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Jakarta Post – Saturday April 11, 2015

CAN INDONESIA’S 50 CENT-AN-HOUR WORKERS MIMIC CHINA’S SUCCESS?

            As the sun lowers into the Java Sea, Asep Saefullah and his friends sit by a pond among the rice fields near his village in Indonesia, chatting, smoking clove cigarettes and fishing. Not for much longer. Work has begun on an industrial park with a power station and water treatment palnt that will create as many as 190,000 jobs. It is part of grander plan to trun this stretch of coastline on the islan of Java into an export city, with a container port and a highway to the capital, Jakarta.

            This Indonesia’s shot at recreating the success of Shenzhen China, the marshy village in southern China that became the heart of that nation’s industrial expansion in the late 1990s.now China is too expensive for many factories, and industries that poured money into cities from Shenzhen to Shanghai for two decades are looking for somewhere with lower costs and lots of cheap workers.

            “The grat China boom was really bad for the Southeast Asia economies, “said tim Condon, the Singapore-based head of Asia research at ING Groep. “With the China slowdown, all that moves in reverse. Southeast Asia’s manufacturing sector is the big winner, as it was in the early 1900s.”

            That’s created a beauty contest among Southeast Asian low-income nations looking to lure investment, including Vietnam with is high-tech-nology parks and the Philippines with its young population and English language skills. Indonesia’s trump cards are the regions’s biggest economy and some of its lowers wages.

            Workers in Central java, the province of 30 million people where Saefullah is fishing, earn as little as 50 US cent an hour – less than $100 a month. In the industrial area around Jakarta, they get almost twice that. In Vietnam the minimum monthy wage is $146, while it’s about $200 in the Phlippines and $240 in Malaysia.

            The race to get a slice of China’s manufacturing is part of Indonesian president Joko Widodo effort to wean his country off a dependence on exports of minerals and palm oil.in 2001,at the start of the China driven boom in energy and mining, Indonesia received 52 percent of its export revenue from commodities and about 20 percent from manufactured goods, according to data compiled by Bloomberg. A decade later, while manufacturing had slid to about 14 percent.

China’s economic growth slowed after that, hitting countries like Indonesia and Australia that had ridden the resources boom. Yet indonesia factories have struggled to make up for the downturn bacause of bureucracy, corruption and poor insfrastructure.indonesia has at least eight, but most are outside Java, the island that has about half of Indonesia’s 250 million pepole

 Around Saefullah’s fishpond, Singapore goverment-linked Sembcorp Deveelopment Ltd. And Indonesia developer PT Kawasan Industri Jababeka have begun clearing ground on their 2,700-hectare industrial park. Sembcorp has constructed  a three-story office and show factory at the site and is marketing the project to global investors.

Further  down the coast in Semarang, the nearest city, worker are busy expanding the former Dutch colonial port, lengthening the wharf and increasing storage capacity in what is now the country’s fourth-largest container terminal. Others are laying a railyway that will link the the port to Java’s rail network. Construction of a toll road to Jakarta is under way

The investments are already beginning to show. Central Java’s export of textiles, to the local investment board.

At Amir Sudjono’s false-eyelash plant in Purwokerto, a to-wn of about 250,000 people in the south of the province,rows of female workers in leggings and Islamic head scarvest sit knottings,threading and snipping, to the sound of a radio playing local pop misic. The industry employs about 30,000 people in the region, turning sweepings from barbershop floors  and imported synthetic hair into beauty aids for consumers around the world.

In this labor-intensive bisiness, wages account for about 80 percent of Sudjono’s production costs, but Chinese eyelash makers still manage to sell  cheaper.

“Productivity there is still a lot higher.”said Sudjono, who opened PT Bio Takara’s first factory eight years ago after studying in the US and China and now export to 21 countries.”We’re banking on China getting more expensive.”

Minimum wages across China rose an average of 14 percent in 2014, with workers in Shenzhen  now getting $292 a mont, according to China’s Human Resources and Social  Security Ministry. While that’s encouraged some production to move offshore, the concentrasion of manufacturing that grew along China’s coast in the past two decades in unlikely to be reproduced in a single country.

“Twenty years ago, multinational companies would choose the cheapest location and ship the stuff back,”said Kelvin Teo,chief executive officer of Sembcorp’s urban development business in Singapore. “Now the trend is different bacause of high logistic costs. They want to house their manufacturing sites near to domestic markets.”

That given Indonesia a size advantage over its Southeast Asian rivals. The country is one of the largest single-currency markets in the world by population, after China, India, the US and the eurozone. Balanced against that, the country has some of the worst insfrastructureand bureaucracy in the region. Indonesia rangked 144^th out of 189 in the world Bank’s 2015 ease of doing business survey, almost 100 places behind Malaysia and more than 30 below Vietnam.

The nation has suffered  from a concentration  of industrial investment around the capital, which has distorted labor costs,said Gustav Papanek, an economist at Boston University who has studied Indonesia for decades and is a member of a think tank that discusses economic policy with the goverment.

“Indonesia has become a highcost economy, particulary in the labor-intensive industries, which are precisely the ones it needs to create jobs,”said Papanek by phone. Wages in Jakarta “have jumped ahead of other countries. It’s a huge,huge job that the goverment has to do”