National manufacturing growth continues to send positive signals. This is reflected in the February 2023 Industrial Confidence Index (IKI), which is in the expansion phase at 52.32, rising consistently since November 2022. The February 2023 IKI shows a fairly significant expansion increase of 0.78 points from January 2023.
The rise in IKI was supported by an increase in the number of expanding subsectors. Sixteen industrial subsectors expanded, with an 87.7% share of non-oil and gas manufacturing GDP. Of these 16, four moved from contraction to expansion: Printing and Reproduction of Recorded Media; Rubber, Rubber Goods and Plastics; Non-Metallic Mineral Products; and Computers, Electronic and Optical Products.
“The IKI figure, rising consistently over the past four months, indicates that the growth prospects of domestic manufacturing in 2023 remain intact, even though the global economic slowdown is predicted to continue in 2023,” Ministry of Industry (Kemenperin) spokesperson Febri Hendri Antoni Arif said at the February 2023 IKI release in Jakarta on Tuesday (28/2).
IKI is made up of three variables: new orders, production and product inventory. The rise in IKI in February 2023 occurred across all component variables and was still mainly dominated by domestic orders. The New Orders variable rose from 51.14 to 52.81, Production rose from 50.35 to 51.37, and Product Inventory fell from 54.34 in January 2023 to 52.51 in February 2023. Lower inventory indicates manufactured products have been distributed to the market.
“In addition, in February 2023, 47.1% of businesses said their business activity was stable and 29.0% said it had improved,” Febri said.
IKI also reflects businesses' optimism for the next six months (March–August 2023). Febri explained that 89.2% of businesses were optimistic or stable about industrial business conditions over the next six months, a figure rising consistently since November 2022. Businesses' optimism that market conditions will improve is supported by better central government policies, although the global economy is expected to slow in 2023. As optimism rose, the share of pessimistic businesses fell from 13.60% in January 2023 to 10.81% in February 2023.
Contracting and Expanding Industries
By subsector, Febri explained that almost all subsectors under the Agro Industry expanded, except wood and furniture. The food and beverage industry even rose significantly.
“One factor supporting the rise in IKI in the Agro Industry sector is that economic activity has returned to normal after the pandemic. Food and beverage industry performance has started to improve, and business optimism is very good, especially with Ramadan approaching. The food and beverage industry has also begun receiving orders related to the elections, as has the printing industry,” said the Director General of Agro Industry at Kemenperin, Putu Juli Ardika.
Putu said that although the wood and furniture industries are contracting, their IKI values rose. “Most are export products, dominated by destinations in America and Europe whose economic growth is slowing. As a result, importers are still taking a wait-and-see approach,” he explained.
This is consistent with IKI analysis showing 78% of companies said their new orders fell because of foreign orders and 37% because of domestic orders. In addition, raw material difficulties, especially increasingly scarce large timber and rattan, also hinder the development of this subsector.
“We are therefore encouraging diversification of furniture export destinations, including India, the Middle East, China and ASEAN. Alongside shifting export destinations, the Government is also boosting the domestic market by maximizing the use of domestic products for offices and schools,” Putu said.
In another sector, the Secretary of the Directorate General of Metal, Machinery, Transport Equipment and Electronics Industries, Yan Sibarang, explained that the contraction in the Repair and Installation of Machinery and Equipment subsector is closely related to few orders in the machinery subsector at the start of the year.
Meanwhile, for the textile, apparel and footwear subsectors, which contracted due to economic stagnation and inflation in major export partner countries, the Director of Textile, Leather and Footwear Industries, Adie Rochmanto Pandiangan, said his directorate is working to expand overseas markets by accelerating implementation of the IEU-CEPA agreement. Further coordination is also under way with the Coordinating Ministry for Economic Affairs on illegal imports and stronger supervision of imported goods down to the smallest ports, drafting import restrictions (lartas) for TPT products, and proposing an additional article requiring businesses to display K3L and NPB registration numbers or SNI in their e-commerce listings for TPT and footwear products subject to Minister of Trade Regulation 26/2021.
“Kemenperin is also working to run the Machinery/Equipment Restructuring Program again in 2023 and to provide raw material incentives for the TPT industry,” Adie said.
Regarding other manufacturing subsectors that also contracted, the Director of Miscellaneous Industries and Chemical, Clothing and Craft SMIs, Ni Nyoman Ambareny, said Kemenperin is pursuing export market cooperation with ITPCs to expand into China, India and ASEAN, and conducting promotion at home and abroad.
She said other manufacturing produces downstream products such as jewelry, musical instruments, toys, and false hair and eyelashes, which depend on public purchasing power. Kemenperin is therefore supporting exhibitions to stimulate purchases. For jewelry, purchasing power is currently declining due to rising gold prices. “For industries facing large import surges, such as toys, Kemenperin is promoting mandatory SNI,” Ambar explained.
Source: Press Release of the Ministry of Industry of the Republic of Indonesia