Manufacturing to Accelerate Indonesia’s Economic Growth


The manufacturing industry contributed the most to Indonesia’s 7.07% economic growth in the second quarter of 2021, with a 6.91% growth despite pressure from the COVID-19 pandemic. In the third quarter of 2021, the manufacturing industry grew 3.68% and contributed 0.75% to the national economy’s growth.

The proven resiliency indicates that the trajectory of industrial growth is still on track, and the sector is set to become the driver for the national economy, aiming for a Gross Domestic Product (GDP) contribution of more than 20% by 2024.

According to the data from the Ministry of Industry, the manufacturing sector contributed the largest to the national GDP in the second quarter of 2021, amounting to 17.34%. The top two contributors from the sector were the food and beverage industry (6.66%) and chemical, pharmaceutical, and traditional medicine industries (1.96%). With a total GDP contribution of 8.62% from these top two industries, the Ministry of Industry encourages further development within these subsectors, especially with the rising demand for food and essential oils.

A survey done to 6,000 respondents on 6-20 October 2020 by Mondelez Indonesia showed that 60% of Indonesians snack more during the pandemic. “Each individual seeks comfort when snacking (and) 71% of Indonesians snack for convenience,” shared Mondelez Indonesia President Director Prashant Peres in a virtual conference back in January 2021.

The Indonesian Food and Beverage Entrepreneurs Association (GAPMMI) also estimates that the food and beverage industry will grow 7% by the end of 2021. “Because (food and beverage) is not only a necessity but also a part of a lifestyle,” said Director of PT Delifru Utama Indonesia Alvin Harijanto in Jakarta last August (27/8).

Some food and beverage products use bioactive compounds in essential oils, and Indonesia is blessed with essential oils abundantly. In 2020, Indonesia produced 8,500 tons of essential oils, including cloves, citronella, patchouli, nutmeg, vetiver, and eucalyptus. All are also vital to the manufacturing of flavor and fragrance products, which experience a growing demand during the pandemic. The Ministry of Industry Acting Director-General of Agroindustry Putu Juli Ardika believes that the country will become the epicenter of the essential oil industry down streaming. “Perfume, bath soap, toothpaste, instant noodle seasoning, food and beverage products, and cosmetics all contain essential oils. So, we often don’t realize that we encounter essential oil in our daily life.”

To accelerate the growth of the manufacturing sector, the Indonesian government plans to implement industry 4.0 through the Ministry of Industry’s Making Indonesia 4.0 roadmap. It includes establishing Indonesia’s Digital Industry Center 4.0 (PIDI 4.0) in a smart building. The building will be home for Indonesia 4.0 showcase, engineering, and artificial intelligence research and development, and supporting ecosystem for Industry 4.0.

Also supporting the manufacturing growth is Indonesia’s robust household consumption. With 57.31% contribution to the national economy, the country’s household consumption is expected to grow even further with the government’s relaxation on Sales Tax on Luxury Goods (PPnBM) in motorized vehicles and Government-Borne VAT in the property sector. The relaxations have helped the automotive industry to recover and the manufacturing products supporting the property sector as well as increasing the Purchasing Managers Index (PMI) from 53.2 in March 2021 to 57.2 in October 2021.

With the promising numbers from the manufacturing industry, the support from resilient household consumption, and the government’s plans for Industry 4.0 and focusing on the growing market for essential oils, the country is on its way to becoming the world’s top 10 economies by 2030.