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Indonesia Takes Steps to Cut Logistics Support Costs

Indonesia is undertaking measures to solve the high cost of logistics support, particularly in the manufacturing sector, which has affected the country’s overall competitiveness in the international market.

Indonesian Trade Minister Gita Wirjawan said that the high cost of logistics support in the country is caused by the limited infrastructure, particularly in the eastern region. Wirjawan explains that this has led to high disparity of growth between the eastern and western regions.
Citing as an example, Wirjawan said that cargo transport firms charged extra costs to move cargoes to the eastern region since there is no certainty that they could get cargoes on their return trip. Thus, the logistical distribution cost to the eastern region is higher than that of the western.
“This problem dampens the enthusiasm of prospective investors to invest in the eastern region. It would eventually slow down the growth in that part of the country,” Wirjawan said.
The minister added that the problem of logistics distribution would affect the economic growth of the country, particularly in the export sector. To address this problem the Trade Ministry is now developing a national logistic system that would improve the connectivity among the regions.
“It was conducted through traditional market revitalization, construction of regional distribution centers and development of networks that would connect logistic hubs in all the economic corridors,” the minister said.
According to the data released by the ministry, costs in logistics support take 24.64% from the country’s gross domestic product (GDP) that reached 1,800 trillion rupiah (about US$185.6) in 2011. Indonesia was ranked No. 59 in the results of Logistic Performance Index survey conducted last year, below Singapore, Malaysia, Thailand and Vietnam.
Sofyan Wanandi, chairman of the Indonesian Employers Association (Apindo), said that logistics cost in Indonesia takes up to 17% of the overall industrial cost, adding that it is the highest ratio in Asia.
“In Malaysia it is only 8%, while in Japan it is only 5%. The government should address this by building more infrastructure projects such as roads, seaports, airports and communications networks,” Wanandi said.
Indonesia, the largest economy in Southeast Asia, recorded high growth of above 6% in the last few years despite the global financial crisis.
Actually, the Indonesian government has already addressed the problem of logistics support by allocating 363 trillion rupiah (about US$37.4 billion) for the construction of new airports, seaports, toll roads, power plants and other infrastructure projects in a program called MP3EI which will last up to 2014.
The government has called for greater participation of the private sector in carrying out the program to solve the country’s logistics support problem.
Under its ambitious economic program, the government has set up six economic corridors aimed at spurring regional-based development that would contribute to its overall economic growth.
(Source: SCE Magazine)

Indonesian Employers Association (Apindo)