of policy formulation and implementation, and the credibility of thegovernments commitment to such policies.

o Regulatory Quality the ability of the government to formulate and implementsound policies and regulations that permit and promote private sectordevelopment.

o Rule of Law the extent to which agents have confidence in and abide by therules of society, and in particular the quality of contract enforcement, the police,and the courts, as well as the likelihood of crime and violence.

o Control of Corruption the extent to which public power is exercised for privategain, including both petty and grand forms of corruption, as well as capture ofthe state by elites and private interests.

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competitiveness The chart below shows the percentile rank of the country on each governance indicator.

Percentile rank indicates the percentage of countries worldwide that rate below the selectedcountry. Higher values indicate better governance ratings. Percentile ranks have beenadjusted to account for changes over time in the set of countries covered by thegovernance indicators.

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54Note: The six governance indicators are measured in units ranging fromabout -2.5 to 2.5, with

S CO SS


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ASIA COMPETITIVENESS


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i d f i l


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The Worldwide Governance Indicators from 1996-2006show that Indonesia seems to have arrested the downwardtrends since 2003. Show signs of improvement ingovernance from 2003 to 2006

Prior to that, sharp drop in scores for governmenteffectiveness, political stability and regulatory quality

Comparing Indonesia with China, India and Vietnam basedon 2006 data, Indonesia has competitive strengths inregulatory quality, but has competitive weaknesses inpolitical stability, rule of law, control of corruption, voiceand accountability and government effectiveness.

Based on the 2006 percentile rank, Indonesia is performingbelow regional average (East Asia) in political stability, ruleof law and control of corruption. The same can be said forcomparison with Vietnam, India and China.

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Selected Determinants of IndustrialCompetitiveness for Indonesia


D t i t d f i d t i l


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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of industrial

competitivenessExport Competitiveness

The following charts:

o Exports Portfolio by Cluster, 1997-2005* (top 20 by export value)

o Exports Portfolio by Cluster, 1997-2005* (top 20 by world export marketshare)

o Exports Portfolio by Cluster, 1997-2005* (top 20 by change in world exportmarket share)

o Exports Portfolio by Service Cluster, 1997-2004

plots Indonesias share of world export and export values by cluster in2005 against the changes in exports share by cluster (1997-2005)

Singapores exports portfolio by cluster are also included for comparison

59

* Note: services exports started from 2002.Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness,Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics

Database and the IMF BOP statistics




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ASIACOMPETITIVENESS

Determinants and meas res of ind strial


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INSTITUTEDeterminants and measures of industrialcompetitivenessExport Competitiveness

64

Cluster Export Value (in USD'000), 2005

Share ShareChange

Oil and Gas Products $19,489,343.80 1.80% -1.49%

Metal Mining and Manufacturing $8,172,304.67 1.18% 0.35%

Agricultural Products $7,253,417.42 1.57% 0.26%

Apparel $5,170,168.98 1.98% 0.32%

Hospitality and Tourism $4,371,160.00 0.64% -0.87%

Coal and Briquettes $4,354,121.70 9.50% 2.37%

Plastics $4,126,373.24 1.28% 0.05%

Information Technology $3,688,152.06 0.53% 0.27%

Textiles $3,504,635.44 1.69% 0.33%

Forest Products $3,033,962.55 2.00% 0.89%

Indonesias Exports Portfolioby Cluster, 1997-2005* (indescending order of ExportValue)Note: services exports startedfrom 2002.

Cluster Export Value (in

USD '000), 2005

Share Share

Change

Coal and Briquettes $4,354,121.70 9.50% 2.37%Fishing and Fishing Products $1,832,250.59 2.74% -0.81%

Footwear $1,428,517.57 2.48% -1.44%

Furniture $2,824,965.30 2.18% 0.28%

Forest Products $3,033,962.55 2.00% 0.89%

Apparel $5,170,168.98 1.98% 0.32%

Building Fixtures and Equipment $2,843,124.68 1.93% -3.34%

Oil and Gas Products $19,489,343.80 1.80% -1.49%

Textiles $3,504,635.44 1.69% 0.33%

A ricultural Products 7 253 417.42 1.57% 0.26%

Indonesias Exports Portfolioby Cluster, 1997-2005* (indescending order of Share)Note: services exports startedfrom 2002.

ASIACOMPETITIVENESS

Determinants and measures of industrial


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USD '000), 2005

Share Share

Change

Coal and Briquettes $4,354,121.70 9.50% 2.37%

Construction Services $463,010.00 0.99% 0.99%

Forest Products $3,033,962.55 2.00% 0.89%

Communications Services $1,599,530.00 1.12% 0.88%

Business Services $2,881,210.00 0.50% 0.50%Tobacco $323,742.30 1.39% 0.38%

Metal Mining and Manufacturing $8,172,304.67 1.18% 0.35%

Textiles $3,504,635.44 1.69% 0.33%

Lighting and Electrical Equipment $1,082,947.53 0.69% 0.33%

Apparel $5,170,168.98 1.98% 0.32%

Indonesias ExportsPortfolio by Cluster, 1997-2005* (in descending orderof Share Change)Note: services exports startedfrom 2002.


USD '000)

Share Share

Change

Hospitality and Tourism $4,371,160.00 0.64% -0.87%Business Services $2,881,210.00 0.50% 0.50%

Transportation and Logistics $2,796,930.00 0.53% 0.18%

Communications Services $1,599,530.00 1.12% 0.88%

Construction Services $463,010.00 0.99% 0.99%

Financial Services $421,880.00 0.22% 0.21%

Indonesias Exports Portfolioby Service Cluster, 2002-2005

ASIACOMPETITIVENESS



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Based on the 2005 export values, share of world exports, and thechange in world export share from 1997-2005, Indonesia iscompetitive in the export of coal and briquettes, fishing products,footwear, furniture and forest products, and oil and gas products,although there is a decrease in world export share in oil and gas

products, fishing products and footwear. Indonesia has the largest increase in the world export share in

the export of coal and briquettes

In terms of services, hospitality and tourism has the largestexport value but suffers from a decline in world export share.

Based on Indonesias goods export values and share for 2005,

the top 5 leading trading partners are Japan, USA, Singapore,South Korea, and China. However, the exports shares to Japan,USA and Singapore have decreased.

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ASIACOMPETITIVENESS



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Based on the 2005 export values, share of world exports, and thechange in world export share from 1997-2005, Indonesia iscompetitive in the export of coal and briquettes, fishing products,footwear, furniture and forest products, and oil and gas products,although there is a decrease in world export share in oil and gas

products, fishing products and footwear. Indonesia has the largest increase in the world export share in

the export of coal and briquettes




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ASIACOMPETITIVENESS



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INSTITUTEDeterminants and measures of industrialcompetitivenessCompetitiveness of Manufacturing Sector Industry level manufacturing data was reclassified based on standard industry aggregation by

technology level. Source is OECD Science, Technology and Industry Outlook 2006

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Standard Industry Aggregation by Technology Level(based on ISIC Revision 3)

The high-technology industries (HT) are defined as the sum of:

Pharmaceuticals (2423), Office and computing machinery (30), Radio, TV and communication equipment (32), Medical, precision and optical equipment (33), Aircraft and spacecraft (353).

The medium-high-technology industries (MHT) are defined as the sum of: Chemicals excluding pharmaceuticals (24 excl. 2423), Machinery and equipment (29), Electrical machinery and apparatus (31), Motor vehicles and trailers (34), Railroad and transport equipment (352+359).

The medium-low-technology industries (MLT) are defined as the sum of:

Coke, refined petroleum products and nuclear fuel (23), Rubber and plastic products (25), Other non-metallic mineral products (26), Basic metals (27), Fabricated metal products except machinery and equipment (28), Building and repairing of ships and boats (351).

The low-technology industries (LT) are defined as the sum of:

Food products, beverages and tobacco (15-16), Textiles, textile products, leather and footwear (17-19), Wood, pulp, paper, paper products, printing and publishing (20-22), Manufacturing n.e.c. and recycling (36-37).

ASIACOMPETITIVENESSSDeterminants and measures of industrial


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INSTITUTEDeterminants and measures of industrialcompetitivenessSnapshot of Indonesias Manufacturing Sector in 2003 (latest available data)

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Key ManufacturingStatistics for 2003

(US$) based on 4-

digit ISIC Rev 3

codes

Gross fixed capitalformation-Total

(at 2000 prices)

Number ofemployees

Numberof

establish

ments

Output inproducers prices

(at 2000 prices)

Value added infactor values (at

2000 prices)

Wages andsalaries of

employees (at

2000 prices)

(1) Total High

Technology

manufacturing

1,199,246,710 171,527 424 5,318,607,670 2,296,442,935 267,658,411

(2) Total Medium

High Technology

manufacturing

5,402,944,625 361,383 1,625 12,539,469,831 5,808,524,390 658,957,106

(3) Total Medium

Low Technology

manufacturing

9,447,538,840 526,939 2,572 10,520,194,561 3,128,813,195 1,250,918,261

(4) Total Low

Technology

manufacturing

39,135,040,632 2,817,428 12,988 37,163,553,178 14,652,966,857 2,325,341,272

Total manufacturing(1+2+3+4)

55,184,770,806 3,877,277 17,609 65,541,825,240 25,886,747,377 4,502,875,048

Total manufacturing

(as reported by

UNIDO)

124,928,869,979 4,273,880 20,324 76,596,550,267 29,840,720,475 5,303,875,202Scope: Large establishments (with 100 or more persons engaged) and medium scale establishments (with 20 to 99 personsengaged).Notes: Discrepancies occurred for Indonesia's data from 1998 to 2003 on the sums of the individual 4-digitcodes and the total manufacturing figures reported by UNIDO.Source: UNIDO Industrial Statistics Database at the 3- and 4-digit level of ISIC Code (Revision 3), INDSTAT4 2007 ISIC Rev.3

The series Gross Fixed Capital Formation, Output and Value Added are deflated by Gross domestic product, deflator

(2000=100) and the series Wages and salaries of employees are deflated by Inflation, consumer prices (2000=100)Source: IMF World Economic Outlook Database, April 2007


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INSTITUTEDeterminants and measures of industrialcompetitivenessContribution of Manufacturing sub-sectors by Technology Level Aggregation

71

Scope: Large establishments (with 100 or more persons engaged) and medium scale establishments (with 20 to 99 personsengaged).

Source: UNIDO Industrial Statistics Database at the 3- and 4-digit level of ISIC Code (Revision 3), INDSTAT4 2007 ISIC Rev.3

The series Gross Fixed Capital Formation, Output and Value Added are deflated by Gross domestic product, deflator

(2000=100) and the series Wages and salaries of employees are deflated by Inflation, consumer prices (2000=100)Source: IMF World Economic Outlook Database, April 2007

Average Share of

Total

manufacturing

(1998-2003)

Gross fixed

capital

formation-Total

(at 2000 prices)

Number of

employees

Number of

establishm

ents

Output in

producers

prices (at

2000 prices)

Value added in

factor values

(at 2000 prices)

Wages and

salaries of

employees (at

2000 prices)

Total High

Technologymanufacturing

3.5% 4.3% 2.2% 7.0% 7.5% 6.3%

Total Medium

High Technology

manufacturing

10.3% 8.7% 8.5% 19.6% 22.1% 14.3%

Total Medium Low

Technology

manufacturing

22.4% 11.8% 12.5% 15.1% 11.3% 15.6%

Total Low

Technology

manufacturing

43.5% 69.2% 66.4% 51.4% 51.3% 53.6%Note:Total manufacturing as reported by UNIDO


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INSTITUTEDeterminants and measures of industrialcompetitivenessTop Industry Sector (1998-2003) by Share within industry based on technology classification

73

Gross fixed capital formation-

Total (at 2000 prices)

Number of employees Number of establishments

Total High

Technology

manufacturing

Pharmaceuticals, medicinal

chemicals, etc.;

Electronic valves, tubes, etc.;

TV and radio receivers and

associated goods.

Aircraft and spacecraft (1998-

1999);

Optical instruments &

photographic equipment

(2001).

Pharmaceuticals,

medicinal chemicals, etc.;

Electronic valves, tubes,

etc.;

TV and radio receivers

and associated goods.

Pharmaceuticals,



etc.;



Output in producers prices

(at 2000 prices)

Value added in factor

values (at 2000 prices)

Wages and salaries of

employees (at 2000

prices)

Total High

Technology

manufacturing

Pharmaceuticals, medicinal

chemicals, etc.;

Electronic valves, tubes, etc.;

TV and radio receivers and

associated goods.

Pharmaceuticals,



etc.;



Pharmaceuticals,



etc.;





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Gross fixed capitalformation-Total (at 2000

prices)


Total Medium

High

Technology

manufacturing

Basic chemicals, except

fertilizers;

Fertilizers and nitrogen

compounds (1998-2002);

Domestic appliances n.e.c.

(2001-2003);

Man-made fibres (1998,

2001, 2003);

Parts/accessories for

automobiles (1998-2001,

2003);

Motor vehicles (2000,

2003).


fertilizers;

Soap, cleaning &

cosmetic preparations;

Other chemical

products n.e.c. (1998-

2000);

Domestic appliances

n.e.c. (2001-2003);


automobiles;

Motorcycles (1999-

2003).


fertilizers;

Soap, cleaning &

cosmetic preparations;

Paints, varnishes,

printing ink and mastics

(1998-2000, 2002-

2003);

Other chemical

products n.e.c. (1998-

2001, 2003);

Domestic appliances

n.e.c. (2001-2002);


automobiles.


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prices)


Total Medium

Low

Technology

manufacturing

Rubber tyres and tubes;

Plastic products;

Basic iron and steel;

Basic precious and non-

ferrous metals (1998-

2002);

Other fabricated metal

products n.e.c. (1998-2001,

2003);

Building and repairing of

ships (2003).


Other rubber products

(1998, 2001-2003);

Plastic products;



products n.e.c.


Plastic products;

Structural metal

products (1998-2002);

Cutlery, hand tools and

general hardware;


products n.e.c.

Output in producers prices

(at 2000 prices)

Value added in factor

values (at 2000 prices)

Wages and salaries of

employees (at 2000

prices)

Total Medium

Low

Technology

manufacturing


Plastic products;



ferrous metals;


products n.e.c.


Plastic products;



ferrous metals;


products n.e.c.


Plastic products;



ferrous metals (1998,

2000);


products n.e.c.



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prices)


Total Low

Technology

manufacturing

Vegetable and animal oils

and fats (1999-2000, 2002-

2003);

Other food products n.e.c.

(1998, 2000, 2003);

Textile fibre preparation;

textile weaving (1998-

2002);

Wearing apparel, except fur

apparel (2001-2002);

Veneer sheets, plywood,

particle board, etc. (1998-

1999, 2001-2003);

Pulp, paper and paperboard

(1998-2002)

Tobacco products;

Textile fibre

preparation; textile

weaving;

Wearing apparel, except

fur apparel;

Footwear;


particle board, etc.

Other food products

n.e.c.;

Tobacco products;

Textile fibre


weaving (1998-2000,

2003);


fur apparel;

Sawmilling and planing

of wood (2001-2002);

Furniture.



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Determinants and measures of industrialcompetitivenessTop Industry Sector (1998-2003) by Share within industry based on technology classification

78

Output in producers prices(at 2000 prices) Value added in factorvalues (at 2000 prices) Wages and salaries ofemployees (at 2000

prices)

Total Low

Technology

manufacturing

Vegetable and animal oils

and fats;

Tobacco products;

Textile fibre preparation;

textile weaving ;

Wearing apparel, except furapparel (1998-1999, 2001-

2003);


particle board, etc. (1998-

2000);

Pulp, paper and paperboard

(2000-2003).

Vegetable and animal

oils and fats (1999,

2001-2003);

Tobacco products;

Textile fibre

preparation; textileweaving ;


fur apparel (1998-2000,

2002-2003);



(1998-2001);

Pulp, paper andpaperboard (2000-

2003).

Tobacco products

(1998-2000, 2002-

2003);

Textile fibre


weaving (1999-2002); Wearing apparel, except

fur apparel;

Footwear (1998-2000,

2002-2003);



(1999-2003).



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Determinants and measures of industrialcompetitivenessIndustry productivity and growth based on selected technology classification

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High Technology manufacturing Value Added (at 2000 prices) per

employee in USD

Compound

AnnualGrowth Rate

(CAGR)

(1998-2003)

Isic Code Isic Description 1998 1999 2000 2001 2002 2003

2423Pharmaceuticals, medicinal chemicals,

etc.

5,517 9,823 10,379 12,875 16,011 18,877 27.9%

3000Office, accounting and computing

machinery

6,219 18,720 3,080 1,148 1,344 1,477 -25.0%

3210Electronic valves, tubes, etc. 6,498 7,460 15,614 11,115 18,918 10,993 11.1%

3220TV/radio transmitters; line comm.

apparatus

14,513 4,328 9,115 1,593 2,475 7,852 -11.6%

3230TV and radio receivers and associated

goods

7,021 8,228 6,489 9,345 12,813 14,614 15.8%

331 Medical, measuring, testing appliances,

etc.

3,429 4,889 5,279 5,057 1,883 2,050 -9.8%

3311Medical, surgical and orthopaedic

equipment

3,953 7,247 8,899 5,426 1,243 2,177 -11.2%

3312Measuring/testing/navigating

appliances,etc.

2,531 2,111 1,645 2,575 5,326 7,679 24.9%

3313Industrial rocess control e ui ment 1,756 1,089



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Determinants and measures of industrialcompetitivenessManufacturing Value Added and Gross Fixed Capital FormationComparison across Asian Countries

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Latest yearof data for

VA and

GFCF

Value Added inUSD

Gross Fixed CapitalFormation in USD

GDP in USD

Cambodia 2000 1,397,590,835 175,358,459 3,606,186,552

India 2003 51,912,337,683 12,073,704,525 594,802,340,259

Indonesia 2003 38,099,438,274 159,504,184,034 208,308,642,359

Japan 2002 777,021,868,121 75,971,265,193 3,970,848,278,081

Korea 2002 193,670,909,367 32,064,461,390 546,934,577,495

Lao P.D.R. 1999 65,935,185 11,352,826 1,603,258,067

Malaysia 2003 (VA),

2002

(GFCF)

32,076,578,947 48,121,013,684 95,164,210,526 (2002),

103,736,842,105 (2003)

Philippines 2003 13,414,041,212 1,890,899,632 79,329,659,923

Singapore 2003 21,271,034,566 3,902,520,979 92,368,924,051

Viet Nam 2000 (VA),

2004

(GFCF)

4,378,617,630 16,668,760,062 31,172,627,976 (2000),

45,818,995,366 (2004)

Note: VA at Producers' Prices - Cambodia, India, Korea, Laos, Malaysia, Philippines, Vietnam, ThailandVA at Factor Values - IndonesiaVA unspecified - Japan, Singapore

Source of manufacturing value added and gross fixed capital formation are from UNIDO Industrial Statistics Database,

2007



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Determinants and measures of industrialcompetitivenessManufacturing Value Added and Gross Fixed Capital FormationComparison across Asian Countries

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Note: VA at Producers' Prices - Cambodia, India, Korea, Laos, Malaysia, Philippines, Vietnam, ThailandVA at Factor Values - IndonesiaVA unspecified - Japan, Singapore

Source of manufacturing value added and gross fixed capital formation are from UNIDO Industrial Statistics Database,

2007

Value Added as % of GDP GFCF as % of GDP

Cambodia 38.8% 4.9%

India 8.7% 2.0%

Indonesia18.3% 76.6%

Japan 19.6% 1.9%

Korea, Republic of 35.4% 5.9%

Lao P.D.R. 4.1% 0.7%

Malaysia 30.9% 50.6%

Philippines 16.9% 2.4%

Singapore 23.0% 4.2%

Viet Nam 14.0% 36.4%Thailand 15.5% 3.4%



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Determinants and measures of industrialcompetitivenessEmployment Structure of Indonesia, 1980-2005

82Source: International Labour Organisation LABORSTA database, 2007

e: Industry classification is by ISIC Rev 2



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Conclusions

ASIACOMPETITIVENESSINSTITUTEConclusions (Competitiveness


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Co c us o s (Co pe e essPerformance)Standard of Living

GDP per capita growth lagging behind Asian NIEs average, andemerging economies such as Vietnam, China and India for allperiods.

Level of GDP per capita behind ASEAN-4 average (lowest amongASEAN-4) & Asian NIEs, but above CLMV average for all periods.

Economic Performance

Real GDP growth lagged behind ASEAN-4 average and India afterAsian Financial Crisis and behind China and Vietnam for allperiods

Indonesia has the largest share among the ASEAN-4 in terms ofShare of World GDP (PPP terms), doubled CLMV total for 2006

However, share quite stagnant since 1990 Unemployment rising despite labour productivity trending

upwards after Asian Financial Crisis

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( pDeterminants)Business Environment

From BCI, it seems that there was a great improvement inthe national business environment for Indonesia for the year2006 which led to an improvement in the BCI score andranking.

However, need to address quality of infrastructure anduniversity-industry research collaboration issues

Human Capital

Based on HDR, comparing Indonesia with countries similarly

classified as having a medium level of human development

but ranked higher, it has competitive weaknesses in lifeexpectancy, adult literacy rate, lower combined grossenrolment ratio for primary, secondary and tertiary schoolsand GDP per capita but generally speaking, the extent ofthe weaknesses is greater for life expectancy andgross enrolment ratio.

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( pDeterminants)Trade Competitiveness

Although trade volume increases over the years, shareof world trade remained constant since 1980

Competitiveness in Foreign Direct Investment

Indonesias share of the worlds inward FDI flowsremained fairly constant in 1980-2005 but share ofinward FDI stock declined (0.8% in 1980 vs 0.2% in2005)

Inward FDI stock as percentage of GDP among lowestin selected Asian countries (ASEAN10+3+1+Taiwan)

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competitiveness

Competitiveness in Institutional Environment

Indonesia suffered a drop in ranking in the 2007Ease of Doing Business Ranking together withVietnam, Philippines, Taiwan and Cambodia.

Comparing the 2006 and 2005 data, the top threefactors that caused the biggest drop in Indonesiasrankings are ease of closing a business, ease ofgetting credit, and ease of trading across borders.

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Among the four countries of Indonesia, China, Vietnam andIndia, Indonesia has the lowest Ease of Doing Business rankingin 2007, overtaken by India which occupied the last spotamong the four in 2006.

Among the four countries in 2007s ranking, Indonesia hascompetitive strengths in protecting investors, trading across

borders, and to a certain extent getting credit. However, ithas competitive disadvantage in starting a business,employing workers, registering property, and closing business.

Comparing the rankings for the 10 factors between the twoyears, Indonesia have slipped in 8 of them while maintainingstatus quo for one of them and increased by one rank for

employing workers. On the whole, need to address ease of closing a business,

ease of getting credit, and ease of trading across borders

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competitivenessExport Competitiveness at Industry Level

Based on the 2005 export values, share of world exports, and thechange in world export share from 1997-2005, Indonesia iscompetitive in the export of coal and briquettes, fishing products,footwear, furniture and forest products, and oil and gas products,although there is a decrease in world export share in oil and gasproducts, fishing products and footwear.

Indonesia has the largest increase in the world export share inthe export of coal and briquettes




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competitivenessCompetitiveness of Manufacturing Sector Industry level manufacturing data was reclassified based on

standard industry aggregation by technology level. Source isOECD Science, Technology and Industry Outlook 2006

In terms of average share of total manufacturing, the largestshare for VA is low tech manufacturing, followed by mediumhigh tech, medium low tech and high tech manufacturing.

In terms of average share of total manufacturing, the largestshare for GFCF is low tech manufacturing, followed bymedium low tech, medium high tech and high techmanufacturing. Same for wages and salaries of employees,number of establishments, number of employees.

In terms of CAGR, the largest growth for VA from 1998-2003 is

high tech manufacturing, followed by medium low tech, lowtech and medium high tech manufacturing. In terms of CAGR, the largest growth for GFCF from 1998-2003

is low tech manufacturing, followed by medium low tech,medium high tech. High tech manufacturing shows a decline.

Highlights on Indonesia's Competitiveness_KK (11 Feb 08)_ALL

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