Indonesia gets creative

Indonesia plans to diversify export earnings away from commodities to tourism and creative industries.
Indonesia is preparing to diversify its exports away from commodity dependence just as the worldÆs leading economies look set to plunge into recession. Opening the Trade Expo Indonesia 2008 in Jakarta on October 21, President Susilo Bambang Yudhoyono identified three sectors with potential for growth: tourism, creative industries and migrant workersÆ remittances.

The annual trade promotion event in the capital, supplemented by similar displays to match local suppliers with international buyers in other major cities such as Yogyakarta in central Java, showed a large variety of non-commodity export-ready products and services. Stalls represented most of the 14 sub-categories of creative industries listed by the ministry of trade. These ranged from traditional Batik textiles and up-market furniture to animation and information technology.

More than 1,000 buyers flew in from 22 countries, and officials expected that agreements would be signed which would surpass the $200 million worth of deals last year.

Currently, creative industries make up just 6% of IndonesiaÆs GDP and 9% of its exports. And despite ambitions for diversification, IndonesiaÆs foreign exchange earnings remain highly reliant on the primary sector. The country is the worldÆs largest palm oil and South Seas pearl producer, the second biggest gelatin producer and the third biggest cacao producer.

In an interview with FinanceAsia, minister of trade Dr Mari Pangestu argued that small- and medium-sized enterprises could be a new source for the countryÆs economic growth, emphasising that they are labour intensive, not low-skilled businesses. While traditional handicrafts would always have a reliable market, the products themselves as well as the manufacturing, marketing and distribution processes would need to be modernised. In addition, education and training to instill a ôcreative mindsetö in the population was essential and a blue-print had been drawn up.

The minister said there is a draft bill prepared to set up an Export Credit Agency to augment limited export guarantees and insurance already in place. She stressed that no import tariffs or quotas would be imposed to protect domestic industries, as Indonesia fully intended to adhere to its World Trade Organisation and bilateral trade agreements.

Meanwhile, Indonesia has cut its overall export growth target for next year to 11.9% because of sluggish demand from Japan, the United States and Europe, which account for about one-third of the countryÆs export revenues. This would mark the second year in a row that export growth has slowed, despite an increase in Chinese demand for Indonesian commodities, particularly coal. Export growth is expected to come in at about 12.5% this year, the slowest for five years despite 31.4% growth in the first quarter according to the official statistics bureau.

Official GDP growth forecasts for 2009 have been downgraded from 6.3% earlier in the year to between 5.5% and 6%, but inflation fears that were prominent earlier this year are subsiding as the oil price has plunged.

The rupiah has recently hit a three-year low against the US dollar, having fallen more than 6% this month already, as the US and European credit crisis has spread to emerging markets. A weaker currency could, of course, provide the most immediate tonic to Indonesian exporters while the country prepares its secondary and tertiary sectors for international competition in better times ahead.
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