Information about Asia and the Pacific Asia y el Pacífico
Journal Issue
Share
Article

Indonesia: Selected Issues

Author(s):
International Monetary Fund
Published Date:
July 2004
Share
  • ShareShare
Information about Asia and the Pacific Asia y el Pacífico
Show Summary Details

VI. Indonesia’s Export Competitiveness1

A. Introduction

1. As described in the previous chapters of this Selected Issues paper, Indonesia’s export performance since the Asian crisis has not matched that of its peers. This chapter documents the extent of this underperformance, reviews some of the main explanatory factors, and assesses medium-term export prospects in light of recent evidence.

2. A number of factors has contributed to Indonesia’s relatively weak export performance in recent years. Cost competitiveness—as measured by trends in the real effective exchange rate and unit labor costs—has deteriorated in the past two years, contributing at least in part to the weak non-oil export growth witnessed during this period. However, cost considerations alone do not fully explain Indonesia’s relative underperformance in the region. Indeed, a longer perspective suggests that exports have been held back by relatively weak external demand for Indonesia’s mix of export products, by a collapse of foreign investment that was much sharper in Indonesia than elsewhere in the region, and by constraints that appear to have weighed more heavily on labor-intensive manufacturing exporters. Looking ahead, the current external environment is favorable for a rebound in exports. Whether domestic conditions can be equally supportive will depend on Indonesia’s ability to attract new foreign investment into export industries and create a conducive environment for labor-intensive manufacturing sectors.

B. Export Performance Since the Asian Crisis

3. Prior to the Asian Crisis, Indonesia registered some of the fastest export growth rates in the region. For the 1970–96 period, export earnings rose by an average of 18 percent per year in Indonesia, similar to growth rates recorded in China, Thailand, and Malaysia. Indonesia’s export growth during the 1970s and 1980s was driven by non-oil exports, which increased six-fold, from around $6 billion in the early 1980s to $37 billion just before the Asian crisis. While there appears to have been a slowdown of export growth in the early 1990s (see below), Indonesia’s exports were still growing at double-digit rates at the onset of the Asian crisis.

4. However, Indonesia’s export performance since the Asian crisis has lagged that of its regional comparators in several respects (Table VI.1). Growth in export earnings has been among the lowest in the region. Indonesia’s cumulative export growth during 1998-2003 amounted to only 26 percent (and just 12 percent for non-oil exports), while cumulative growth rates for Thailand, Korea, and Malaysia averaged 46 percent, and those for China and Vietnam exceeded 100 percent. Moreover, although available volume data are not very reliable, the evidence suggests that Indonesia’s export volumes were negative or flat during the 1998–2003 period, in contrast to the double-digit volume growth rates registered by virtually all its comparators.

Table VI.1.Long-Term Export Peformance Trends
Historical Export Growth RatesTrend in Regional Exports, 1998 = 100
(Annual average growth rates)(Based on U.S. dollar export values)
1970-1996199819992000200120022003
Indonesia, total18.4100102130114117126
Indonesia, non-oil24.010095117104108112
China18.6100106136145177239
India11.8100108127131149173
Korea22.9100110133115124152
Malaysia17.4100117137123130140
Philippines13.4100116126106117119
Thailand19.4100107128120126148
Sources: World Economic Outlook; Bank Indonesia for Indonesia data on non-oil and gas exports.
Sources: World Economic Outlook; Bank Indonesia for Indonesia data on non-oil and gas exports.

5. Indonesia’s market share in key export destinations has fallen or been flat since the Asian crisis. Indonesia held on to its roughly 1 percent share of worldwide imports between 1996 and 2002, but this contrasts with most of its regional comparators who registered gains in market share during this period. A loss of share for Indonesia occurred in three key markets, namely in the United States, Japan, and China. In the latter case, while exports to China rose more than 20 percent since end–2001, other countries in the region registered even stronger growth.

6. A sectoral review of exports reveals the following trends (Figure VI.1):

Figure VI.1.Export Performance

(1998=100)
  • Almost two-thirds of export value growth in the post-crisis period has relied on oil and gas receipts, which in turn reflected price effects. Oil export volumes fell by a quarter between 1998 and 2003, while gas export volumes were broadly flat.
  • Also, exports of other mining products—mainly coal, copper, and aluminum—have played a role in boosting non-oil exports, contributing about a third to non-oil export growth in the same period.
  • Manufacturing exports as a whole did relatively poorly. While they drove non-oil sector exports in the late 1980s and early 1990s, they grew by a meager 3 percent per year, or only 13 percent cumulatively between 1998 and 2003.
  • The vast majority of manufactured export sub-sectors have grown at much lower growth rates than prior to the crisis (Annex VI.I, Table A.1), with the exception of a few mineral-based manufactured goods. Furthermore, a number of the large-value manufactured exports, those generating at least $0.5 billion per year, showed a marked slowdown in export growth in 2002–03 compared to the immediate post-crisis years. Such sectors include apparel and clothing, textiles, electrical equipment, office machines and computer equipment, telecom equipment, footwear, and furniture.

C. Explaining the Underperformance

7. The various aspects of Indonesia’s underperformance reviewed above all point to a distinct shift from the pre-crisis trajectory of exports. These developments raise questions as to the relative dominance of cost versus noncost factors and of domestic versus external factors, as well as whether the underperformance of exports is likely to be temporary or permanent. The review below suggests that: (i) cost competitiveness was not the major deterrent to exports during most of the post-crisis years, although it is now an emerging issue; (ii) the weakness in exports reflects both external and internal factors; and (iii) in the absence of longer-term shifts in the composition of Indonesia’s exports, the underperformance compared to others in the region may be prolonged.

Trends in Relative Cost Competitiveness

8. Measured by the CPI real effective exchange rate (REER), cost competitiveness improved sharply following the depreciation of the rupiah in 1998, and still remains more favorable than pre-crisis levels. The level of the REER for the 1998–2003 period as a whole was around 30 percent below the pre-crisis years, a period when Indonesia’s exports, including non-oil exports, were performing well. From a cross-country perspective, and considering the post-crisis period as a whole, Indonesia experienced the largest REER depreciation among its peers (Figure VI.2).2 This has not, however, translated into dynamic non-oil export growth. Indeed, Indonesia and the Philippines, the two countries with the sharpest depreciations following the Asian crisis, have registered the lowest subsequent export growth rates. A CPI-based measure of the REER as a proxy for cost-competitiveness is thus clearly not adequate to explain Indonesia’s relative underperformance.

Figure VI.2.Export Growth and Real Exchange Rate

(In percent)

9. Recent trends in (U.S. dollar) wages and unit labor costs (ULC), however, show greater deterioration in cost competitiveness (Table VI.2). Indeed from this perspective the gains realized in the immediate post-crisis period have been fully eroded. While Indonesian manufacturing sector wages in rupiah terms more than doubled between 1997 and 2001, the sharp depreciation of the currency kept wages in dollar terms well below pre-crisis levels during this period. Recently, however, dollar wages are estimated to have returned to pre-crisis levels, despite falling productivity. In fact, after accounting for productivity trends in the manufacturing sector, unit labor costs in currency terms are now estimated to be 35 percent above pre-crisis levels.3 Of course, the one-third decline in measured productivity is likely to partly reflect cyclical factors, but this is unlikely to change the basic story.

Table VI.2.Unit Labor Costs in the Manufacturing Sector, 1993-2003Index 1993 = 100
Manufacturing OutputManufacturing

Labor Force
Manufacturing WageUnit Labor Cost in

Local Currency Terms
Exchange Rate ($/Rp)Unit Labor Cost in US$Manufacturing

Wages, in US$
[1][2][3][4 = {3}/{1/2}][5][6= {4}/{5}]
1993100100100100100100100
1994108123105120104116101
1995118115121119108110113
1996118123142147112131127
1997125128168172139123121
19981021131721904804036
19991041312242823767559
20001081332973654049074
20011071383744834929876
200299138469652446146105
2003 (est.)101138500682411166122
Sources: BPS statistics (through CEIC database) for manufacturing output, employment, and wages. Data for 2003 are preliminary based on partial (Jan-July) data for some series, and estimates for others.
Sources: BPS statistics (through CEIC database) for manufacturing output, employment, and wages. Data for 2003 are preliminary based on partial (Jan-July) data for some series, and estimates for others.

10. The deterioration of wage-based competitiveness has the potential to become a strong deterrent to manufacturing exporters. In principle, the sharp increase in labor costs observed in the past few years need not necessarily reduce competitiveness, as the rise has taken place from extremely low post-crisis levels; more generally, some increase in cost competitiveness can be absorbed by exporters if labor is not their dominant expense or if wage increases are accompanied by improvements in other dimensions of business operating conditions. However, labor is an important cost component in several export sectors and progress in many (nonwage) business conditions is unlikely to have been adequate (as discussed in the preceding chapter on the investment climate); for such exporters, the sharp increase in unit labor costs over the past two years would thus have played a part in holding back exports from levels they might have otherwise attained.

Export Composition and External Demand

11. Despite some diversification over the past quarter-century, Indonesia’s exports are still relatively skewed toward primary products (Figure VI.3). Even after their exceptional growth in the early 1990s, manufactured exports comprise only 55-60 percent of total exports compared to around 85-90 percent for most of its regional peers, including Thailand, Malaysia, Korea, Philippines and China. Moreover, among the various manufacturing sub-groups, Indonesia’s exports are more strongly dominated by products such as textiles, apparel, footwear, and furniture.

Figure VI.3.Share of Exports

(In percent of total exports)

12. External demand conditions for Indonesia’s export mix during 1998-2002 was noticeably different from that of its peers (Table VI.3). In particular, world import growth for the goods that dominate Indonesia’s export composition has been much lower than for the goods exported by its peers. Between 1997 and 2002, for example, cumulative world import growth for primary products, textiles, clothing and footwear (which collectively represent about a two-thirds of Indonesian exports) was in the 2-7 percent range, while world demand for electronics and related products (a category that makes up almost half of peers’ exports) rose by a cumulative 15 percent. Similarly, a review of the 15 largest (SITC) export categories of Indonesia and its regional comparators reveals that external demand was lowest for Indonesia’s top exports.

Table VI.3.Cumulative Global Import Growth
Primary

Products
Textiles

& Footwear
Electronics

Products
World

Imports
1992–199734.530.490.650.1
1997–20026.82.215.210.4
Source: WITS database.
Source: WITS database.

13. To the extent that the export composition of Indonesia’s peers are concentrated in sectors with faster-growing world demand, Indonesia could find it increasingly difficult to match the export growth rates of its neighbors (Table VI.4). A revealing example is seen in the exports of electronics related categories (SITC 75-77), which includes a wide range of electrical and “high technology” products (office machines, computers, television, radios, telecoms equipment, electric circuits, and related electrical equipment). Global growth in this sector has been high in the post-crisis period, and was even higher in the early 1990s. However, at the start of the 1990s, such exports accounted for less than 1 percent of Indonesia’s exports while they already accounted for 20 percent of exports in Thailand, and nearly a third of total exports in Philippines, Malaysia and Korea. Such exports now constitute around 14 percent of Indonesia’s exports, compared to around 50 percent for its four peers, but still generate a comparatively modest $8 billion in export receipts, compared to around three times as much in Philippines and Thailand, and six times as much in Malaysia and Korea.

Table VI.4.Exports of Electrical and Electronics-Related Products (SITC 75-77)
1990Export Share

1990
19972002
(In billions of US$)(In percent)(In billions of US$)(In billions of US$)
Indonesia0.213.77.9
Korea16.62640.159.9
Malaysia9.13140.052.1
Philippines2.42715.525.3
Thailand (2001)4.11817.620.6
Source: WITS database.
Source: WITS database.

14. While the above signals that Indonesia’s relative underperformance has an exogenous and structural component, it also highlights the potential gains in moving towards the higher-growth sectors that have become dominated by its peers. In the shortterm, the structure of a country’s exports is relatively rigid, but a combination of a favorable environment for private sector initiatives and supportive public policies can help steer production toward faster growth sectors. The growth of foreign investment—together with the new technology and product mix associated with it—can offer substantial benefits in this regard, although this is precisely the area in which Indonesia has done very poorly compared to its own historical record and to the current record of its peers (see below).

Exports and Foreign Direct Investment

15. Strong growth in foreign investment, and in the share of investment geared towards exports, was a notable feature of the pre-crisis economic period. Foreign direct investment in Indonesia showed rapid increases prior to the crisis, with both approvals and actual recorded inflows rising about four-fold between the early 1990s and 1997 (from $8 billion to $34 billion for annual approvals, and from $2.5 billion to $10 billion for actual inflows). Indeed, FDI played a key part in the export growth of the 1990s, as seen in the share of output of foreign firms produced for export (from less than 20 percent in 1990 to almost 40 percent by 1997). Studies on foreign ownership shares across Indonesian industries have also shown that sectors with high foreign ownership consistently exported a higher share of their output.4

16. There are several indications that the post-crisis slowdown in manufactured export growth is closely linked to the sharp decline in foreign investment. From a general cross-country perspective, empirical evidence suggests a statistically significant correlation between exports and FDI.5 In Indonesia’s case, the decline in investment inflows between the pre- and post-crisis periods (by roughly 50 percent) has coincided with a near halving of export growth rates. Sectors that had lower declines in foreign investment approvals (wood, chemicals, and pharmaceuticals) generally tended to show a more limited slowdown in export growth, while sectors with sharper falls in FDI (textiles, paper and printing) have tended to show the most severe export slowdowns. These observed correlations suggest that export growth could benefit significantly from higher rates of FDI.6

17. In addition to declining levels of foreign investment, the type of new investment taking place in recent years may also have contributed to the export slowdown. Based on the submissions of new foreign investors, their planned or “potential” exports constituted 77 percent of the value of prospective investments in 2000, but this ratio fell steadily to just 47 percent in 2003, suggesting a decline in Indonesia’s attractiveness as an export base.

Manufacturing Exports and Factor Intensity

18. A decomposition of Indonesia’s exports reveals that capital-intensive industries (chemicals, plastics, and electronic goods) have performed better than labor-intensive industries (textiles, apparel, and footwear) (Table VI.5). While it is not possible to attribute this divergence solely due to labor-related issues, the consistently large differences that emerge irrespective of alternative laborintensity indicators used, as well as the fact that world demand for laborintensive goods as a group was, on average, no worse than that for capital intensive goods, suggests that laborrelated issues may be having an impact on export performance.7

Table VI.5.Export Performance by Factor Intensity
1998-20032002-03
(Average annual growth rates)
Unskilled labor intensive exports9.3-10.9
Physical-capital and tech-intensive exports20.414.8
More-labor intensive manufacturing exports8.4-4.7
Less-labor intensive manufacturing exports19.814.4
1997-20022002
Exports of ISIC sectors with low value-added per worker (labor-intensive proxy)5-5
Exports of ISIC sectors with high value-added per worker (capital-intensive proxy)177
Sources: WITS database, and labor intensity measures as described in footnote 7.
Sources: WITS database, and labor intensity measures as described in footnote 7.

19. It is quite plausible that more difficult operational conditions are being faced by labor-intensive manufacturers and thus contributing to their weaker export performance. As already noted, the substantial rise in unit labor costs since end-2001 represents an increase in operational expenses faced by labor-intensive businesses. But in addition, a wide range of noncost labor-related hurdles may have become serious obstacles for manufacturers where labor is the main operational expense. These concern the hiring and firing of workers (particularly the costs of retrenchment), various conditions of employment (regulations on overtime pay, part-time work and contractual labor), and the number of production days lost from strikes and labor disputes. In all these categories, Indonesia’s labor policies and practices are rated as the most onerous in the region, an outcome that deters new foreign investment and consequently export generation capacity.

Medium-Term Export Prospects

20. The government’s White Paper emphasizes a number of policies to improve export performance. Particular emphasis is being given to the promotion of non-oil exports in nontraditional markets, through the use of trade promotion centers (ITPCs), the arrangement of trade missions, and the increased delivery of export-related services in the regions through improved information systems and training. To operationalize some of these objectives, planned near-term activities include the signing of trade deals, fielding trade delegations, and participation in trade exhibitions.

21. In addition, the government has recently identified 15 export sectors for special promotion. The list is dominated by manufactured goods, including furniture and related products, electrical machinery and parts, pulp and paper, and various apparel, textile, and clothing categories. It is also notable for inclusion of a variety of primary products such as fish and seafood, animal and vegetable oils, coffee and tea, and cocoa and cocoa preparations (Annex VI.I, Table A.2). The government’s promotion efforts in the latter area aim to encourage more processing in domestic industries, in order to increase value-added.

22. A review of the export sectors selected for promotion reveals the following characteristics:

  • On the basis of Revealed Comparative Advantage (RCA),8 a commonly used measure of products in which a country can be said to have a “comparative advantage,” the targeted sectors are generally appropriate. The majority of selected sectors have shown high and rising RCA values in recent years, indicating areas where Indonesia has outperformed average worldwide growth.
  • The list of exports identified for promotion includes many sectors with encouraging prospects for further growth judging from their post-crisis performance. In particular, there is considerable overlap with sectors that had the highest post-crisis growth rates, the best gains in world market share, and the strongest over performance compared to peers’ export growth rates in the same product category (Annex VI.I, Table A.2).
  • While the textiles and apparel sector has been identified for special promotion, not least because of its large size, its prospects can be described as mixed. There are several factors suggesting that Indonesian exports may be under pressure in this area: (i) while export growth for the sector as a whole has been strong in the immediate post-crisis period, there has been a slowdown in the most recent three–year period, reflecting as noted earlier, the cumulative impact of a sharp drop in FDI in that sector as well as difficult domestic conditions (Box VI.1); (ii) world demand in this sector is increasingly being met by one dominant supplier, China; and (iii) the sector faces unique challenges with the expiration of the Multi fiber Agreement (MFA) in 2005.
  • The promotion of the electronics and electrical machinery sector can potentially offer substantial gains, as world import growth in this sector has been consistently stronger than for Indonesia’s traditional manufactured exports. Although Indonesia is not yet a dominant supplier in this area, some sub-categories within this sector have raised their world market share and built a comparative advantage over the past decade, at least as measured by the RCA index (e.g., telecoms, SITC 76). Increased foreign investment in this sector could accelerate this trend.

23. While the White Paper has focused on nontraditional export sectors, there remain many potential opportunities in the oil, gas, and mineral export sectors that merit equal attention. Traditional export sectors continue to generate a significant share of export earnings, and while trends in some areas are showing a secular decline in export volumes (e.g., oil), there are promising prospects in other sectors such as natural gas and minerals (nickel, coal, copper, and gold). In the latter cases, export performance will depend heavily on addressing a number of issues related to the awarding of new concessions, the resolution of pending legal disputes, the clarification of regional powers, and the maintenance of adequate security conditions.

Box VI.1.Indonesian Textile Exports

Indonesian export performance in the textile and apparel sector has been under pressure in recent years owing to a combination of factors. A recent study, (James et al 2003) noted a wide array of domestic challenges: rising labor costs, particularly since 2001; increased infrastructure costs (with cost increases in 2001–02 of 102 percent for electricity, 52 percent for fuel, 159 percent for diesel, 27 percent for water, and 32 percent for transport); increased regional fees and nuisance taxes; a new VAT on certain imported inputs such as cotton; and an ageing capital stock, with the average age of most machinery more than 15–20 years old as a result of limited new investment. Reflecting these factors, as well as a slowdown in external demand, annual export growth fell from an average of near 20 percent in the pre-crisis period to 9 percent for the post-crisis period as a whole (and -4 percent for 2002–03).

However, export performance in the sector has not been uniformly weak. Indeed, of the fourteen sub-sectors that constitute textiles and apparel exports (on a Harmonized System basis, HS 50–63), eleven have outperformed world import demand for their respective sectors, six have shown high and rising RCA levels, and four have been successful enough to match or exceed the export growth rates of China in the respective sector. Included among the latter are sectors covering synthetic textile products (that utilize raw materials from Indonesia’s petro-chemical industries) as well as the large apparel sector; these categories collectively generate around $4 billion, or almost 10 percent of non-oil exports. The wide variation in growth rates of various sub-sectors attests to the fact that there are specific destinations, products, and niches on which Indonesia can capitalize.

With respect to the Multi-Fiber Agreement (MFA), studies suggest that most countries stand to lose market share to China, although a definitive assessment is difficult given the wide range of variables whose outturns are not certain (USITC 2004). The precise impact of the MFA’s expiration will depend, among other things, on product differentiation among exporter countries, supply responses in China, growth in U.S. and EU demand, and any potential safeguard measures that could still be imposed against China.

For Indonesia, the evidence suggests strong pressures will be faced. This is despite the fact that only around 50 percent of textile exports are currently exported to quota-limited countries, a much lower share than for some other affected countries. Some guidance can be drawn from the 2002 removal of selected U.S. quotas (the so-called “third phase” removal), after which Indonesia’s affected textile and apparel exports to the U.S. market fell by almost 40 percent (IMF 2004); if a similar impact holds in all quota-constrained destinations, then such exports could decline by as much as 18 percent in 2005, implying a drop in total exports of near 2 percent. Such calculations are only crude extrapolations based on performance in 2002–03. Nonetheless, longer-term indications are also generally not favorable. For example, a comparison of textile and apparel exports to Japan, a market without quotas, shows that Indonesia’s exports have been broadly flat in the decade up to 2002, while those of China have more than doubled.

24. Finally, making greater efforts to take advantage of the China-led Asian recovery offers scope for substantial gains in the period ahead. While external conditions in general are expected to improve—with rising commodity prices and an expected tripling (to 6 percent) of world import growth in 2004 and 2005—regional demand conditions should also be favorable for an improvement in Indonesia’s export growth. A strengthening recovery in two of Indonesia’s largest trading partners (Japan and Singapore), rising demand from ASEAN countries, and the continued high import growth of China all offer substantial opportunities in this respect (Box VI.2).

D. Conclusion

25. The preceding review shows that, when set against the record of other Asian economies, Indonesia’s recent overall export performance has been disappointing. While there have been positive developments in a few areas, several weaker aspects stand out. These including modest growth in non-oil exports, a declining market share in key destinations, and a significant slowdown in the growth of many large-value manufactured exports in 2002–03. While cost competitiveness was not a major deterrent to exports for most of the post-crisis period, it may now be an emerging factor in light of recent developments in the REER, and unit labor costs. On the external front, the lower demand for Indonesia’s mix of export products has also been a factor. And finally, the weak investment climate and associated low level of FDI inflows have served to undermine export growth.

Box VI.2.China: Opportunities and Challenges for Indonesian Export Performance

The phenomenal growth of the Chinese economy presents both opportunities and challenges for Indonesia, as it does for several other countries in the region. As an export destination, China has absorbed a rapidly increasing share of Indonesian exports, from 3 percent in the early 1990s to near 6 percent in 2003. Exports to China grew by a cumulative 80 percent during the post-crisis period (1998-2003), the fastest growth recorded to any major destination. Products exported to China have been relatively diverse, with only a quarter consisting of oil and gas and the remainder comprised of wood, pulp, and wood-based products (25 percent), chemicals (12 percent), palm oil (7 percent), and electrical components (4 percent). The unprecedented demand China has shown in recent years for primary commodities and various manufactured inputs (e.g., iron and steel) bodes well for Indonesia’s near-term export prospects.

However, Indonesia has not been as successful as other countries in the region in taking advantage of the Chinese market. The 80 percent growth to China in the 1998–2003 period is modest compared to average growth of 311 percent for Malaysia, Thailand and Korea (data based on Chinese import statistics for all countries). Moreover, Indonesia’s market share in the Chinese market has fallen slightly, in contrast to its peers who have gained substantial market share in China in recent years (Figure 1). One factor is that Indonesia’s exports are skewed towards primary products rather than exports of higher technology components used by China as inputs for eventual reexports to third markets.

Figure 1.Market Shares in China

(In percent)

Compared to others in the region, there is a stronger similarity between Indonesia and China in terms of labor-intensive goods exported to third country markets. In both countries, “apparel and clothing” constitute the largest single manufacturing export category (SITC two-digit classification basis), while textile fabrics and footwear are also among their other top manufactured exports. Chinese export growth in these three categories as a whole has exceeded that of Indonesia, although it is notable that Indonesian export growth has still generally exceeded world demand growth in these sectors, and that China’s record has virtually no match. Looking at the specific subsectors in which China and Indonesia compete, the gap between the two has become particularly large in footwear, where Indonesian exports have shown a secular decline since the mid–1990s, while China’s footwear exports have risen by more than 30 percent over the same period. Within the textile and apparel industry, which collectively generate $62 billion in export receipts for China and $7 billion for Indonesia, China outperformed Indonesia substantially in textiles, while Indonesia has outperformed China in the export growth of its apparel products (SITC 84), where growth between 1998 and 2002 has been 50 percent compared to China’s 37 percent, and within which particularly strong performance was seen in synthetic fibers and filaments. Moreover, in some other manufacturing export categories, Indonesia has shown stronger export growth; one notable characteristic of these sectors is that they were generally in areas where a domestically available primary product served as a key input, e.g., furniture and furnishings, mineral-based manufacturing products, processed vegetable oils and fats (palm oils) and wood-based products.

ANNEX VI.I
Table A.1.Indonesia’s Largest Export Products and Their Growth Performance 1/
RankExport CategoryExport ValueAnnual Average Growth Rates 2/
(By SITC)(In billions of US$)Pre-crisisPost-crisisMost recent
1Petroleum and products (33)7.23.213.54.1
2Gas, natural & manufactured (34)6.19.013.98.4
3Apparel, clothing, and accessories (84)4.319.311.4-4.0
4Telecomms equip, incl TV/radios (76)3.378.925.7-6.9
5Textiles: yarn, fabric, made-uparticles (65)3.122.05.1-4.9
6Cork & wood manuf, incl plywood (63)2.910.50.2-4.4
7Electrical equipment (77)2.549.125.18.4
8Office machines, incl computers/parts (75)2.3620.532.2-5.4
9Fixed veg oils/fats, incl palm oil (42)2.121.724.949.5
10Metal ores, incl copper/nickel/alum (28)2.118.710.37.5
11Paper and paperboard articles (64)2.131.08.1-0.9
12Coal and related products (32)1.751.38.811.2
13Fish, shellfish, crustaceans (03)1.512.6-1.4-1.1
14Furniture and furnishings (82)1.530.752.9-0.4
15Footwear (85)1.446.50.8-11.7
16Misc manufacturing, incl toys/records (89)1.330.9-5.50.1
17Organic chemicals (51)1.132.510.46.3
18Coffee, tea, cocoa, and spices (07)1.16.9-3.117.4
19Crude and synthetic rubber (23)1.111.77.933.8
20Nonferrous metals (68)1.05.215.717.0
21Nonmetal mineral manufacturing (66)0.88.723.0-0.7
22Pulp and waste paper (25)0.777.16.517.1
23Road vehicles & vehicle parts (78)0.557.317.118.7
24Plastics in primary form (57)0.549.90.3-5.7
25Metal manufactured misc items (69)0.527.55.8-8.3
Top 25 exports 3/52.624.612.64.9
Sources: World Integrated Trade Solution (WITS) database, derived from UNCTAD statistics; and BPS statistics.

Categories are based on Standard International Trade Classifications (SITC), in brackets. Export value is based on average annual value in the past four years (2000-03). Top 25 export categories shown above represent 90 percent of Indonesia’s total exports.

Pre-crisis refers to 1990-96, post crisis to 1999–2003, and most recent years to 2002-03.

Weighted average (excluding one extreme outlier, i.e., SITC 75).

Sources: World Integrated Trade Solution (WITS) database, derived from UNCTAD statistics; and BPS statistics.

Categories are based on Standard International Trade Classifications (SITC), in brackets. Export value is based on average annual value in the past four years (2000-03). Top 25 export categories shown above represent 90 percent of Indonesia’s total exports.

Pre-crisis refers to 1990-96, post crisis to 1999–2003, and most recent years to 2002-03.

Weighted average (excluding one extreme outlier, i.e., SITC 75).

Table A.2.Export Products Selected for Special Promotion 1/
Export CategoryExport ValueRCA 2/Average Annual Growth Rates 3/
(Harmonized system, 2-digit basis)(In billions of US$)1996-972001-02Pre-crisisPost-crisisMost recent
1Furniture; bedding, mattress, matt1.51.31.922.763.65.2
2Wood and articles of wood; wood ch3.37.55.18.23.5-4.0
3Coffee, tea, matn and spices.0.56.84.76.8-12.83.1
4Cocoa and cocoa preparations.0.53.25.120.014.644.6
5Rubber and articles thereof.1.43.72.617.73.827.5
6Apparel, textiles, and clothing7.31.82.313.915.4-2.7
7Electrical machinery equipment parts thereof6.00.50.758.729.90.2
8Iron, steel, machinery and equipment4.10.30.539.814.27.8
9Pulp of wood/of other fibrous cellu0.62.43.371.15.912.3
10Paper & paperboard; art of paper products2.00.92.037.311.50.8
11Organic chemicals.1.00.40.732.412.66.8
12Footwear, gaiters and the like; par1.34.53.327.10.9-8.9
13Fish & crustacean, mollusc & other1.44.63.89.8-1.8-1.8
14Animal/veg fats & oils & their clea2.28.510.027.418.842.3
15Plastics and articles thereof.1.00.30.634.214.80.8
Sources: National Agency for Export Development, Ministry of Industry and Trade; and WITS database.

Export categories are on an Harmonized System basis.

RCA refers to Revealed Comparative Advantage index; values greater than 1 indicate comparative advantage in that product.

Pre-crisis refers to 1990–96, post crisis to 1999-2003, and most recent years to 2002-03.

Sources: National Agency for Export Development, Ministry of Industry and Trade; and WITS database.

Export categories are on an Harmonized System basis.

RCA refers to Revealed Comparative Advantage index; values greater than 1 indicate comparative advantage in that product.

Pre-crisis refers to 1990–96, post crisis to 1999-2003, and most recent years to 2002-03.

Table A.3.Indonesia’s “Over-Achieving” Export Sectors Based on Alternative Measures
Large Value Exports with

Highest Post-Crisis Growth Rates

(In percent)
Large Value Exports with

Best Gains in Worldwide Market Share

(In percentage points)
Large Value Exports with Best

Outperformance versus Peers’ Export Growth

(In percentage points)
Furniture/furnishings52.9Fixed veg oils/fats2.9Furniture/furnishings308.4
Office/dat proc machines32.2Coal/coke/briquettes1.5Telecomms etc equipment140.9
Telecomms etc equipment25.7Paper/paperboard/article1.1Office/dat proc machines139.1
Electrical equipment25.1Pulp and waste paper0.8Fixed veg oils/fats127.9
Fixed veg oils/fats24.9Furniture/furnishings0.4Electrical equipment104.4
Nonmetal mineral manuf.23.0Textile yarn/fabric/art.0.4Cork and wood103.8
Road vehicles17.1Cork and wood0.4Non-metal mineral manuf.98.1
Nonferrous metals15.7Office/dat proc machines0.3Apparel/clothing/access54.5
Gas natural/manufactured13.9Non-metal mineral manuf.0.3Metal ores/metal scrap45.4
Petroleum and products13.5Organic chemicals0.3Coal/coke/briquettes34.1
Apparel/clothing/access11.4Apparel/clothing/access0.3Gas natural/manufactured31.3
Organic chemicals10.4Metal ores/metal scrap0.2Non-ferrous metals30.5
Sources: WITS database; and BPS statistics.
Sources: WITS database; and BPS statistics.
References

    AswicahyonoHaryo and MariPangestu2000Indonesia’s Recovery: Exports and Regaining Competitiveness,The Developing Economies (December) vol 38 no.4.

    • Crossref
    • Search Google Scholar
    • Export Citation

    International Monetary Fund2004Fund Support for Trade-Related Balance of Payments AdjustmentsStaff Report Prepared by the Policy Review and Development Department (February); available on the web at http://www.imf.org/external/np/pdr/tim/2004/eng/022704.htm

    • Search Google Scholar
    • Export Citation

    JamesWilliamDavidRay and PeterMinor2003Indonesia’s Textiles and Apparel: The Challenges Ahead,Bulletin of Indonesia Economic Studies vol 39 no 1.

    • Search Google Scholar
    • Export Citation

    RamstetterEric1999Trade Propensities and Foreign Ownership Shares in Indonesian Manufacturing,Bulletin of Indonesia Economic Studies (August) vol 35 no 2.

    • Search Google Scholar
    • Export Citation

    UNCTAD1999World Investment Report: Foreign Direct Investment and the Challenge of Development (United Nations: New York and Geneva1999).

    • Search Google Scholar
    • Export Citation

    USITC2004Textiles and Apparel: Assessment of the Competitiveness of Certain Foreign Suppliers to the U.S. Market,United States International Trade Commission (January).

    • Search Google Scholar
    • Export Citation

    VoonJan1998Export Competitiveness of China and ASEAN in the U.S. Market,ASEAN Economic Bulletin vol 14 no. 3 (March).

    World Bank2003Indonesia: Beyond Macro-Economic StabilityWorld Bank Report for Consultative Group on Indonesia (December).

1Prepared by Helaway Tadesse.
2Consistent with the above, the level of the exchange rate has generally not been regarded as an impediment by exporters, even after the more than 20 percent real appreciation (from extremely low levels) of 2002–03. Discussions with trade associations indicates that they view the levels in recent years as broadly appropriate and that they have greater concern with stability in the exchange rate.
3Most of the increase took place in 2002–03 during which the ULC index rose by 69 percent (data for 2003 are estimated).
4World Bank 2003 and Ramstetter 1999. Other country experiences are also similar. For example, over three-quarters of China’s electronics exports (one of the largest and fastest growing sub-sectors) are generated by foreign firms.
5Indeed, for developing countries as a whole, a 1 percent rise in per capita FDI is associated with a 0.45 percent rise in total exports and an even stronger (0.78 percent) rise in high technology exports (see UNCTAD 1999). While not proving causality, the robustness of this finding across various groupings is highly suggestive.
6For example, if elasticities from cross-country regressions are used as a guide, raising FDI from its $3 billion level in 2004 to $4.2 billion in 2006 could translate into an 18 percent increase in manufactured exports, or a near 10 percent increase for overall exports over the two years.
7Labor intensity measures are taken from Aswicahyono and Pangestu 2000 and from Voon 1998. Both studies have applied labor-intensity measures to review the sectoral export performance of Indonesia and other ASEAN countries in the 1980s and early to mid-1990s, when labor-intensive exports were among the strongest performers; the data provided here updates these measures up to 2003.
8A country is said to have a Revealed Comparative Advantage in a product category if the RCA index for a given product is greater than one. The RCA index is based on the share of given product’s exports in a country’s total exports expressed as a proportion of the share of that product’s worldwide exports to total worldwide exports. RCA is a commonly used measure in analyzing country export performance and has been applied to 1989-1999 Indonesian data by, among others, Aswicahyono and Pangestu 2000 and World Bank 2003.

Other Resources Citing This Publication