However, large economic costs prevent these industries. In very aggressive, export-oriented production sectors, producers are price-takers on the international market- they are usually able to complete higher costs onto consumers. As a result, income margins properly shrink, reducing subsidies for innovation and more funding.
In comparison, Indonesia’s natural resource industries, where the land is a worldwide price-setter for some products, you move higher costs onto consumers, allowing higher profit margins. Investors frequently switch from the production to the normal tools, a trend that has been exacerbated by the current rise in commodity prices. However, the natural tool industry is capital-intensive and does not make some work, limiting its ability to create middle-class work.
OPPORTUNITY FOR STRONGER, MORE INCLUSIVE GROWTH
Indonesia’s home business is huge, but its purchasing power is limited. In order to compete with Vietnam as a global manufacturing hub, Indonesia must thus. Encouraging FDI into export-oriented areas is important. Trade profits help avert balance of payments pressures when earnings are repatriated, reducing money mismatches.
FDI may be orientated toward export-focused sectors if Indonesia wants to contribute to economic growth without impairing the balance of the ringgit. Indonesia, like Vietnam, may continue to benefit from China’s manufacturing bases by relocating its investment environment.
The statistics shows, nevertheless, that Indonesia’s FDI-to-GDP proportion has declined from 2.8 per share in 2014 to 1.9 per share in 2022. This is one factor contributing to Indonesia’s economic development that has remained at around 5 % since 2014.