In recent months, Indonesia's manufacturing sector has emerged as a bright spot in its economy, continuing to expand amid global uncertaintiesAccording to a recent report by Standard & Poor's, the country's manufacturing Purchasing Managers' Index (PMI) reached 54.2 in March 2024, a significant increase from 52.7 in FebruaryThis marks the highest performance the PMI has recorded in nearly three yearsThe consistent expansion of the sector is reflected in the fact that the manufacturing PMI has shown positive growth for 31 consecutive months.

Agus Gumiwang Kartasasmita, Indonesia's Minister of Industry, highlighted that the upward trajectory of manufacturing is aligned with the industrial confidence index, which also indicated growth, achieving a score of 53.05 in March, an increase from 52.56 in FebruarySuch indicators suggest strong domestic demand, which has been a key driver for the sector's performance

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Priyana de Lima, S&P's global market intelligence director, emphasized that the surge in domestic demand led to production growth in March that reached unprecedented levels as companies stocked up on raw materials to meet rising needs.

Industry leaders in Indonesia remain optimistic about the continuing expansion of manufacturing in 2024, bolstered by robust domestic consumptionSinta Kamdani, the chairman of the Indonesian Employers Association, expressed confidence that this growth trend would persist throughout the year, anticipating sustained positivity in the manufacturing PMI, particularly during the seasonal surge associated with Eid al-Fitr celebrationsPredictions point towards 'extraordinary' growth as demand peaks in the March-April period.

Agus previously indicated that Indonesia's manufacturing sector is on track to achieve a growth target of 5.8% for 2024, reaffirming its significance in the national economy

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In the third quarter of 2023, manufacturing accounted for 16.83% of Indonesia's GDP, showing growth outpacing that of other sectorsHe reiterated that the manufacturing industry holds a crucial role in sustainable economic expansion.

To facilitate ongoing growth, the Indonesian Ministry of Industry is set to implement various priority programs in 2024 aimed at advancing the national industrial agendaThis includes enhancements in vocational education and training, equipment restructuring plans for small and medium-sized enterprises (SMEs), initiatives to foster entrepreneurial growth, and support for technology-based startupsAdditionally, measures such as domestic component certification programs aim to amplify industrial competitiveness and value addition.

Agus also noted that manufacturing is a primary contributor to Indonesia's export economyFrom January to November 2023, exports of manufactured goods surpassed $17.123 billion, positioning Indonesia among the top ten manufacturing contributors globally and the only Southeast Asian nation on the list

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Reports from survivalglobal.com indicate that Indonesian manufactured products accounted for 1.4% of global output, significantly improving its international standing, from 16th place just four years prior.

Additionally, the Indonesia Reform and Economics Center published a report asserting that the country’s manufacturing value is currently set at $241 billion, making it one of the largest ten manufacturing sectors in the worldEconomist Ina Pramiyana from the center remarked on the robust expansion of Indonesia's manufacturing, noting its PMI surpasses that of many countries.

However, experts caution that the PMI should not be viewed as a comprehensive measure of the manufacturing landscapeYusuf Lendi Manilite, an economist at the Indonesian Economic Reform Center, pointed out that the PMI may not fully capture the statuses of all manufacturing subsectorsHe noted that the growth in March reflected only specific industries, such as food and beverages, largely driven by anticipated demand from the forthcoming Ramadan and Eid al-Fitr festivities.

The challenges faced by various industries further illustrate this point

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The executive director of the Indonesian Footwear Association, Firman Buckley, indicated that several factors, including pandemic-related demand drops and geopolitical turmoil, have adversely affected the footwear sectorCurrently, the capacity utilization for the footwear industry remains below 50%. Meanwhile, Redma Jeta Wilawanta, chairman of the Indonesian Fiber and Filament Producers Association, mentioned that although import restriction policies provided some stimulus to downstream industries in March, recovery in upstream and midstream sectors remains sluggishThe textile industry's signs of improvement have yet to translate into significant productivity advancements, with average capacity standing at only 55%, and frequent layoffs occurring across numerous factories.

Concerns about the sustainability of the manufacturing expansion are also prevalent within the sectorSinta signaled his belief in continued growth; however, he anticipates that performance will moderate from the highs expected in March and April

Fajarl Budiono, secretary of the Indonesian Olefin, Aromatic, and Plastic Industry Association, shared that demand is expected to weaken in the months following the Eid festivities, likely resulting in a slowdown in industrial performance during mid-yearThus, only a few industries are projected to thrive, particularly in the school supplies and equipment sector.

Priyana also indicated mixed sentiments among businesses regarding future demandWhile some companies are preparing to ramp up production and stock, they remain hesitant to increase employee counts, citing ongoing factors that restrict job growthThere is a palpable anxiety that the heightened sales trend witnessed in March might not sustain itself for long.

In light of these challenges, industry stakeholders call upon the government to capitalize on the optimism reflected in the PMI and convert it into tangible outcomes through pro-industrial policies

Bob Asom, chairman of the employment department at the Indonesian Employers Association, stressed that the manufacturing sector’s positive position in the PMI is indicative of the country's sustainable industrialization and deserves acknowledgmentHowever, he insisted that such performance must be matched by strategic government initiatives that foster conducive conditions for industrial sector growth, ultimately shepherding national economic expansion.

Furthermore, Bob highlighted the importance of interdepartmental collaborationFiscal, trade facilitation, and logistics policies are pivotal components in promoting growth across Indonesia's real sectorHe emphasized that the industrial landscape does not operate in isolation and is inevitably impacted by trade, financial, and employment policies, the last being a crucial indicator.

Economist Kiki Wiliko from the Institute of Economic and Community Studies at the University of Indonesia reiterated the necessity for coordinated sectoral efforts to maintain manufacturing growth, warning against a disconnect where industrial support policies do not align with trade and investment strategies