2015 Agricultural Productivity, Decentralisation, And Competitiveness Analysis For Provinces And Regions Of Indonesia

Khee Giap Tan, Nurina Merdikawati;Mulya Amri;Kong Yam Tan

• Publisher: WSPC
• ISBN:
  9789813207417
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

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This book is the only annual study that dissects Indonesia's sub-national competitiveness at both the provincial level (covering 34 provinces) and the regional level (covering six major island groups). Based on a rich dataset of 103 indicators, the study covers four environments of competitiveness: (1) Macroeconomic Stability, (2) Government and Institutional Setting, (3) Financial, Businesses, and Manpower Conditions, and (4) Quality of Life and Infrastructure Development. It also presents each province and region's comparative strengths and weaknesses, and conducts "what-if" policy simulations to propose policy suggestions.

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0 Readership: Policymakers, researchers, and the general audience interested in Indonesia's economic development. -->
Competitiveness, Indonesia, Indonesian Provinces, Agriculture, Agricultural Productivity, Decentralisation, Governing Institutions, Economic Development0

Chapter 1

Introduction

1.1 WHY THIS BOOK AND FOR WHOM?

In the tradition of the Asia Competitiveness Institute (ACI) at the Lee Kuan Yew School of Public Policy (LKYSPP), National University of Singapore (NUS), our work and publications make a distinctive contribution to the literature by first, focusing on competitiveness analysis and ranking at both national and sub-national levels, over and above those at the traditional national level. Second, it is in this spirit that we at the ACI have crafted a comprehensive methodology to annually assess competitiveness at the sub-national level, which is employed here in this book, as well as in ACI’s previous publications reporting research findings on Indonesia, Greater China, India and the Association of Southeast Asian Nations (ASEAN) countries.¹ Since the inaugural volume of the Competitiveness Analysis and Development Strategies for 33 Indonesian Provinces (Tan et al. 2013c), the comprehensive competitiveness index developed by ACI has been used to rank the 33 Indonesia provinces in various dimensions.² As ACI aims to provide an update by extending all studies, this updated book thus includes 2012 data from official sources and 2014 data from ACI’s perception surveys.

As ACI works on evidence-based analysis, it is supported by quantitative methodologies scientifically presented to be useful to policy-makers. They, together with other academics, practitioners, business interests and non-government organisations (NGOs) are among the ACI’s target audience. To facilitate multidisciplinary and cross-border dialogues among the relevant stakeholders, the ACI holds Review Seminars prior to any book publication, also for comments and suggestions as peer review.

The rest of Chapter 1 is organised as follows. Section 1.2 presents the structure of the book with brief summaries of each chapter. Section 1.3 briefly discusses the Maritime Vision proposed by President Joko Widodo as a key proposed policy to be implemented during his leadership. Section 1.4 extends the discussion on how Maritime Vision plays a role in strengthening domestic and global connectivity. Section 1.5 provides brief concluding remarks on Indonesia’s Maritime Vision going forward.

1.2 STRUCTURE OF THE BOOK

This book comprises six chapters, inclusive of this introductory chapter as the roadmap for readers. Chapter 2 details 2015 Annual Update on Provincial Competitiveness Ranking and Simulation for Indonesia. Chapter 3 features the competitiveness analysis framework for the six regions proposed by the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development 2011–2025 (MP3EI). Chapter 4 offers distinct insights into the decentralisation, governing institutions and economic development in Indonesia. Chapter 5 presents our evidence-based study on assessing agricultural productivity in Indonesia’s provinces. Chapter 6 is the concluding chapter with a brief overview of ACI’s future research agenda.

1.3 OVERVIEW OF INDONESIA’S MARITIME VISION

As the largest archipelagic nation, the fourth most populous country with the largest Muslim population, and the third largest democracy in the world, Indonesia has received regional and global attention. The most recent call from ruling President Joko Widodo (Jokowi) to transform Indonesia as a global maritime axis has intrigued regional and local community alike who are hopeful that such policy brings higher prosperity to the nation.

President Jokowi first sounded his Maritime Vision in his election manifesto, with the word ‘maritime’ appearing in three out of seven missions to be submitted to the General Elections Commission (KPU).³ The emphasis is not only on economic aspects, but also on boosting Indonesia’s identity as an archipelagic country by strengthening maritime defence and diplomacy. These include but not limited to protecting maritime interest concerning borders and natural resources, strengthening naval capabilities and resolving territorial disputes in the Indo-Pacific region through maritime diplomacy. During his inauguration in October 2014, he further reaffirmed his vision, “We have to work hard to restore Indonesia as a maritime country. The oceans, the seas, the bays and the straits are the future of our civilisation. We have far too long turned our back on the seas, the oceans, the straits and the bays. It is time for us to restore everything so that Jalesveva Jayamahe (in the ocean we will triumph), a slogan used by our forefathers, will echo again.”⁴

It did not take long for Indonesia to announce its Maritime Vision to the world. In November 2014, during the East Asia Summit in Naypyitaw, President Jokowi outlined his maritime doctrine that covered five pillars: (i) reviving Indonesia’s maritime culture; (ii) revitalising management of maritime resources; (iii) prioritising infrastructure for maritime connectivity; (iv) focusing on maritime diplomacy for resolving conflicts and (v) strengthening maritime defence power.⁵ All in all, the president’s maritime axis is as important for Indonesia as it is Indonesia prospering within ASEAN as the ASEAN Economic Community (AEC) is to be completed by end of 2015.

The next section will briefly discuss on how the shift towards maritime-based policies, especially those related to the third pillar of improving maritime connectivity, affects the internal dynamics within Indonesia and external dynamics with other countries. Most of the discussions will centre on how Maritime Vision can enhance Indonesia’s economic prosperity and improve the lives of its people.

1.4 STRENGTHENING DOMESTIC AND GLOBAL CONNECTIVITY THROUGH MARITIME VISION

It is uncommon for a maritime agenda to turn into a mainstream policy discourse. The legacy of President Soeharto’s era to concentrate economic activities in Java Island left Indonesia’s maritime connectivity between the islands lagging behind. The Asian financial crisis (AFC) in 1997 witnessed a sharp reduction in infrastructure investment in Indonesia, from 5 to 6% of the gross domestic product (GDP) before 1997 to as low as 1–2% of the GDP in 2000. Infrastructure investment only picked up to 3.4% of the GDP in 2007,⁶ further exacerbating the country’s limited capacity to keep up with rising economic demand.

Land connectivity within an island is often prioritised over sea-based connectivity. Many islands have turned into subsistent economies, but remain isolated from the nation-wide economic processes; a situation commonly found in the islands of eastern Indonesia.⁷ As a result, regional development is often imbalanced with the easternmost islands such as Maluku and Papua suffering from rudimentary hard and soft infrastructure. Price disparity occurs as an inevitable consequence, with the price of basic goods varying by a factor of 20 between the western and eastern regions.⁸

Poor connectivity also contributes to inefficient logistics system, with container shipping cost from Padang (West Sumatra) to Jakarta more than three times than the cost from Jakarta to Singapore. It is also equally challenging to unleash the maritime resources in eastern Indonesia as high quality sea-based products become too expensive to be processed in Java or exported to international market.⁹ Anecdotal evidence also found that local tuna fishers would prefer going to the Philippines to sell their catch rather than rely on Indonesia’s fledgling port infrastructure.¹⁰ Hence, it is not surprising that Indonesia is ranked 53^rd in logistics performance index (LPI) in 2014, below Singapore (5^th), Malaysia (25^th), Thailand (35^th) and Vietnam (48^th). Across LPI’s evaluation components, the lowest performance is found in Indonesia’s international shipments which is ranked 74^th.¹¹

While inter-island connectivity is not seamless, as seen from the poor quality of roads and traffic congestion across Java as Indonesia’s main island, the impetus for inter-island and eventually international connectivity is even more relevant in a globalised world. Inter-island connectivity is required for the government to achieve a more balanced regional growth:¹² between Java and non-Java; western and eastern Indonesia; and urban and rural areas. During the presidential campaign, Mr. Jokowi was championing maritime highways in the form of ships serving frequent routes connecting western and eastern Indonesia. If implemented, such programme is expected to reduce the high price disparity across Indonesia’s regions.

Beyond that, a better maritime connectivity will induce greater inter-provincial trade facilitated by improved port infrastructure, with more provinces taking part in domestic value-chain activities and distribution processes. Agriculture-based provinces can prosper as their agricultural products are absorbed where demand is the highest.¹³ For instance, surplus of rice from Sulawesi and beef from West Nusa Tenggara and East Nusa Tenggara can be shipped to Java to meet rising food demand in the country’s most populous island. The implementation of MP3EI that aimed to spread growth centres across Indonesia’s archipelago further emphasises the importance of sea-lane connectivity. While each economic corridor has been designated special themes, the goods they produced are not necessarily for their own consumption but to be traded with other corridors and even shipped to international market.

On top of inter-island connectivity, international connectivity is equally important. Despite Indonesia’s strategic location in proximity to Singapore and the Straits of Malacca as one of the world’s busiest shipping hubs, the country is yet to optimise the growing opportunities that lie ahead. President Jokowi’s Maritime Vision paves the way for Indonesia’s increasing role in international trade as better port infrastructure facilitates seamless goods going in and out of the country. Average dwelling time¹⁴ in Jakarta’s Tanjung Priok Port, which handles more than two-thirds of Indonesia’s international trade, was 5.98 days in mid-2014, substantially behind the performance of other countries, such as Singapore (1.5 days), Malaysia (3 days) and Thailand (4–5 days).¹⁵ Hence, it is not surprising that logistics cost accounted for 18–22% of firms’ production cost,¹⁶ further increasing the cost of doing business in Indonesia. Improvement in Tanjung Priok Port will contribute to lower logistics cost, positively affecting Indonesia’s global competitiveness. Hence, it is encouraging to see progress in the making when average dwelling time in Tanjung Priok Port has been reduced to 4.5 days in October 2015.¹⁷ On top of improvement in existing ports, the Maritime Vision also highlights the needs to build new ports, altogether will allow more cargos to pass through which will attract more manufacturers to further develop the processing industry in Indonesia.

The construction of Jakarta’s New Priok Port next to the existing port, to be fully operational in 2023, is expected to become an international hub for seaborne trade, further strengthening the country’s logistics chain. The port, with capacity to serve 18 million 20...

Table of contents

• Cover
• Half Title
• About ACI
• Title Page
• Copyright
• Contents
• Foreword
• Preface
• Acknowledgments
• About the Authors
• List of Abbreviations
• List of Tables and Figures
• Chapter 1 Introduction
• Chapter 2 2015 Provincial Competitiveness Ranking and Simulation Study for Indonesia: An Annual Update
• Chapter 3 2015 Regional Competitiveness Ranking and Analysis for Indonesia: An Annual Update
• Chapter 4 Decentralisation, Governing Institutions and Economic Development in Indonesia
• Chapter 5 Agricultural Productivity in Indonesian Provinces
• Chapter 6 Concluding Remarks and Future Research Agenda
• Appendix 1 List of Indicators: 2015 Provincial and Regional Competitiveness Ranking and Simulation for Indonesia
• Appendix 2 Computation of Rankings: The Algorithm
• Appendix 3 Notes on Data Aggregation from Provincial Level to Regional Level