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8/7/2019 Highlights on Indonesia's Competitiveness_KK (11 Feb 08)_ALL
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ASIA COMPETITIVENESSINSTITUTE
Ng Kwan KeeResearch Fellow
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ASIACOMPETITIVENESSINSTITUTE
Definitions of competitiveness
Definitions linked to outcome of prosperity and sustainable
growth
Competitiveness [should] be understood as the ability ofcompanies, industries, regions, nations and supranationalregions to generate, while being and remaining exposed tointernational competition, relatively high factor income andfactor employment levels on a sustainable basis (OECD, 1994)
Michael Porter believes that competitiveness is theunderpinning of prosperity, based on productive potential of anations economy, which in turn is ultimately set by theproductivity of its companies determined by:
o sophistication of company operations and strategy ando quality of microeconomic business environment (Porter, Ketels, &
Delgado, 2006)
3
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ASIACOMPETITIVENESSINSTITUTE
Framework of competitivenessSanjaya Lalls Triangle of Competitiveness
4
Entrepreneurialskills
INCENTIVEMARKETS
FACTOR MARKETS
INSTITUTIONALMARKETS
Macropolici
es
Traderegim
e
Industrial
regime
Skills Technology
Supplierclusters
Education &training
Technologysupport
Finance
ENTERPRISECOMPETITIVENESS
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ASIACOMPETITIVENESSINSTITUTE
Framework of competitivenessMichael Porters Diamond Framework of Competitiveness
5
Source: (Porter M. ,2006)
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ASIACOMPETITIVENESSINSTITUTE
Framework of competitivenessThe Resource, Capabilities and Markets (RCM) and Institutions (I) Framework of Competitiveness
6
RESOURCES
Natural resources e.g. land,untrained human capital
Created assets, e.g.
technological capacity,machines, buildings
CAPABILITIES
Intangible assets, skills,educated/trained labour,accumulated experienceand wisdom
Organizational capacity andgovernance
Vision/judgement instrategic decision taking
Ability to frame andexecute appropriatepolicies
MARKETS Information/knowledgeabout/availability of bothdomestic and foreignmarkets; both product andfactor markets
Ability to tap into, exploitand coordinate markets;
and to understand andcater for specific e.g.localised needs
RESOURCES, CAPABILITIES ANDMARKETS
(The ingredients of wealthcreation)
A.FORMS B. AREAS OF INSTITUTIONAL INFLUENCE
(IN COMMERCIAL DOMAIN)
Formal institutions
Economic adjustment and stabilization Intellectual property protection
Strengthening economic
motivation/entrepreneurship
Rule setting and societal guidance (e.g.
reducing bads e.g. crime, drugs, etc.)
Promotion of entrepreneurship and
competitive market structure
Adequate and effective financial
institutions
Education and training upgrading Security of people and physical assets
Innovatory development
Incentives/regulation of foreign direct
investment
Social equity and access to opportunity
Constitutions, treaties, laws,
regulations: provision for learning,
upgrading cognition, knowledge,
etc.
Informal institutions
Tradition, cultural mores, trust,
goodwill, reputation
Enforcement mechanisms
Less formal - self regulation, fear,
retaliation, blackballing
More formal - Incentives/penalties,
(fines, enforced transparency,
cancellation of contracts,
imprisonment, etc.
INSTITUTIONS(The motivation for and regulation of
wealth creating activities)
Source: summarised by John H Dunning and Feng Zhang in a
draft and not-ready-to-be-quoted paper
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ASIACOMPETITIVENESSINSTITUTE
Framework of competitivenessHmlinens Systemic Framework of Economic Competitiveness and Growth
7
GOVERNMENT ROLE
INSTITUTIONAL FRAMEWORKCulture-dependent behavioural
normsLaws and regulations
RESOURCESNatural/Basic
vsCreated/Advan
ced
TECHNOLOGIESInnovation and
diffusion
ORGANISATIONALEFFICIENCYAllocative,technical,
coordination &dynamic
PRODUCT MKTSophisticationof demand &
quality ofsupply
EXTERNALBUSINESSACTIVITIES
Feedbackinformation,
financialresources and
incentives
Source: (Hmlinen, 2003)
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ASIACOMPETITIVENESSINSTITUTEConceptual blocks of competitiveness
indicators
8
CompetitivenessPerformance
National level outputindicators
Sectoral level outputindicators
Real GDP per capita Real GDP Labour productivity World export market share Share of country GDP in
world GDP
GCR ranking BCI ranking WCY ranking Index of Economic Freedom Economic Freedom of the
World Chain-Linked
Summary Index
Real GDP
Value added Persons employed Labour productivity World export market share
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ASIACOMPETITIVENESSINSTITUTEConceptual blocks of competitiveness
indicators
9
Competitiveness
DeterminantsHuman Capital(National level
input indicators) Human Development
Index Total population Total labour force,
participation rate,
employed andunemployed
Students studyingabroad
Internationalstudents
Educationinfrastructure
Technologicalinfrastructureindicators
Transport/logisticnetwork andinfrastructureindicators
Access to water,power, land
PhysicalInfrastructure(National level
input indicators)
Soft Infrastructure(National level
input indicators)
Scientificinfrastructureindicators
Legal infrastructureindicators
Financeinfrastructureindicators
InstitutionalEnvironment
(National levelinput indicators)
World Bank Ease of DoingBusiness Indicators
World Bank WorldwideGovernance Indicators
Corruption Perceptions Indexby Transparency International
Corruption perception surveyby PERC
World Bank InvestmentClimate Survey
Country credit rating byInstitutional Investor
Magazine ranking Government efficiencyindicators by WCY
BusinessEnvironment
(National levelinput indicators)
Inflation Components from
BCI Components from
WCY World Bank
Investment Climate
Surveys Business efficiency
Innovation Environment (Nationallevel input indicators)
Scientific infrastructure indicators suchas:
Total R&D expenditure Total R&D expenditure as % of
GDP Business R&D expenditure Business R&D expenditure as %
of GDP Total R&D personnel nationwide Scientific articles published Number of patents granted to
residents Number of patents secured
Environment (Nationallevel input indicators)
Share of world total greenhousegas emission
Carbon dioxide emissions percapita
Energy consumption per capita Energy efficiency GDP per unit
of ener used
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ASIACOMPETITIVENESSINSTITUTEConceptual blocks of competitiveness
indicators
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Competitiveness
DeterminantsTrade (National
level input/outcomeindicators)
Global ranking inworld trade
Share of world trade Total trade in value Trade to GDP ratio Total trade annual
growth Export and import
growth, averageannual
Global ranking asexporter
Global ranking in inward FDI flow &stock
Share of global inward FDI flow & stock Inward FDI flow & stock in value
Inward FDI stock as % of GDP Inward FDI flows as % of Gross FixedCapital Formation
Investment risk Euromoney countrycredit-worthiness scale
World Bank Investment ClimateSurveys
Investment (Nationallevel input/output
indicators)
ManufacturingIndustry (Industry
level input/outcomeindicators)
Gross fixed capital formation Number of employees Number of establishments Industry output Value added Wages and salaries of
employees Top industry sector by share
within industry based ontechnology classification
Value added as % of GDP bytechnology classification
Value added per employee bytechnology classification
Share of total employment bytechnology classification andkey sectors
Employment structure bysector
Trade (Industry
level input/outcomeindicators)
Export portfolio bycluster
Goods export shareto leading tradingpartners
Investment
(Industry levelinput/outcome
indicators) Inward FDI flow &
stock by sector byinvesting country
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ASIA COMPETITIVENESSINSTITUTE
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitivenessCompetitiveness Performance - Standard of Living
In terms of GDP per capita growth, above ASEAN-4average before 1997, worst hit during the AsianFinancial Crisis, on par with ASEAN-4 average from1998-2006.
In all periods, behind Asian NIEs average, behindVietnam, China and India
In terms of level of GDP per capita, behind ASEAN-4 average (lowest among ASEAN-4), Asian NIEs,above CLMV average for all periods.
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
13Source: International Monetary Fund, World Economic Outlook Database, April 2007
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
14Source: International Monetary Fund, World Economic Outlook Database, April 2007
Growth of GDP Per Capita, PPP adjusted
(compound annual growth rate, %)
1980-1990 1990-1997 1997-1998 1998-2006
China 12.2 12.8 8.0 11.0
Japan 7.7 3.6 (0.9) 3.8
India 7.8 5.9 5.1 7.1
Asian NIEs 11.3 8.2 (2.6) 6.8
Hong Kong 9.9 5.8 (5.4) 7.0South Korea 12.0 8.6 (6.5) 7.6
Taiwan 11.0 8.4 4.8 5.7
Singapore 9.4 7.6 (3.6) 6.3
ASEAN-4 7.2 6.9 (9.9) 5.7
Indonesia 7.8 7.6 (13.5) 5.7
Malaysia 7.5 8.9 (8.5) 5.5
Philippines 3.4 3.2 (1.7) 4.7
Thailand 10.3 8.0 (10.6) 6.3CLMV 7.1 7.8 4.3 9.0
Vietnam 8.2 8.9 5.3 8.1
Cambodia 9.0 3.8 3.6 9.5
Lao People's Democratic
Republic
7.2 6.3 2.7 6.4
Myanmar 3.5 6.3 3.0 12.3
Note: Cambodia's growth rate for the category 1980-1990 is from 1986-1990
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
15Source: International Monetary Fund, World Economic Outlook Database, April 2007
GDP Per Capita, PPP adjusted
(current international dollar)
1980 1990 1998 2000 2006
China 418 1,318 3,302 3,913 7,598
Japan 9,060 19,046 24,226 25,695 32,647
India 648 1,375 2,159 2,392 3,737
Asian NIEs 3,275 9,525 16,099 19,027 27,304
Hong Kong 6,170 15,834 22,247 25,864 38,127
South Korea 3,674 10,462 19,336 22,067 30,084
Taiwan 2,588 8,022 13,346 16,179 23,926
Singapore 5,104 12,485 20,167 24,066 32,867
ASEAN-4 1,295 2,592 3,734 4,139 5,814
Indonesia 909 1,922 2,776 3,045 4,323
Malaysia 2,265 4,657 7,728 8,738 11,858
Philippines 2,139 2,999 3,673 3,997 5,314
Thailand 1,362 3,623 5,561 6,182 9,084
CLMV 413 819 1,443 1,674 2,886
Vietnam 430 942 1,807 2,037 3,367
Cambodia n/a 1,146 1,537 1,867 3,170
Lao People's Democratic Republic 446 889 1,398 1,570 2,304
Myanmar 384 543 855 1,074 2,161
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitivenessCompetitiveness Performance - Economic Performance
Real GDP grew faster than ASEAN-4 average beforeAsian Financial Crisis but lagged behind after that
Lagged behind China and Vietnam for all periods
Grew faster than India only in 1990-1997
Indonesia has the largest share among the ASEAN-4in terms of Share of World GDP (PPP terms)
Greater than CLMV in total, in fact doubled CLMVtotal for 2006
However, share quite stagnant since 1990
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
17Source: International Monetary Fund, World Economic Outlook Database, April 2007
Real GDP Growth
(compound annual growth rate, %)1980-1990 1990-1997 1997-1998 1998-2006
China 9.2 11.5 7.8 9.3
Japan 3.9 1.7 (2.0) 1.4
India 5.8 5.4 6.0 6.7
Asian NIEs 8.1 7.0 (3.0) 5.1
Hong Kong 6.8 5.3 (5.5) 5.3South Korea 8.7 7.2 (6.9) 5.7
Taiwan 8.0 7.0 4.5 3.9
Singapore 7.4 8.6 (1.4) 5.6
ASEAN-4 5.3 6.6 (9.4) 4.8
Indonesia 5.5 6.9 (13.1) 4.4
Malaysia 6.0 9.2 (7.4) 5.4Philippines 1.7 3.1 (0.6) 4.6
Thailand 7.9 6.7 (10.5) 4.9
CLMV 7.0 6.8 5.1 8.8
Vietnam 5.9 8.3 5.8 7.2
Cambodia 6.8 6.3 5.0 9.5
Lao People's Democratic
Republic
5.6 6.5 4.0 6.5
Myanmar 1.3 5.8 5.8 11.9Note: Cambodia's growth rate for the category 1980-1990 is from 1986-1990
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
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Source: International Monetary Fund, World Economic Outlook Database, April 2007
Share of World GDP (PPP terms,
%)
1980 1990 1998 2000 2006
China 3.2 5.6 10.3 11.0 15.1
Japan 8.2 8.8 7.7 7.2 6.3
India 3.4 4.3 5.2 5.4 6.3
Asian NIEs 1.6 2.6 3.2 3.4 3.4
Hong Kong 0.2 0.3 0.4 0.4 0.4
South Korea 0.8 1.3 1.5 1.7 1.7
Taiwan 0.5 0.8 1.1 1.1 1.0Singapore 0.1 0.1 0.2 0.2 0.2
ASEAN-4 2.6 3.0 3.4 3.4 3.5
Indonesia 1.0 1.3 1.4 1.4 1.4
Malaysia 0.2 0.3 0.4 0.5 0.5
Philippines 0.8 0.7 0.7 0.7 0.7
Thailand 0.5 0.8 0.9 0.9 0.9CLMV 0.3 0.4 0.5 0.5 0.7
Vietnam 0.18 0.23 0.34 0.35 0.43
Cambodia n/a 0.04 0.05 0.05 0.07
Lao People's Democratic
Republic
0.01 0.01 0.02 0.02 0.02
Myanmar 0.10 0.08 0.10 0.12 0.18
Total from above 19.2 24.6 30.2 31.0 35.3
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitivenessCompetitiveness Performance - GDP per Capita,
Labour Productivity and Employment
GDP per capita can be seen as a product of tworatios: Labour productivity and employment rate ofpopulation
Labour productivity and GDP per capita growth ratesgenerally on an upward trend after Asian FinancialCrisis
Population growth trending downwards
Unemployment growing since 1996, with a blip in2000
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
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Source: International Monetary Fund, World Economic Outlook Database, April2007
World Bank World Development Indicators on-line database, 2006;International Labour Organisation LABORSTA database, 2007
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
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Source: International Monetary Fund, World EconomicOutlook Database,
April 2007World Bank World Development Indicators on-line
database, 2006;International Labour Organisation LABORSTA
database, 2007
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitivenessIndonesias Performance among Competitiveness Indices
The Business Competitiveness Index (BCI) by World Economic Forum (WEF)ranked 121 countries (GCR 2006-2007 Edition) according to overall businesscompetitiveness made up of the two dimensions in Porters Microeconomicfoundation of productivity:o Sophistication of company operations and strategy, and
o Quality of the national business environment
The World Competitiveness Yearbook (WCY) by the International Institute forManagement Development (IMD) ranked 55 countries (WCY 2007 Edition)according to their ability to create and maintain an environment that sustains thecompetitiveness of enterprises. The national environment is divided into 4 factors:o Economic performance
o Government efficiency
o Business efficiency
o Infrastructure
Each of the 4 factors are further sub-divided into 5 sub-factors
Sub-factors are further made up of criteria
Altogether 323 criteria (127 are hard data, 119 are survey data, 77 forbackground information)
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
23Source: GCR, 2006-2007
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competitiveness
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitivenessIndonesias Performance among Competitiveness Indices
The 2007 Index of Economic Freedom by the Heritage Foundationand The Wall Street Journal ranked 157 countries across 10 equally-weighted factors of economic freedom. They are:
o Business Freedom
o Trade Freedomo Fiscal Freedom
o Freedom from Government
o Monetary Freedom
o Investment Freedom
o
Financial Freedomo Property Rights
o Freedom from Corruption
o Labour Freedom
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitivenessIndonesias Performance among Competitiveness
Indices
Economic Freedom of the World Chain-Linked Summary Indexby the Fraser Institute ranked 38 countries by the degree to
which policies and institutions of these countries aresupportive of economic freedom. It is divided into 5 areas ofeconomic freedom:o Size of government
o Legal structure and security of property rights
o
Access to sound moneyo Freedom to trade internationally
o Regulation of credit, labour and business
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ASIACOMPETITIVENESSINSTITUTEOutcome measures of national
competitiveness
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competitiveness
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ASIACOMPETITIVENESSINSTITUTE
Selected Competitiveness
Determinants of Indonesia
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessBusiness Environment
The Business Competitiveness Index (BCI) by World Economic Forum(WEF) ranked 121 countries (GCR 2006-2007 Edition) according tooverall business competitiveness made up of the two dimensions inPorters Microeconomic foundation of productivity:o Sophistication of company operations and strategy, and
o Quality of the national business environment Sophistication of company operations and strategy" is further
divided by into 15 components (all are survey data), and
"quality of the national business environment" is divided into 44components (38 are survey data, 6 are hard data)
31
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
32Source: GCR, 2006-2007
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
33Source: GCR, 2006-2007
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessBusiness Environment
From BCI, it seems that there was a great improvement in thenational business environment for Indonesia for the year 2006which led to an improvement in the BCI score and ranking.
The improvement in BCI ranking for Indonesia from 2005 to2006 is due to the following most improved factors:
34
Top 10 Most Improved Factors for BCI from 2005 to 2006
Code Variable Change in index
scores
I. COMPANY OPERATIONS & STRATEGY
uq0803be Ease of access to loans 2.85
uq0907be Extent of market dominance 2.09
uq0906be Effectiveness of antitrust policy 2.01uq0804be Venture capital availability 1.91
uq0909be Local availability of process machinery 1.69
II. NATIONAL BUSINESS ENVIRONMENT
uq1011cos Willingness to delegate authority 1.77
uq1012cos Extent of incentive compensation 1.70
uq1013cos Reliance on professional management 1.62
uq1009cos Breadth of international markets 1.44
uq1007cos Control of international distribution 1.18
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
Business Environment
However, it should be noted that the following factors shownthe most decline from 2005 to 2006:
35
Top 10 Most Deteriorated Factors for BCI from 2005 to 2006
Code Variable Change in
index scoresI. COMPANY OPERATIONS & STRATEGY
uq0604be Quality of port infrastructure -0.79
uq0307be University/industry research collaboration -0.76
uq0601be Overall infrastructure quality -0.74
uq0603be Railroad infrastructure -0.68
uq0801be Financial market sophistication -0.49
uq0508be Reliability of police services -0.40
uq1101be Stringency of environmental regulations -0.35
uq0315be Laws relating to ICT -0.26
II. NATIONAL BUSINESS ENVIRONMENT
uq1002cos Value chain breadth -0.47
uq1001cos Nature of competitive advantage -0.24
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessHuman Capital
The Human Development Index (HDI) by United Nations DevelopmentProgramme (UNDP) is a summary measure of human development.
It measures the average achievements in a country in three basicdimensions of human development:o A long and healthy life, as measured by life expectancy at birth.o Knowledge, as measured by the adult literacy rate (with two-thirds weight) and
the combined primary, secondary and tertiary gross enrolment ratio (with one-third weight).
o A decent standard of living, as measured by GDP per capita in purchasingpower parity (PPP) terms in US dollars.
36
Human development classificationsAll countries included in the HDI are classified into one of three clusters by achievement in human development:high human development (with an HDI of 0.800 or above), medium human development (HDI of 0.5000.799) andlow human development (HDI of less than 0.500).Income classifications
All countries are grouped by income using World Bank classifications: high income (gross national income per capitaof USD10,066 or more in 2004), middle income (USD826USD10,065) and low income (USD825 or less).
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
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HDI
rank
Selected
Countries
State of
human
developmen
t
Human
development
index (HDI)
value, 2004
Life
expectanc
y at birth
(years)
2004
Adult
literacy
rate
(% ages
15 and
older)
2004
Combined
gross
enrolment
ratio for
primary,
secondary and
tertiary
schools
(%)
2004
GDP per
capita
(PPP US$)
2004
Life
expectan
cy index
Education
index
GDP
index
7 Japan High 0.949 82.2 85 29,251 0.95 0.94 0.95
22 Hong Kong,
China (SAR)
High 0.927 81.8 77 30,822 0.95 0.88 0.96
25 Singapore High 0.916 78.9 92.5 87 28,077 0.9 0.91 0.94
26 Korea, Rep. of High 0.912 77.3 98 95 20,499 0.87 0.98 0.89
61 Malaysia High 0.805 73.4 88.7 73 10,276 0.81 0.84 0.77
74 Thailand Medium 0.784 70.3 92.6 74 8,090 0.75 0.86 0.73
81 China Medium 0.768 71.9 90.9 70 5,896 0.78 0.84 0.68
84 Philippines Medium 0.763 70.7 92.6 82 4,614 0.76 0.89 0.64
108 Indonesia Medium 0.711 67.2 90.4 68 3,609 0.7 0.83 0.6
109 Viet Nam Medium 0.709 70.8 90.3 63 2,745 0.76 0.81 0.55126 India Medium 0.611 63.6 61 62 3,139 0.64 0.61 0.58
129 Cambodia Medium 0.583 56.5 73.6 60 2,423 0.52 0.69 0.53
130 Myanmar Medium 0.581 60.5 89.9 49 1,027 0.59 0.76 0.39
133 Lao People's
Dem. Rep.
Medium 0.553 55.1 68.7 61 1,954 0.5 0.66 0.5
East Asia
and the
Pacific
0.76 70.8 90.4 69 5,872 0.76 0.84 0.68
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessHuman Capital
Based on HDR, Comparing Indonesia with countries similarly classifiedas having a medium level of human development but ranked higher, ithas competitive weaknesses in life expectancy, adult literacy rate, lowercombined gross enrolment ratio for primary, secondary and tertiaryschools and GDP per capita but generally speaking, the extent of theweaknesses is greater for life expectancy and gross enrolmentratio.
Comparing Indonesia with Vietnam, it has competitive strengths in adultliteracy rate, higher combined gross enrolment ratio for primary,secondary and tertiary schools and GDP per capita, but it hascompetitive weakness in life expectancy.
Based on trend analysis of HDI, the gap is narrowing between Indonesiaand Malaysia, Thailand and Philippines (catching up with the ASEAN-4),but the gap is widening between Indonesia and China (lagging furtherbehind China), and Vietnam is following closely behind.
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessTrade Competitiveness
Although trade volume increases over the years, global rankingand share of world trade drops in 2005 (global ranking of 26 in2000 vs 34 in 2005; share of world trade of 0.8% to 0.7% from2000 to 2005)
In fact, share of world trade remained constant since 1980 (0.8%in 1980 vs 0.7% in 2005)
41
1980 1990 2000 2005Global Ranking in World
Trade
31 28 26 34
Share of World Trade (%) 0.8% 0.7% 0.8% 0.7%
Total Trade of Indonesia, Bil
US$
32.7 47.5 109.0 155.0
World Trade, Bil US$ 4,109.0 6,999.0 13,175.0
21146.0
Source: World Trade Organisation The following indicators to be added later:
o trade to GDP ratio
o total trade annual growth
o export and import growth, ave annual %
o global ranking as an exporter
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessCompetitiveness in Foreign Direct Investment
Indonesias share of the worlds inward FDI flows remained fairlyconstant in 1980-2005 (0.5% in 1980 vs 0.6% in 2005), but share ofinward FDI stock declined (0.8% in 1980 vs 0.2% in 2005)
In 2005, inward FDI stock as percentage of GDP at 7.7% - ranked 13 thout of 15 selected Asian countries
In 2005, inward FDI flows as percentage of GFCF at 8.5% - ranked 7 th outof 15 selected Asian countries
42
1980 1990 2000 2005
Global Ranking in Inward FDI
Flow
21 26 209 37
Share of Inward FDI Flow (%) 0.5% 0.5% -0.3% 0.6%
Inward FDI Flow of Indonesia, Mil
US$
300 1,092 -4,550 5,260
World Inward FDI Flow, Mil
US$
55,272 201,614 1,409,56
8
916,277
Source: World Investment
Year end 1980 1990 2000 2005Global Ranking in inward FDI
stock
22 32 37 55
Share of inward FDI stock (%) 0.8% 0.5% 0.4% 0.2%
inward FDI stock of Indonesia,
Mil US$
4,680 8,855 24,780 21,118
World inward FDI stock, Mil
US$
561,4031,789,30
3
5,802,93
3
10,129,73
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
43Source: World Investment
Inward FDI Stock as a
Percentage of Gross
Domestic Product
1980 1990 2000 2005
Hong Kong, China 73.2 59.4 275.4 299.9
Singapore 45.7 82.6 121.7 158.6
Vietnam 33.3 25.5 66.1 61.2Cambodia 3.0 2.2 43.8 45.6
Myanmar 0.0 5.4 54.8 43.6
Malaysia 21.1 23.4 58.4 36.5
Thailand 3.0 9.7 24.4 33.5
Lao People's Democratic
Republic
0.7 1.6 32.1 24.5
Philippines 3.9 7.4 16.9 14.4
China 0.4 5.4 17.9 14.3
Taiwan 5.8 6.1 5.7 12.1
South Korea 2.0 2.0 7.3 8.0
Indonesia 6.5 7.7 16.5 7.7
India 0.2 0.5 3.8 5.8
Japan 0.3 0.3 1.1 2.2
Inward FDI Flows as a
Percentage of Gross
Fixed Capital Formation
1980 1990 2000 2005
Hong Kong, China 7.6 16.3 138.9 97.0
Singapore 25.9 46.8 59.8 78.9Cambodia .. .. 22.1 31.5
Malaysia 12.2 17.9 16.4 15.2
Viet Nam .. 21.2 15.0 11.3
China 0.1 3.5 10.3 9.2
Indonesia 2.0 3.4 -13.9 8.5
Philippines 1.3 5.4 13.9 7.5
Thailand 2.1 7.5 12.4 7.2
Lao People's Democratic
Republic
.. 6.1 9.4 5.8
India 0.2 0.3 3.5 3.5
South Korea 0.1 0.8 5.4 3.1
Taiwan 1.2 3.7 6.4 2.3
Japan 0.1 0.2 0.7 0.3
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessInflation
Indonesia experienced very high inflation in consumer prices from 1998 to 1999 Thereafter still higher than China and India
Higher than Vietnam from 1996 to 2006, except 2004
44Source: International Monetary Fund, World Economic Outlook Database, April
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
45Source: International Monetary Fund, World Economic Outlook Database, April
Inflation, consumer prices
Annual percent change
Country China India Indonesia Vietnam1980 6.0 11.4 18.0 25.2
1981 2.4 13.1 12.2 69.6
1982 1.9 7.9 9.5 95.4
1983 1.5 11.9 11.8 49.5
1984 2.8 8.3 10.5 64.9
1985 9.3 5.6 4.7 91.6
1986 6.5 8.7 5.8 453.5
1987 7.3 8.8 9.3 360.41988 18.8 9.4 8.0 374.4
1989 18.0 6.2 6.4 95.8
1990 3.1 9.0 7.8 36.0
1991 3.4 13.9 9.4 81.8
1992 6.4 11.8 7.5 37.7
1993 14.7 6.4 9.7 8.4
1994 24.1 10.2 8.5 9.5
1995 17.1 10.2 9.4 16.9
1996 8.3 9.0 7.0 5.6
1997 2.8 7.2 6.2 3.1
1998 -0.8 13.2 58.0 7.9
1999 -1.4 4.7 20.7 4.1
2000 0.4 4.0 3.8 -1.6
2001 0.7 3.8 11.5 -0.4
2002 -0.8 4.3 11.8 4.0
2003 1.2 3.8 6.8 3.2
2004 3.9 3.8 6.1 7.72005 1.8 4.2 10.5 8.3
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessCompetitiveness in Institutional Environment
The Ease of Doing Business database by World Bank provides objectivemeasures of business regulations and their effects on businesses since2004
Document the degree of regulation, gauge regulatory outcomes, measureextent of legal protections of property, measure the flexibility ofemployment regulation and document tax burden on businesses.
The Ease of Doing Business ranking is computed based on the following
ten factors and sub-measures:o Ease of starting a businesso Ease of dealing with licenseso Ease of employing workerso Ease of registering propertyo Ease of getting credito Ease of protecting investors
o Ease of paying taxeso Ease of trading across borderso Ease of enforcing contractso Ease of closing a businesso Recovery rate (cents on the dollar)
Coverage increased from 130 economies in 2004 to 175 in 2007
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competitiveness
48
Note: Positive numbers indicate an increase in ranking from2006 to 2007 whereas negative numbers indicate a decrease
in ranking and zero indicates no change
Notes:Total numbers of countries ranked are 155 (2006) and175 (2007);
Selected countries are ordered by their 2007 Ease ofDoing Business ranking.
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
49Notes:Total numbers of countries ranked are 155 (2006) and 175 (2007); Selected countries are ordered by the years Ease of Doing
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessCompetitiveness in Institutional Environment
Indonesia is one of the five countries that suffered a drop inranking in the 2007 Ease of Doing Business Ranking. These othercountries are Vietnam, Philippines, Taiwan and Cambodia.
Comparing the 2006 and 2005 data, the top three factors thatcaused the biggest drop in Indonesias rankings are ease of
closing a business, ease of getting credit, and ease of tradingacross borders.
Indonesia maintained at 161 in starting a business, dropped 2places to 131 in dealing with licenses, improved by one place to140 in employing workers, dropping 2 places to 120 inregistering property, dropping 7 places to 83 in getting credit,
dropping 2 places to 60 in protecting investors, dropped 4 placesto 133 in paying taxes, dropped 5 places to 60 in trading acrossborders, dropped 1 place to 145 in enforcing contracts, dropped10 places to 136 in closing a business.
50
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessCompetitiveness in Institutional Environment
The Worldwide Governance Indicators by World Bank reports aggregate andindividual governance indicators for 212 countries and territories over theperiod 19962006, for six dimensions of governance: Voice andAccountability, Political Stability and Absence of Violence, GovernmentEffectiveness, Regulatory Quality , Rule of Law, and Control of Corruption.The details are:o Voice and Accountability the extent to which a countrys citizens are able to
participate in selecting their government, as well as freedom of expression,freedom of association, and a free media.
o Political Stability and Absence of Violence perceptions of the likelihoodthat the government will be destabilized or overthrown by unconstitutional orviolent means, including domestic violence and terrorism.
o Government Effectiveness the quality of public services, the quality of thecivil service and the degree of its independence from political pressures, thequality of policy formulation and implementation, and the credibility of thegovernments commitment to such policies.
o Regulatory Quality the ability of the government to formulate and implementsound policies and regulations that permit and promote private sectordevelopment.
o Rule of Law the extent to which agents have confidence in and abide by therules of society, and in particular the quality of contract enforcement, the police,and the courts, as well as the likelihood of crime and violence.
o Control of Corruption the extent to which public power is exercised for privategain, including both petty and grand forms of corruption, as well as capture ofthe state by elites and private interests.
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness The chart below shows the percentile rank of the country on each governance indicator.
Percentile rank indicates the percentage of countries worldwide that rate below the selectedcountry. Higher values indicate better governance ratings. Percentile ranks have beenadjusted to account for changes over time in the set of countries covered by thegovernance indicators.
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
54Note: The six governance indicators are measured in units ranging fromabout -2.5 to 2.5, with
S CO SS
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competitiveness
55
ASIA COMPETITIVENESS
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitiveness
56
ASIA COMPETITIVENESS
i d f i l
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of national
competitivenessCompetitiveness in Institutional Environment
The Worldwide Governance Indicators from 1996-2006show that Indonesia seems to have arrested the downwardtrends since 2003. Show signs of improvement ingovernance from 2003 to 2006
Prior to that, sharp drop in scores for governmenteffectiveness, political stability and regulatory quality
Comparing Indonesia with China, India and Vietnam basedon 2006 data, Indonesia has competitive strengths inregulatory quality, but has competitive weaknesses inpolitical stability, rule of law, control of corruption, voiceand accountability and government effectiveness.
Based on the 2006 percentile rank, Indonesia is performingbelow regional average (East Asia) in political stability, ruleof law and control of corruption. The same can be said forcomparison with Vietnam, India and China.
57
ASIA COMPETITIVENESS
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ASIACOMPETITIVENESSINSTITUTE
Selected Determinants of IndustrialCompetitiveness for Indonesia
ASIA COMPETITIVENESS
D t i t d f i d t i l
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ASIACOMPETITIVENESSINSTITUTEDeterminants and measures of industrial
competitivenessExport Competitiveness
The following charts:
o Exports Portfolio by Cluster, 1997-2005* (top 20 by export value)
o Exports Portfolio by Cluster, 1997-2005* (top 20 by world export marketshare)
o Exports Portfolio by Cluster, 1997-2005* (top 20 by change in world exportmarket share)
o Exports Portfolio by Service Cluster, 1997-2004
plots Indonesias share of world export and export values by cluster in2005 against the changes in exports share by cluster (1997-2005)
Singapores exports portfolio by cluster are also included for comparison
59
* Note: services exports started from 2002.Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness,Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics
Database and the IMF BOP statistics
ASIA COMPETITIVENESS
D t i t d f i d t i l
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competitiveness
60
ASIA COMPETITIVENESS
D t i t d f i d t i l
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D t i t d f i d t i l
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competitiveness
63
ASIACOMPETITIVENESS
Determinants and meas res of ind strial
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INSTITUTEDeterminants and measures of industrialcompetitivenessExport Competitiveness
64
Cluster Export Value (in USD'000), 2005
Share ShareChange
Oil and Gas Products $19,489,343.80 1.80% -1.49%
Metal Mining and Manufacturing $8,172,304.67 1.18% 0.35%
Agricultural Products $7,253,417.42 1.57% 0.26%
Apparel $5,170,168.98 1.98% 0.32%
Hospitality and Tourism $4,371,160.00 0.64% -0.87%
Coal and Briquettes $4,354,121.70 9.50% 2.37%
Plastics $4,126,373.24 1.28% 0.05%
Information Technology $3,688,152.06 0.53% 0.27%
Textiles $3,504,635.44 1.69% 0.33%
Forest Products $3,033,962.55 2.00% 0.89%
Indonesias Exports Portfolioby Cluster, 1997-2005* (indescending order of ExportValue)Note: services exports startedfrom 2002.
Cluster Export Value (in
USD '000), 2005
Share Share
Change
Coal and Briquettes $4,354,121.70 9.50% 2.37%Fishing and Fishing Products $1,832,250.59 2.74% -0.81%
Footwear $1,428,517.57 2.48% -1.44%
Furniture $2,824,965.30 2.18% 0.28%
Forest Products $3,033,962.55 2.00% 0.89%
Apparel $5,170,168.98 1.98% 0.32%
Building Fixtures and Equipment $2,843,124.68 1.93% -3.34%
Oil and Gas Products $19,489,343.80 1.80% -1.49%
Textiles $3,504,635.44 1.69% 0.33%
A ricultural Products 7 253 417.42 1.57% 0.26%
Indonesias Exports Portfolioby Cluster, 1997-2005* (indescending order of Share)Note: services exports startedfrom 2002.
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Determinants and measures of industrial
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INSTITUTEDeterminants and measures of industrialcompetitivenessExport Competitiveness
65
Cluster Export Value (in
USD '000), 2005
Share Share
Change
Coal and Briquettes $4,354,121.70 9.50% 2.37%
Construction Services $463,010.00 0.99% 0.99%
Forest Products $3,033,962.55 2.00% 0.89%
Communications Services $1,599,530.00 1.12% 0.88%
Business Services $2,881,210.00 0.50% 0.50%Tobacco $323,742.30 1.39% 0.38%
Metal Mining and Manufacturing $8,172,304.67 1.18% 0.35%
Textiles $3,504,635.44 1.69% 0.33%
Lighting and Electrical Equipment $1,082,947.53 0.69% 0.33%
Apparel $5,170,168.98 1.98% 0.32%
Indonesias ExportsPortfolio by Cluster, 1997-2005* (in descending orderof Share Change)Note: services exports startedfrom 2002.
Cluster Export Value (in
USD '000)
Share Share
Change
Hospitality and Tourism $4,371,160.00 0.64% -0.87%Business Services $2,881,210.00 0.50% 0.50%
Transportation and Logistics $2,796,930.00 0.53% 0.18%
Communications Services $1,599,530.00 1.12% 0.88%
Construction Services $463,010.00 0.99% 0.99%
Financial Services $421,880.00 0.22% 0.21%
Indonesias Exports Portfolioby Service Cluster, 2002-2005
ASIACOMPETITIVENESS
Determinants and measures of industrial
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INSTITUTEDeterminants and measures of industrialcompetitivenessExport Competitiveness
Based on the 2005 export values, share of world exports, and thechange in world export share from 1997-2005, Indonesia iscompetitive in the export of coal and briquettes, fishing products,footwear, furniture and forest products, and oil and gas products,although there is a decrease in world export share in oil and gas
products, fishing products and footwear. Indonesia has the largest increase in the world export share in
the export of coal and briquettes
In terms of services, hospitality and tourism has the largestexport value but suffers from a decline in world export share.
Based on Indonesias goods export values and share for 2005,
the top 5 leading trading partners are Japan, USA, Singapore,South Korea, and China. However, the exports shares to Japan,USA and Singapore have decreased.
66
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Determinants and measures of industrial
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INSTITUTEDeterminants and measures of industrialcompetitivenessExport Competitiveness
Based on the 2005 export values, share of world exports, and thechange in world export share from 1997-2005, Indonesia iscompetitive in the export of coal and briquettes, fishing products,footwear, furniture and forest products, and oil and gas products,although there is a decrease in world export share in oil and gas
products, fishing products and footwear. Indonesia has the largest increase in the world export share in
the export of coal and briquettes
In terms of services, hospitality and tourism has the largestexport value but suffers from a decline in world export share.
Based on Indonesias goods export values and share for 2005,
the top 5 leading trading partners are Japan, USA, Singapore,South Korea, and China. However, the exports shares to Japan,USA and Singapore have decreased.
67
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Determinants and measures of industrial
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INSTITUTEDeterminants and measures of industrialcompetitivenessCompetitiveness of Manufacturing Sector Industry level manufacturing data was reclassified based on standard industry aggregation by
technology level. Source is OECD Science, Technology and Industry Outlook 2006
68
Standard Industry Aggregation by Technology Level(based on ISIC Revision 3)
The high-technology industries (HT) are defined as the sum of:
Pharmaceuticals (2423), Office and computing machinery (30), Radio, TV and communication equipment (32), Medical, precision and optical equipment (33), Aircraft and spacecraft (353).
The medium-high-technology industries (MHT) are defined as the sum of: Chemicals excluding pharmaceuticals (24 excl. 2423), Machinery and equipment (29), Electrical machinery and apparatus (31), Motor vehicles and trailers (34), Railroad and transport equipment (352+359).
The medium-low-technology industries (MLT) are defined as the sum of:
Coke, refined petroleum products and nuclear fuel (23), Rubber and plastic products (25), Other non-metallic mineral products (26), Basic metals (27), Fabricated metal products except machinery and equipment (28), Building and repairing of ships and boats (351).
The low-technology industries (LT) are defined as the sum of:
Food products, beverages and tobacco (15-16), Textiles, textile products, leather and footwear (17-19), Wood, pulp, paper, paper products, printing and publishing (20-22), Manufacturing n.e.c. and recycling (36-37).
ASIACOMPETITIVENESSSDeterminants and measures of industrial
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INSTITUTEDeterminants and measures of industrialcompetitivenessSnapshot of Indonesias Manufacturing Sector in 2003 (latest available data)
69
Key ManufacturingStatistics for 2003
(US$) based on 4-
digit ISIC Rev 3
codes
Gross fixed capitalformation-Total
(at 2000 prices)
Number ofemployees
Numberof
establish
ments
Output inproducers prices
(at 2000 prices)
Value added infactor values (at
2000 prices)
Wages andsalaries of
employees (at
2000 prices)
(1) Total High
Technology
manufacturing
1,199,246,710 171,527 424 5,318,607,670 2,296,442,935 267,658,411
(2) Total Medium
High Technology
manufacturing
5,402,944,625 361,383 1,625 12,539,469,831 5,808,524,390 658,957,106
(3) Total Medium
Low Technology
manufacturing
9,447,538,840 526,939 2,572 10,520,194,561 3,128,813,195 1,250,918,261
(4) Total Low
Technology
manufacturing
39,135,040,632 2,817,428 12,988 37,163,553,178 14,652,966,857 2,325,341,272
Total manufacturing(1+2+3+4)
55,184,770,806 3,877,277 17,609 65,541,825,240 25,886,747,377 4,502,875,048
Total manufacturing
(as reported by
UNIDO)
124,928,869,979 4,273,880 20,324 76,596,550,267 29,840,720,475 5,303,875,202Scope: Large establishments (with 100 or more persons engaged) and medium scale establishments (with 20 to 99 personsengaged).Notes: Discrepancies occurred for Indonesia's data from 1998 to 2003 on the sums of the individual 4-digitcodes and the total manufacturing figures reported by UNIDO.Source: UNIDO Industrial Statistics Database at the 3- and 4-digit level of ISIC Code (Revision 3), INDSTAT4 2007 ISIC Rev.3
The series Gross Fixed Capital Formation, Output and Value Added are deflated by Gross domestic product, deflator
(2000=100) and the series Wages and salaries of employees are deflated by Inflation, consumer prices (2000=100)Source: IMF World Economic Outlook Database, April 2007
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INSTITUTEDeterminants and measures of industrialcompetitivenessContribution of Manufacturing sub-sectors by Technology Level Aggregation
71
Scope: Large establishments (with 100 or more persons engaged) and medium scale establishments (with 20 to 99 personsengaged).
Source: UNIDO Industrial Statistics Database at the 3- and 4-digit level of ISIC Code (Revision 3), INDSTAT4 2007 ISIC Rev.3
The series Gross Fixed Capital Formation, Output and Value Added are deflated by Gross domestic product, deflator
(2000=100) and the series Wages and salaries of employees are deflated by Inflation, consumer prices (2000=100)Source: IMF World Economic Outlook Database, April 2007
Average Share of
Total
manufacturing
(1998-2003)
Gross fixed
capital
formation-Total
(at 2000 prices)
Number of
employees
Number of
establishm
ents
Output in
producers
prices (at
2000 prices)
Value added in
factor values
(at 2000 prices)
Wages and
salaries of
employees (at
2000 prices)
Total High
Technologymanufacturing
3.5% 4.3% 2.2% 7.0% 7.5% 6.3%
Total Medium
High Technology
manufacturing
10.3% 8.7% 8.5% 19.6% 22.1% 14.3%
Total Medium Low
Technology
manufacturing
22.4% 11.8% 12.5% 15.1% 11.3% 15.6%
Total Low
Technology
manufacturing
43.5% 69.2% 66.4% 51.4% 51.3% 53.6%Note:Total manufacturing as reported by UNIDO
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INSTITUTEDeterminants and measures of industrialcompetitivenessTop Industry Sector (1998-2003) by Share within industry based on technology classification
73
Gross fixed capital formation-
Total (at 2000 prices)
Number of employees Number of establishments
Total High
Technology
manufacturing
Pharmaceuticals, medicinal
chemicals, etc.;
Electronic valves, tubes, etc.;
TV and radio receivers and
associated goods.
Aircraft and spacecraft (1998-
1999);
Optical instruments &
photographic equipment
(2001).
Pharmaceuticals,
medicinal chemicals, etc.;
Electronic valves, tubes,
etc.;
TV and radio receivers
and associated goods.
Pharmaceuticals,
medicinal chemicals, etc.;
Electronic valves, tubes,
etc.;
TV and radio receivers
and associated goods.
Output in producers prices
(at 2000 prices)
Value added in factor
values (at 2000 prices)
Wages and salaries of
employees (at 2000
prices)
Total High
Technology
manufacturing
Pharmaceuticals, medicinal
chemicals, etc.;
Electronic valves, tubes, etc.;
TV and radio receivers and
associated goods.
Pharmaceuticals,
medicinal chemicals, etc.;
Electronic valves, tubes,
etc.;
TV and radio receivers
and associated goods.
Pharmaceuticals,
medicinal chemicals, etc.;
Electronic valves, tubes,
etc.;
TV and radio receivers
and associated goods.
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INSTITUTEDeterminants and measures of industrialcompetitivenessTop Industry Sector (1998-2003) by Share within industry based on technology classification
74
Gross fixed capitalformation-Total (at 2000
prices)
Number of employees Number of establishments
Total Medium
High
Technology
manufacturing
Basic chemicals, except
fertilizers;
Fertilizers and nitrogen
compounds (1998-2002);
Domestic appliances n.e.c.
(2001-2003);
Man-made fibres (1998,
2001, 2003);
Parts/accessories for
automobiles (1998-2001,
2003);
Motor vehicles (2000,
2003).
Basic chemicals, except
fertilizers;
Soap, cleaning &
cosmetic preparations;
Other chemical
products n.e.c. (1998-
2000);
Domestic appliances
n.e.c. (2001-2003);
Parts/accessories for
automobiles;
Motorcycles (1999-
2003).
Basic chemicals, except
fertilizers;
Soap, cleaning &
cosmetic preparations;
Paints, varnishes,
printing ink and mastics
(1998-2000, 2002-
2003);
Other chemical
products n.e.c. (1998-
2001, 2003);
Domestic appliances
n.e.c. (2001-2002);
Parts/accessories for
automobiles.
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INSTITUTEDeterminants and measures of industrialcompetitivenessTop Industry Sector (1998-2003) by Share within industry based on technology classification
76
Gross fixed capitalformation-Total (at 2000
prices)
Number of employees Number of establishments
Total Medium
Low
Technology
manufacturing
Rubber tyres and tubes;
Plastic products;
Basic iron and steel;
Basic precious and non-
ferrous metals (1998-
2002);
Other fabricated metal
products n.e.c. (1998-2001,
2003);
Building and repairing of
ships (2003).
Rubber tyres and tubes;
Other rubber products
(1998, 2001-2003);
Plastic products;
Basic iron and steel;
Other fabricated metal
products n.e.c.
Rubber tyres and tubes;
Plastic products;
Structural metal
products (1998-2002);
Cutlery, hand tools and
general hardware;
Other fabricated metal
products n.e.c.
Output in producers prices
(at 2000 prices)
Value added in factor
values (at 2000 prices)
Wages and salaries of
employees (at 2000
prices)
Total Medium
Low
Technology
manufacturing
Rubber tyres and tubes;
Plastic products;
Basic iron and steel;
Basic precious and non-
ferrous metals;
Other fabricated metal
products n.e.c.
Rubber tyres and tubes;
Plastic products;
Basic iron and steel;
Basic precious and non-
ferrous metals;
Other fabricated metal
products n.e.c.
Rubber tyres and tubes;
Plastic products;
Basic iron and steel;
Basic precious and non-
ferrous metals (1998,
2000);
Other fabricated metal
products n.e.c.
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INSTITUTEDeterminants and measures of industrialcompetitivenessTop Industry Sector (1998-2003) by Share within industry based on technology classification
77
Gross fixed capitalformation-Total (at 2000
prices)
Number of employees Number of establishments
Total Low
Technology
manufacturing
Vegetable and animal oils
and fats (1999-2000, 2002-
2003);
Other food products n.e.c.
(1998, 2000, 2003);
Textile fibre preparation;
textile weaving (1998-
2002);
Wearing apparel, except fur
apparel (2001-2002);
Veneer sheets, plywood,
particle board, etc. (1998-
1999, 2001-2003);
Pulp, paper and paperboard
(1998-2002)
Tobacco products;
Textile fibre
preparation; textile
weaving;
Wearing apparel, except
fur apparel;
Footwear;
Veneer sheets, plywood,
particle board, etc.
Other food products
n.e.c.;
Tobacco products;
Textile fibre
preparation; textile
weaving (1998-2000,
2003);
Wearing apparel, except
fur apparel;
Sawmilling and planing
of wood (2001-2002);
Furniture.
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Determinants and measures of industrialcompetitivenessTop Industry Sector (1998-2003) by Share within industry based on technology classification
78
Output in producers prices(at 2000 prices) Value added in factorvalues (at 2000 prices) Wages and salaries ofemployees (at 2000
prices)
Total Low
Technology
manufacturing
Vegetable and animal oils
and fats;
Tobacco products;
Textile fibre preparation;
textile weaving ;
Wearing apparel, except furapparel (1998-1999, 2001-
2003);
Veneer sheets, plywood,
particle board, etc. (1998-
2000);
Pulp, paper and paperboard
(2000-2003).
Vegetable and animal
oils and fats (1999,
2001-2003);
Tobacco products;
Textile fibre
preparation; textileweaving ;
Wearing apparel, except
fur apparel (1998-2000,
2002-2003);
Veneer sheets, plywood,
particle board, etc.
(1998-2001);
Pulp, paper andpaperboard (2000-
2003).
Tobacco products
(1998-2000, 2002-
2003);
Textile fibre
preparation; textile
weaving (1999-2002); Wearing apparel, except
fur apparel;
Footwear (1998-2000,
2002-2003);
Veneer sheets, plywood,
particle board, etc.
(1999-2003).
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Determinants and measures of industrialcompetitivenessIndustry productivity and growth based on selected technology classification
79
High Technology manufacturing Value Added (at 2000 prices) per
employee in USD
Compound
AnnualGrowth Rate
(CAGR)
(1998-2003)
Isic Code Isic Description 1998 1999 2000 2001 2002 2003
2423Pharmaceuticals, medicinal chemicals,
etc.
5,517 9,823 10,379 12,875 16,011 18,877 27.9%
3000Office, accounting and computing
machinery
6,219 18,720 3,080 1,148 1,344 1,477 -25.0%
3210Electronic valves, tubes, etc. 6,498 7,460 15,614 11,115 18,918 10,993 11.1%
3220TV/radio transmitters; line comm.
apparatus
14,513 4,328 9,115 1,593 2,475 7,852 -11.6%
3230TV and radio receivers and associated
goods
7,021 8,228 6,489 9,345 12,813 14,614 15.8%
331 Medical, measuring, testing appliances,
etc.
3,429 4,889 5,279 5,057 1,883 2,050 -9.8%
3311Medical, surgical and orthopaedic
equipment
3,953 7,247 8,899 5,426 1,243 2,177 -11.2%
3312Measuring/testing/navigating
appliances,etc.
2,531 2,111 1,645 2,575 5,326 7,679 24.9%
3313Industrial rocess control e ui ment 1,756 1,089
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Determinants and measures of industrialcompetitivenessManufacturing Value Added and Gross Fixed Capital FormationComparison across Asian Countries
80
Latest yearof data for
VA and
GFCF
Value Added inUSD
Gross Fixed CapitalFormation in USD
GDP in USD
Cambodia 2000 1,397,590,835 175,358,459 3,606,186,552
India 2003 51,912,337,683 12,073,704,525 594,802,340,259
Indonesia 2003 38,099,438,274 159,504,184,034 208,308,642,359
Japan 2002 777,021,868,121 75,971,265,193 3,970,848,278,081
Korea 2002 193,670,909,367 32,064,461,390 546,934,577,495
Lao P.D.R. 1999 65,935,185 11,352,826 1,603,258,067
Malaysia 2003 (VA),
2002
(GFCF)
32,076,578,947 48,121,013,684 95,164,210,526 (2002),
103,736,842,105 (2003)
Philippines 2003 13,414,041,212 1,890,899,632 79,329,659,923
Singapore 2003 21,271,034,566 3,902,520,979 92,368,924,051
Viet Nam 2000 (VA),
2004
(GFCF)
4,378,617,630 16,668,760,062 31,172,627,976 (2000),
45,818,995,366 (2004)
Note: VA at Producers' Prices - Cambodia, India, Korea, Laos, Malaysia, Philippines, Vietnam, ThailandVA at Factor Values - IndonesiaVA unspecified - Japan, Singapore
Source of manufacturing value added and gross fixed capital formation are from UNIDO Industrial Statistics Database,
2007
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Determinants and measures of industrialcompetitivenessManufacturing Value Added and Gross Fixed Capital FormationComparison across Asian Countries
81
Note: VA at Producers' Prices - Cambodia, India, Korea, Laos, Malaysia, Philippines, Vietnam, ThailandVA at Factor Values - IndonesiaVA unspecified - Japan, Singapore
Source of manufacturing value added and gross fixed capital formation are from UNIDO Industrial Statistics Database,
2007
Value Added as % of GDP GFCF as % of GDP
Cambodia 38.8% 4.9%
India 8.7% 2.0%
Indonesia18.3% 76.6%
Japan 19.6% 1.9%
Korea, Republic of 35.4% 5.9%
Lao P.D.R. 4.1% 0.7%
Malaysia 30.9% 50.6%
Philippines 16.9% 2.4%
Singapore 23.0% 4.2%
Viet Nam 14.0% 36.4%Thailand 15.5% 3.4%
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Determinants and measures of industrialcompetitivenessEmployment Structure of Indonesia, 1980-2005
82Source: International Labour Organisation LABORSTA database, 2007
e: Industry classification is by ISIC Rev 2
ASIACOMPETITIVENESSINSTITUTE
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Conclusions
ASIACOMPETITIVENESSINSTITUTEConclusions (Competitiveness
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Co c us o s (Co pe e essPerformance)Standard of Living
GDP per capita growth lagging behind Asian NIEs average, andemerging economies such as Vietnam, China and India for allperiods.
Level of GDP per capita behind ASEAN-4 average (lowest amongASEAN-4) & Asian NIEs, but above CLMV average for all periods.
Economic Performance
Real GDP growth lagged behind ASEAN-4 average and India afterAsian Financial Crisis and behind China and Vietnam for allperiods
Indonesia has the largest share among the ASEAN-4 in terms ofShare of World GDP (PPP terms), doubled CLMV total for 2006
However, share quite stagnant since 1990 Unemployment rising despite labour productivity trending
upwards after Asian Financial Crisis
84
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( pDeterminants)Business Environment
From BCI, it seems that there was a great improvement inthe national business environment for Indonesia for the year2006 which led to an improvement in the BCI score andranking.
However, need to address quality of infrastructure anduniversity-industry research collaboration issues
Human Capital
Based on HDR, comparing Indonesia with countries similarly
classified as having a medium level of human development
but ranked higher, it has competitive weaknesses in lifeexpectancy, adult literacy rate, lower combined grossenrolment ratio for primary, secondary and tertiary schoolsand GDP per capita but generally speaking, the extent ofthe weaknesses is greater for life expectancy andgross enrolment ratio.
85
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( pDeterminants)Trade Competitiveness
Although trade volume increases over the years, shareof world trade remained constant since 1980
Competitiveness in Foreign Direct Investment
Indonesias share of the worlds inward FDI flowsremained fairly constant in 1980-2005 but share ofinward FDI stock declined (0.8% in 1980 vs 0.2% in2005)
Inward FDI stock as percentage of GDP among lowestin selected Asian countries (ASEAN10+3+1+Taiwan)
86
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competitiveness
Competitiveness in Institutional Environment
Indonesia suffered a drop in ranking in the 2007Ease of Doing Business Ranking together withVietnam, Philippines, Taiwan and Cambodia.
Comparing the 2006 and 2005 data, the top threefactors that caused the biggest drop in Indonesiasrankings are ease of closing a business, ease ofgetting credit, and ease of trading across borders.
87
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competitivenessCompetitiveness in Institutional Environment
Among the four countries of Indonesia, China, Vietnam andIndia, Indonesia has the lowest Ease of Doing Business rankingin 2007, overtaken by India which occupied the last spotamong the four in 2006.
Among the four countries in 2007s ranking, Indonesia hascompetitive strengths in protecting investors, trading across
borders, and to a certain extent getting credit. However, ithas competitive disadvantage in starting a business,employing workers, registering property, and closing business.
Comparing the rankings for the 10 factors between the twoyears, Indonesia have slipped in 8 of them while maintainingstatus quo for one of them and increased by one rank for
employing workers. On the whole, need to address ease of closing a business,
ease of getting credit, and ease of trading across borders
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competitivenessExport Competitiveness at Industry Level
Based on the 2005 export values, share of world exports, and thechange in world export share from 1997-2005, Indonesia iscompetitive in the export of coal and briquettes, fishing products,footwear, furniture and forest products, and oil and gas products,although there is a decrease in world export share in oil and gasproducts, fishing products and footwear.
Indonesia has the largest increase in the world export share inthe export of coal and briquettes
In terms of services, hospitality and tourism has the largestexport value but suffers from a decline in world export share.
Based on Indonesias goods export values and share for 2005,
the top 5 leading trading partners are Japan, USA, Singapore,South Korea, and China. However, the exports shares to Japan,USA and Singapore have decreased.
90
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competitivenessCompetitiveness of Manufacturing Sector Industry level manufacturing data was reclassified based on
standard industry aggregation by technology level. Source isOECD Science, Technology and Industry Outlook 2006
In terms of average share of total manufacturing, the largestshare for VA is low tech manufacturing, followed by mediumhigh tech, medium low tech and high tech manufacturing.
In terms of average share of total manufacturing, the largestshare for GFCF is low tech manufacturing, followed bymedium low tech, medium high tech and high techmanufacturing. Same for wages and salaries of employees,number of establishments, number of employees.
In terms of CAGR, the largest growth for VA from 1998-2003 is
high tech manufacturing, followed by medium low tech, lowtech and medium high tech manufacturing. In terms of CAGR, the largest growth for GFCF from 1998-2003
is low tech manufacturing, followed by medium low tech,medium high tech. High tech manufacturing shows a decline.