Ministry of Industry

Indonesia’s Fourth
Industrial Revolution

Making
Indonesia
4.0

2018
 Making
Indonesia

Agenda

1 Background

2 “Making Indonesia 4.0” Aspirations

3 Five Focus Sectors for “Making Indonesia 4.0”

4 10 National Priorities for “Making Indonesia 4.0”

5 Economic Benefit and Job Creations

6 Next Steps

2
 Making
Indonesia

Background

3
 Making
Indonesia

Indonesia has successfully built economic virtuous cycle,

bringing Indonesia to one of the global leading economies
Economic Cycle Improvement Global GDP ranking1
(Nominal)
Labor Total Earnings Consumer Spending
Household expenditure
1 USA
The world # 4 working
population and added ~30 contributes 55% of GDP which China
Million workers in 15yrs.
2
expanded by x8 in 15yrs
Wages surged to x2 in 10 yrs1
3 Japan
Economic
Virtuous
Cycle
4 Germany
:
Investment Corporate Activities
Indonesia
Gross capital formation Market capitalization of 16
increased by x13 (from 22% Indonesia Stock Exchange in 2016
to 34% of GDP) in 15 yrs became USD 500 Bn,
increased to x15 in 15yrs
:
Social Foundation
Political Education Indonesia
Safety 27
Stability level in 2000

1. Based on data from ILO, average Indonesian’s earnings increased by 115% between the period 2004-2015
Source: World Bank, IMF, A.T. Kearney 4
 Making
Indonesia

Indonesia has an aspiration to be global top 10 economy by

2030; next growth engine must be net export
Factors contributing to Indonesia’s GDP growth
(Index: 2000 = 1) Global GDP ranking1
(Nominal)
Growth
GDP in 2000 1.0 Contributions 1 USA

2 China
Consumer
4.3 +55%
Spending 3 Japan

Government 4 Germany
0.8 +10%
Expenditures :
Indonesia
+ Investment 2.8 +36% 10
in 2030

+ Net Export 0%
Next Growth
0.0 :
Driver
Indonesia
GDP in 2016 8.9 16
in 2016

1. Based on nominal GDP value in USD

Source: World Bank, A.T. Kearney 5
 Making
Indonesia

The next 15 years will be a “golden age” for Indonesia as it will

enjoy a demographic bonus peak

Demographic bonus Average GDP growth

During After
demographic demographic
1920 1970 2000 2030 2050 bonus bonus
Today
Demographic bonus

Japan 1930 5.5%1 0.9%

China 1970 9.2% 6.7%

Singapore 1970 7.3% 2.0%

Thailand 1970 5.8% 3.2%

Indonesia 1975 5.4% ?

1. Because of data availability, these data are only for 1961 to 1995
2. Note: A demographic bonus period is when the ratio of working population to dependent population is increasing, which has a high
correlation with a country’s economic growth. Average GDP growth for Indonesia is 1975 to 2016.
Source: World Bank, A.T. Kearney 6
 Making
Indonesia

Moving forward Indonesia needs to avoid the ‘economy vicious

cycle’ trap
x Backup in the following pages

Low productivity
2
Labor Capital
productivity productivity

Limited investment Low ability to earn money outside

1 3 4
Technology Human capital Infrastructure
Real Net export
FDI / Foreigner
Capital gain
spending
economy

Limited source of funding Less financial strength

Government Private sector Foreign direct
Financial Current account Government
economy Currency ratio balance
debt credit investment revenue

High capital cost

Debt cost Equity cost

Note: The real economy is the part of the economy that produces goods and services. The financial economy is focused on buying and
selling on the financial markets.
Source: A.T. Kearney 7
 Making
Indonesia

1 Indonesia spends less on technology than its global peers

Information and communications technology spending 1 Spending as % of GDP

(2016, $ thousand) Spending as $ per capita

4,000 7.0
3,900 6.6% 6.5
3,800 6.0
3,700 5.5
3,600
3,513 4.6% 4.5% 5.0
3,500
4.5
3,400
4.0
1,900
1,807 3.5
1,800
1,700 3.0
2.4%
2.2% 2.5
500
424 2.0
400 1.4% 1.3%
300 1.5
200 148 1.0
116
100 45 38 0.5
0 0.0
Productivity per
person employed2 133 78 62 30 28 25 16
Singapore Japan Malaysia Thailand China Indonesia India
1. Gartner "Forecast: Enterprise IT Spending by Vertical Industry Market, Worldwide, 2012-2018, 4Q14 Update“.
2. The Conference Board “Output, Labor and Labor Productivity, 1950-2017”
Sources: Gartner, The Conference Board, A.T. Kearney 8
 Making
Indonesia

Labor productivity per cost is flattening, weakening

2
Indonesia’s position in the global competition
Comparative Growth in Labor Cost and Productivity1

Labor Productivity Comparison Labor Cost Comparison Productivity/Cost Comparison

280 200 2.2

2.0
260
180 1.8
240 China
1.6
220 160
1.4
-46%
200 1.2
India 140
180 1.0

+62% 0.8 -6%

160 120
0.6
140 Indonesia’s productivity
100 0.4 improvement is slower than
120
labor cost increase
Indonesia 0.2

100 80 0.0
2006 2008 2010 2012 2014 2016 2006 2008 2010 2012 2014 2016 2006 2008 2010 2012 2014 2016

1. Unit labor cost and productivity rebased to 2005

Source: Total Economy Database “Output, Labor and Labor Productivity, 1950-2017”, Economist Intelligence Unit 9
 Making
Indonesia

Indonesia is showing the lowest trade flow in ASEAN while

3
shrinking net export
ASEAN countries’ trade size Export and import trends
(2016; % of GDP) (% of GDP)
Simple average: 118%
30.5 -9.7
41.0 19.1 18.3
Singapore 318 10.5
Indonesia 0.8
Vietnam 185

Malaysia 128
189.2 176.9 172.1 146.3 +13.6
Cambodia 127 Singapore 25.8
12.3
Thailand 123

Brunei 83 56.5 54.2 +6.4

64.8 68.9
Laos 68 Thailand 8.3 14.7

Philippines 65

Myanmar 43 50.0 53.3 93.6 91.1 +5.8

Vietnam
Indonesia 37 -3.3 2.5
Export Import Net Export Import Net
Note: ASEAN is the Association of Southeast Asian Nations. 2000 2016
Sources: World Bank, A.T. Kearney 10
 Making
Indonesia

4 Foreign investments into Indonesia show stagnation

Indonesia FDI

40 5.0

FDI (% of GDP)
35
FDI ($ billion) 4.5

30 28.6 28.5 29.3 29.0

25
24.6 4.0

20
19.5 3.4%
16.2 3.1% 3.2%
3.1%
15
3.0

10
2.7%

5
2.2% 2.2%
0 2.0
2010 2011 2012 2013 2014 2015 2016

Note: FDI is foreign direct investment.

Sources: Indonesia Investment Coordinating Board, World Bank, A.T. Kearney 11
 Making
Indonesia

Indonesia’s economy is expected to shift towards services while

manufacturing sector is relatively weakening
As a base case, manufacturing
Indonesia GDP1
by Sector: Historical & Forecast GDP contribution is expected
to decline
(% contribution)
Resource Manufacturing Services
Percentage Sector GDP
Driven Driven Driven
point change CAGR
(2015–2030) (2015–2030)
Total ($ billion) 78.9 180 861 3,254
10.5 -4 pp 7.2%
Agriculture / fishery 14.5 14.1
22.1 7.2 -2 pp 7.5%
12.5 9.2
16.3 -5 pp 7.2%
Mining & utlities 23.0 21.7
25.2 10.2 +1 pp 9.6%
Manufacturing 12.4 9.8 +1 pp 9.8%
5.0 18.3
Construction 4.8
17.0
19.7 10.0 +1 pp 10.1%
Trade, Retail & Hospitality 18.6
8.9
5.4
Transport, Storage and Communications 5.0
27.5 +8 pp 11.9%
Other services 14.1 17.8 19.3

Services 1980 2000 2015 2030E

(Base case)
GDP1 / capita (USD) 522 842 3,366 11,228

1. Nominal GDP
Sources: World Bank, Reserve Bank of Australia, United Nations, Economist Intelligence Unit, Indonesia’s Central Bureau of Statistics, A.T. Kearney 12
 Making
Indonesia

Indonesia needs to create more jobs; Reviving manufacturing

sector is imperative for Indonesia

Being the top 5 country with the highest … Indonesia needs to revive manufacturing
working-age population increase by 2030… sector to absorb growing labor supply

Working-age population increase Indonesia’s working-age population

(2016-2030; Million people) (Million people)

1 India 154
2 Nigeria 49 +30 million
3 Pakistan 39
working age 202
4 Ethiopia 28 28
5 Indonesia 28

10 Philippines 15
174

17 Brazil 9

39 United
States 5
2016 Addition 2030E

Source: World Bank, Badan Pusat Statistik, A.T. Kearney 13

 Making
Indonesia

Industry 4.0 initiative is the global trend in the manufacturing

industry
End of Beginning of Beginning of Today
18th century 20th century the seventies

Ubiquitous connectivity of people,

machines and real time data

First programmable logic

Industry 4.0
controller (PLC) Cyber-physical systems
Modicon 084 - 1969

First production line,

Industry 3.0
slaughter- houses in Use of electronics and IT to further automate the production
Cincinnati - 1870

Industry 2.0
First mechanical Introduction of mass production based on the division of labor
loom - 1784

Industry 1.0
Introduction of mechanical production facilities using water and steam power

14
 Making
Indonesia

Five technologies will be the key technologies for Industry 4.0

5 Key Technologies of 4IR

3 Wearable 4 Advanced 5 3D Printing

(AR / VR) Robotics
Physical
Layer

Connectivity IoT
2
Layer (Internet of Things)

Logical 1 AI
Layer (Artificial Intelligence)

Note: Detailed explanation of the technologies can be found in the baselining workshop document
Source: A.T. Kearney 15
 Making
Indonesia

Industry 4.0 can be a game changer for Indonesia’s economic

growth
Factors contributing to Indonesia’s Impact of Industry 4.0
GDP growth (Index: 2000 = 1) Direct impact
Growth Indirect impact
GDP in 2000 1.0 Contributions

Consumer
4.3 +55%
Industry 4.0 Revive
Spending Production
Sector
Government
Expenditures 0.8 +10% Build
Robust Regain
Economy Better Net
labor Exporter
+ Investment 2.8 +36% market Position
Enhance
Investment Improve
+ Net Export 0.0 0%
Enhance Country
Government Financial
Next Growth Strength
Spending
GDP in 2016 8.9 Driver
1. Based on nominal GDP value in USD
Source: World Bank, A.T. Kearney 16
 Making
Indonesia

“Making Indonesia
4.0” Aspirations

17
 Making
Indonesia

Industry 4.0 can revive the Indonesian manufacturing sector;

Indonesia should launch “Making Indonesia 4.0” initiative
Making Indonesia 4.0 Aspirations

Making
Global Top 10 Economy by 2030
Indonesia
4.0
10% Net Export
contribution to Regain net export position (the same level as 2000)
GDP

2x current1
Enhance output while managing cost (Similar improvement
productivity-to-
speed to India)
cost

2% of R&D
spending share to Build local innovation capabilities (Similar level to China2)
GDP
1. Based on 2016
2. Indonesia’s R&D spending per GDP is currently around 0.1-0.3%
Source: World Bank, A.T. Kearney 18
 Making
Indonesia

10% Net Export: “Making Indonesia 4.0” will help Indonesia

enhance its competitiveness in export market
Aspiration in net exports
Net exports benchmarking – ASEAN Net exports to GDP target for Indonesia
(2016) (2016 & 2030; %)
Net exports share to GDP Net exports share to GDP
(%) (%)
Indonesia can target …or aspire to reach
25.9% average of MY and VN’s same peak net exports
current benchmarks… ratio from 2000

~6x ~13x
10+%
14.7% 13x
10.5% Net export
8.7% Net import 5+%
6.4%

2.6%
0.8% KH 0.8%
PH LA MM

2016 2030 - 2030 -

SG TH ID BN MY VN ID -4.4% Moderate Aspirational
Mfg.
20001 contribution 30% 60% 65+%
-9.0% -9.8% to net
-10.0% exports
1. Indonesia in year 2000
Source: EIU, IMF, WITS, World Bank, A.T. Kearney 19
 Making
Indonesia

2x productivity-to-cost: Implementing 4IR technologies will

help improve Indonesia’s productivity level
Aspiration in productivity
Productivity benchmarking – Select Productivity target for
Asian countries (2016) Indonesia (2016 & 2030)
Labor productivity/ cost CAGR Labor productivity/ cost
(Index; 2009=100) ’09-’16 (Index; 2016=100)

1.5
Indonesia can target to …or aspire to
India
5% improve productivity cost at improve at
1.4 same pace as MY’s current India’s pace (5%
China 4% benchmark… CAGR)
1.3 Japan 4%
1.2 Malaysia 3% ~1.5x ~2x
Vietnam 1%
1.1
Thailand 1% 2.00
1.0
Indonesia -1% 1.50
0.9

0.8
1.00
0.7

0.6

0.5

0.4
2008 2010 2012 2014 2016 2016 2030 - 2030 -
Cost on USD basis for global comparison Moderate Aspirational
1. G20 countries excluding Saudi Arabia
Source: EIU, IMF, World Bank, UNESCO, A.T. Kearney 20
 Making
Indonesia

2% of R&D spending: The economic growth will be stimulated

by more innovation
Aspiration in R&D
R&D spending benchmarking – World R&D spending target for Indonesia
Top 40 countries (2016, %) (2016 & 2030, %)
ASEAN
R&D share to GDP Others R&D share to GDP
(%) (%) …or aspire to target
China’s R&D spend and
xx Rank based on $ of R&D spending Indonesia can target MY’s accelerate progress to Visi
current R&D benchmark… 2045’s R&D target
4.0%
3.4%
~4x ~7x
2.6%
2.0
2.0%

1.1% 1.1
0.6%
0.3%
0.3
JP SG CH MY TH

S. Korea Japan Singapore China Malaysia Thailand Indonesia

2016 2030 - 2030 -
1 3 20 2 28 NA 37 Moderate Aspirational

Source: Industrial Research Institute, R&D Magazine, EIU, A.T. Kearney 21

 Making
Indonesia

Five Focus Sectors

for “Making
Indonesia 4.0” Food &
Beverage

Textile &
Chemical
Beverage

Electronics Automotive

22
 Making
Indonesia

In line with Indonesia’s aspiration, sector prioritization focuses

on growth driven by net export
Implications of Indonesian economy / industry environment for 4IR

Aspiration statement Sector selection criteria

Top 10 By value contribution &

global trade potential
economy What are the key industry Industry size
Double- engines for output and
digit trade? Net export potential
net
exports
of GDP
What is the readiness level &
potential disruption for our Feasibility of adoption
…by industries?
2030 By ease of implementation

1. Gross Capital Formation

Source: The World Bank; A.T. Kearney 23
 Making
Indonesia

We evaluated 16 industries against 10 key criteria covering

impact and attractiveness, as well as feasibility of 4IR success
Prioritization approach xx Overall criteria weight

Industries in scope Sector Scorecard

(n = 16)
Impact & Attractiveness (50%)
Pharmaceutical Feasibility (50%)
Basic Metal and Traditional
Medicines Current (25%) Net Exp. Potential (25%)
Electronics,
Tobacco 7
Optics & Elect. 4
Processing 1 8.3% 12.5%
Appliances
Required Investment
Coal, Oil & Gas Domestic Market [Sectorial Capex to Sales]
Chemical GDP Contribution
Refinery Growth Rate
8
Rubber & 12.5%
Metal Goods
Plastic Goods 12.5%
Control point
2 8.3% [# of large companies by value in
5 sector]
Transport
Wood & GDP Output
Equipment –
Furniture Multiplier1 (sector Indonesia Export
Auto Growth Rate
leverage to drive 9 12.5%
Industrial Penetration speed
Machinery & Paper-Related economy growth) [Large companies share of
Equipment Products
employees]
Food & Textile, Apparel 3 6 Input Multiplier 8.3%
& Leather 12.5%
10
Beverage
Goods Effect3 (sector Structural advantage 12.5%
Trade Size2 criticality for other [e.g. logistics, utility reliance;
Jewelry & Non-Metal production)
Valuable Goods upstream friction]
Goods

1. Output multiplier covers the impact of an increase in final demand in one sector, on resulting output from other sectors (e.g. Ratio shows additional value in other sectors, resulting from
incremental USD in specific demand sector)
2. Gross Export + Gross Import
3. Input multiplier considers criticality of sector for other sectors – e.g. Basic Metals input heavily to Metal Goods, Auto, Electronics
Source: A.T. Kearney 24
 Making
Indonesia

5 sectors were selected for “Making Indonesia 4.0”

Sector Prioritization Matrix

High
Top 5 Sectors

Food &
Food & Beverage
Beverage

Chemical Textile & ~60%

Apparel mfg. GDP
Electronics, etc.
Textile, Apparel
Impact Industrial
Metal Goods Machinery ~65% mfg.
Wood & Furniture Automotive exports
Basic Metal Non-Metal Goods Indust. Trans.
Paper Industry Eqpt. (Auto)
~60% mfg.
Pharmaceutical workers
Tobacco Rubber & Electronics
Process. Plastic Goods
Coal, Oil & Gas
Refinery Jewelry &
Valuable Goods Chemical
Low
Low High
Source: A.T. Kearney, World Bank, BPS Feasibility 25
 Making
Indonesia
Path to Food & Beverage 4.0 needs to involve revamping of
upstream sector and enhancement of manufacturing sector
Opportunities
• Largest domestic market in the region
– 30% of ASEAN total
• Abundant agricultural resources
– Global #5 in total agriculture production volume1
• Consumer shift to modern packaged food
• Existence of globally competitive players
– e.g. Indofood, Mayora
Challenges
• Highly fragmented industry
– 80% of labor force in SMEs
• Limited technology adoption in SME segment
• Poor productivity in Upstream (agriculture)
• Underdeveloped cold-chain infrastructure
• Rising food safety issues
1. 2014
Source: A.T. Kearney
Path to Food & Beverages 4.0
Improve upstream agri-sector productivities by
1
technologies e.g. yield mgmt. (IoT/ Big Data)
Empower SME segment by funding and
2
technology support e.g. technology bank, eCommerce
3
Improve supply chain efficiencies e.g. build better
cold chain network
4
Enhance modern packaged food productions by
product innovations e.g. incentivize R&D
5
Scale up the industry by leveraging domestic
large demand (build economies of scale)
Accelerate export and be the regional #1 F&B
6
production powerhouse
26
 Making
Indonesia

Textile should regain global competitiveness by enhancing

upstream capabilities and focus on functional clothing

Opportunities Path to Textile 4.0

• Highest consumption growth in ASEAN

– Projected at 9% ’16-’25 CAGR 1 Improve upstream capabilities locally i.e. low-cost
and high-quality chemical fibers / fabrics
• Growing opportunities in functional clothing
e.g. sports wears, functional underwear
• Largest domestic market in the region
2 Enhance productivity by adopting technologies
e.g. sensor-based waste control system, digital proto typing

Challenges
Build functional clothing design and production
• Limited access to raw inputs and high reliance 3 capabilities
on imports
• Increasing labor cost and higher energy costs
among the region Establish textile industrial clusters and promote
4
vertical integration i.e. better industry zoning
– Electricity cost is $10cent/kwh in Indonesia vs.
$7cent/kwh in Vietnam and $6cent/kwh Bangladesh
– Labor wage is expected to rise at +9.5% p.a. until 2020 Scale up and leverage economies of scale to be
5
• Fragmented domestic players with many competitive in the global market
SMEs
Source: A.T. Kearney 27
 Making
Indonesia

Automotive should build regional auto export hub by enhancing

local ecosystem and preparing for EV era

Opportunities Path to Automotive 4.0

• Shift from 2W to 4W transportation

• 2nd largest ASEAN production capacity
• Largest domestic market in the region
• Industry shift to EV
Challenges
1 Enhance raw material and key component
productions i.e. steels, plastics, electronics components
2 Improve productivity by adopting technology and
building infrastructures e.g. industry zones

• Heavy reliance on imports for raw materials

and key components
– 90% steel and 50% plastics imported
– Local manufacturers largely in low-value add
components
• High labor cost and low productivity
– Labor cost outpacing sales: 21% in Cikarang-Karawang
vs. 1-3 % in Bangkok from 2012 to 2017
– Labor productivity: $25.6k per person vs. $30.6k in
Thailand in ’16)
• Higher logistics costs and dwell time
Source: A.T. Kearney
Align with global OEMs to boost export for
3
specific vehicle types i.e. MPVs, SUVs
4
Cultivate EV production capabilities starting with
e-motor cycle e.g. small size battery production
5
Build EV industry ecosystem e.g. battery production
for cars, EV assembly, charging station
28
 Making
Indonesia

Electronics sector needs to transform from low-tech assembly

to high-tech high-value component manufacturing

Opportunities Path to Electronics 4.0

• Largest domestic market in the region

1
Attract top global manufacturers i.e. target top 100
• Electronics products are key inputs for manufactures and offer more attractive incentives
multiple sectors under the 4IR era

Challenges Build advanced manufacturing capabilities

• Heavy reliance on imports for key
components e.g. electronics components,
semiconductor, advanced ceramics
• Low design/ development capability
– Limited number of engineers and R&D investments
• Increasing labor cost
• High logistics and utility costs
• Lack of domestic champion; fragmented and
inefficient domestic players
• Imbalanced tariff structure; high duty for
components while no tariff for finished goods from other
ASEAN countries
Source: A.T. Kearney
2
beyond assembly i.e. smartphone comp., batteries for EV
Nurture skilled labor force e.g. vocational school
3
upgrade, foreign talent mobility program
Enhance innovation capabilities locally e.g. build
4
national R&D center, incentivize R&D in private sector
5
Cultivate domestic champions e.g. export support via
trade agreement, technology transfer from global players
29
 Making
Indonesia

Chemical sector should be transformed from import dependent

to bio specialty chemical production hub

Opportunities Path to Chemicals 4.0

• Abundant agricultural resources

1
Enhance domestic petrochemical capacity and
– Global #5 in total agriculture production volume reduce reliance on imports
• Largest domestic market in the region

Optimize industrial zones to leverage domestic

Challenges
• Limited domestic production capacity
even for basic chemicals e.g. ~50% of ethylene
and polyethylene are still being imported
• High dependence on raw material imports
i.e. >90% of naphtha is imported, limited domestic
natural gas usage for petrochemicals
• Suboptimal industrial zoning for chemical
plants i.e. domestic energy supply vs. chemical
plant
• Limited engineering and R&D capabilities;
the industry is still under the basic chemical stage
2
natural gas and oil resources
Improve productivity by adopting 4IR
3
technologies e.g. Asset mgmt., Resource mgmt.
4 Accelerate R&D activities to establish next-
generation biofuel and bioplastic capabilities
5 Build an export position by leveraging economies
of scale

Source: A.T. Kearney 30

 Making
Indonesia

10 National Priorities
for “Making
Indonesia 4.0”

31
 Making
Indonesia

Indonesia can leverage several drivers of competitiveness to

build robust industry sectors
Indonesia’s Drivers of Competitiveness

Abundant Working Population

Strong Domestic Demand

“Making Indonesia 4.0” Stable Economic Growth

Largest Economy in ASEAN

Resource-Rich Country

Source: A.T. Kearney 32

 Making
Indonesia

All industry sectors in Indonesia are facing 10 common issues

10 Key Challenges Across the Industries (1/2)

Underdeveloped • Raw materials and critical parts are highly import
dependent e.g.
Up-midstream
Industry
1 – >50% of petrochemicals, 74% of basic metals
– All the critical parts for electronics and automotive

Underleveraged • Absence of comprehensive industry zoning plan e.g.

oil gas vs. petrochemicals
Geographical
Potential
2 • Underdeveloped and underutilized economic zones
e.g. Batam, Karawang, Bekasi and Central Java
• Sustainability trends are no longer only for
Inevitable Global developed economies
Sustainability
Trends
3 – Exports need to meet requirements e.g. EUROx
– Shift to business opportunities e.g. solar, biomaterials

• 62% of workers in Indonesia are working at small or

Left-Behind SMEs 4 micro enterprises with low productivities

• Digital platforms are still underdeveloped

Must-Have Digital – Mobile: currently adopting 4G (not ready for 5G)
Infrastructure 5 – Fiber: average speed is <10Mbps (not 1Gbps)
– Cloud: limited cloud infrastructures
Source: IHS Markit, BPS, Desk Research, A.T. Kearney 33
 Making
Indonesia

All industry sectors in Indonesia are facing 10 common issues

10 Key Challenges Across the Industries (2/2)

Limitation of • Recently, FDI inflow to Indonesia is flattening (0%
growth during ’13-’16) although Indonesia is suffering
Domestic Funding
and Technologies
6 from limited source of funding and access to new
technologies

Abundant but • Indonesia has 4th largest working population in the

under trained
people
7 world, however, very limited trained talents; e.g.
government education spending is only $114 per capita

Absence of • Very limited R&D spending as a country; only 0.1-0.3

% of GDP
Innovation
Centers
8 • No strong government led R&D/innovation centers
as well as private sector’s

Inertia to stay in • Currently no comprehensive incentives for 4th

status quo 9 Industrial Revolution technology adoption e.g. tax
exemptions, subsidies, funding support etc.

Regulation & • Overcomplicated regulations and policies, handled

by multiple organizations; e.g. upstream by MOE,
Policy
Roadblocks
10 midstream by MOI and trade by MOT, central
government vs. local government
Source: BKPM, Desk Research, A.T. Kearney 34
 Making
Indonesia

Indonesia has set 10 National Priorities for “Making Indonesia 4.0”

10 National Priorities
1 Reform Material Flow 6 Attract Foreign Investments
• Enhance domestic upstream material • Engage top global manufacturers with attractive
production; e.g. 50% of petrochemical is imported offer and accelerate technology transfer

2 Redesign Industrial Zones 7 Upgrade Human Capital

• Build a single nationwide industry zoning • Redesign education curriculum under 4IR era
roadmap; resolve zoning inconsistency challenges • Create professional talent mobility program

3 Embrace sustainability 8 Establish Innovation Ecosystem

• Grab opportunities under global sustainability • Enhance R&D centers by government, private
trend; e.g. EV, biofuel, renewables sector and universities

4 Empower SMEs 9 Incentivize Technology Investment

• Empower 3.7 million SMEs1 by technologies; e.g. • Introduce tax exemption/subsidies for technology
build SME e-commerce, technology bank adoption and support funding

5 Build Nationwide Digital Infrastructure 10 Reoptimize Regulations & Policies

• Advance network and digital platform; e.g. 4G to • Build more coherent policies/regulations by
5G, Fiber speed 1Gbps, Data center and Cloud cross-ministry collaborations
1. Including micro enterprises
Source: Ministry of Industry, A.T. Kearney 35
 Making
Indonesia

10 Key National Priorities for “Making Indonesia 4.0” (1/5)

1 Reform
material flow
• Indonesia still relies on import for raw F&B
material and high-value components Auto
Textile
• Enhance domestic supply for basic Electronics
Chemicals
materials Oil & Gas / Power
• Build capabilities for high value Infrastructure
component manufacturing •There is a large

Industrial Raw
Materials –
High-value
components
potential for
improvement in
nationwide industrial
2
Petrochemical, Basic (electronics zoning
Metals components etc.) Redesign
•Start new zoning from
the priority sector, Industrial
and build connectivity zones
between industrial
Source: A.T. Kearney
zones 36
 Making
Indonesia

10 Key National Priorities for “Making Indonesia 4.0” (2/5)

3 Accommodate 2017 2035

Sustainability Plan Low Carbon Emission Vehicle

Electric and fuel cell motorcycles

• There is sustainability challenge
through the improvement in Euro EV and their components
emission standard and Biofuel- and gas-powered vehicles
recent palm oil ban
• Identify green growth opportunities Increase min. biofuel content in gasoline
and promote conducive environment Encourage bioplastic uses
for green investment
Micro

4 70%
Large
Nearly Build nationwide e-
32% of Indonesian commerce platform,
Empower 46% labor force works build technology
for micro, small banks, develop local
SMEs 5% and medium small business
16% Medium
enterprises foundations
Small in 2015
Source: A.T. Kearney 37
 Making
Indonesia

10 Key National Priorities for “Making Indonesia 4.0” (3/5)

Indonesia lacks key digital infrastructure to

5 Build nationwide
digital
infrastructure
implement “Making Indonesia 4.0”

Fiber 5G
Data
center/
• Accelerate national
Cloud
development in broadband speed and
digital capabilities
• Harmonize digital standards,
in line with global norms
6 Attract Foreign
Investments
• Engage in global top
manufacturers and offer
FDI inflow to Indonesia more attractive
has flattened out… incentives
29 29 29 29 • Initiate dialogues with
(USD Bn) 25 foreign governments
19 for nation level
16 collaborations
2010 2013 2016
Source: A.T. Kearney 38
 Making
Indonesia

10 Key National Priorities for “Making Indonesia 4.0” (4/5)

8
Indonesia is facing talent Establish innovation
development challenges
ecosystem
Tertiary school enrollment
2.1x
Indonesia lacks strong gov./private
78% 2.5x
R&D/innovation centers
24% 37% 27%
11%

2015 1990 2000 2005 2015

Optimize
Develop a
Govern- regulations

7 Upgrade human
capital
national
innovation
center
blueprint
ment
Develop Industries
Indonesian
• Reform education curriculums by R&D
adopting STEAM (Science, ecosystem
Technology, Engineering, Art and
Univer- Accelerate
Math) education sities
Initiate a cross-sector
• Upgrade vocational schools pilot project collaborations
• Leverage foreign talents
Source: A.T. Kearney 39
 Making
Indonesia

10 Key National Priorities for “Making Indonesia 4.0” (5/5)

Goods from Indonesia

9 Incentivize
innovation
Countries are aggressively
locally produced
product losing
High costs (energy,
labor, parts tariffs, …)
Indonesian market
competitiveness No tariff for finished
incentivizing technology adoption goods
• €400Mn funding for in cyber-physical
systems, IoT, and other 4IR tech research Goods produced in ASEAN
• Government subsidies for select industries,
esp. robotics and New Energy Vehicles
• Government commitment of SGD 3.2 Bn Indonesia needs to simplify Need tighter
policies by coordinating coordination
over 2016-2020
across ministries
Indonesia will need to commit to
incentives across industries
Tax
Subsidies
Funding
10 Reoptimize
Industry
incentives support Regulations
• Tax holiday • Govt. • Guarantees &
• (Import) Tax assistance • Capital
reduction • Grants injection Policies
Source: A.T. Kearney 40
 Making
Indonesia

Economic Benefit
and Job Creations

41
 Making
Indonesia

“Making Indonesia 4.0” can create massive uplift in overall

GDP, manufacturing contribution & employment opportunity
Estimated Benefits1 of “Making Indonesia 4.0” Implementation

Manufacturing GDP
GDP Growth Job Creation
Contribution

+1-2% p.a. ~10 Million3 >20% of

incremental GDP additional
growth from employment manufacturing GDP
baseline in 2018- opportunity from contribution by
2030 baseline by 2030 2030

•Improve real GDP growth •Increase new employment •Boost manufacturing

from ~5%2 to 6~7% YoY from +20 mn to >30 mn contribution to GDP from
between 2018-2030 additional jobs by 2030 ~16%2 to >20% by 2030

1. Benefits are estimated based on the incremental difference between the aspirational case and the base case in A.T. Kearney economic models
2. In the base case, real GDP growth is estimated at ~5% YoY between 2018-2030, additional jobs created is estimated at ~22 million by 2030 and manufacturing contribution is estimated
at ~16% of total Indonesian GDP in 2030
3. Industry 4.0 implementation can absorb 30~50% of the 30 million additional working age population by 2030; The rest of the workforce are already absorbed in the base case scenario
Source: World Bank, Badan Pusat Statistik, Ministry of Industry, A.T. Kearney 42
 Making
Indonesia

GDP Growth: Indonesia can incrementally increase annual real

GDP growth by 1-2% in period of 2018-2030
Indonesia’s real GDP projection in 2018-20301
(IDR K Tn) CAGR
(‘18-30)
23.0

Aspiration ~7%
increment
5.0 ~6%
19.2 Accelerated
2.2 increment

4.9
2.4
13.2 ~5%
1.3 18.0 Baseline
0.8

10.0 14.3
11.9
Making
Indonesia
4.0
2018 2022 2026 2030
1. Real GDP uses 2010 as a base year and assumes inflation of 4-6%
Source: BPS, Ministry of Industry, A.T. Kearney 43
 Making
Indonesia

Job Creation: “Making Indonesia 4.0” can create additional 7-

19 million additional jobs by 2030
Indonesia’s labor force estimation Labor increment in non-manufacturing sectors1
(Million workers) Labor increment in manufacturing sectors

Making
Indonesia 163
4.0 9
6 2
1
25 32 44

Through “Making Indonesia 4.0”, total job

creation by 2030 is 32-44 million, allowing
Indonesia to entirely absorb the additional
119 30 million working age population

2016 Baseline Accelerated Aspiration 2030

increment increment increment
1. Due to output multiplier effect, net export increase in manufacturing sectors leads to GDP increase in non-manufacturing sectors, resulting in the creation of new job opportunities in non-
manufacturing sectors
Source: BPS, Ministry of Industry, A.T. Kearney 44
 Making
Indonesia

Manufacturing GDP Contribution: Manufacturing sector’s

GDP contribution can increase by 5~10 percentage point
Indonesia GDP sector contribution forecast
(% proportion by sector; Total in IDR K Tn)
Making
Indonesia
4.0
Total = 12.0 53.4 60.1 68.5

Mining &
22.7 17.7 17.6 17.8
Agriculture

61.0 56.2
Services 56.0 66.0

+5pp +10pp
Manufacturing 21.3 21.4 26.1
16.3

2016 2030 2030 2030

Baseline
Accelerated Aspiration 45
Source: World Bank, UN Data, Economist Intelligence Unit, BPS, A.T. Kearney
 Making
Indonesia

Next Steps

46
 Making
Indonesia

2018 will be a critical year for “Making Indonesia 4.0”

implementation
“Making Indonesia 4.0” implementation roadmap

2018 1H 2018 2H 2019-2021 2022-2025 2026-2030

Establish 4IR 4IR committee to Semi-annual reviews

committees and endorse detail • Periodic review for initiatives
Overall taskforces horizontal initiative
– 10 horizontal design and 5 • Make cross-initiative decisions
– 5 verticals vertical roadmap

Design initiative
Appoint horizontal
details e.g.
Horizontal taskforce
• Implement the initiatives
program design,
initiatives members and
incentive design,
define governance
masterplan, etc.

Detail the industry

Appoint vertical
roadmap and
Vertical taskforce
• Implement the initiatives
develop key
initiatives members and
programs by
define governance
sector

Source: A.T. Kearney 47

 Making
Indonesia

“Making Indonesia 4.0” policy needs to be properly coordinated

with several stakeholders and policies
“Making Indonesia 4.0” implementation governance

President
Industry (4.0)
Committee New

or

5 Focus Sectors
10 National Priorities
Food & Textile &
1 2 3 4 5 6 7 8 9 10 Beverage Apparel
Automotive Electronics Chemical

Members
Government

MoI MoF MoManpower MoTrade MoInfocom National Planning MoResearch National R&D Agency

Industry1 Educational1

1. Illustrative. Not exhaustive and not representative of final stakeholder cohort.

Source: A.T. Kearney 48
 Making
Indonesia

“Making Indonesia 4.0” will trigger immediate actions with long

term aspirations by focus sector
Focus Sectors Aspiration Immediate Actions (Quick Wins)
1
Founding an R&D and
Food &
ASEAN F&B Tech CAPEX tax
Beverages
powerhouse Incentives exemption
for tech investment
2
Becoming a leading
Textile & Targeted
“functional”
Apparel roadshow;
clothing producer Investor
Roadshow focusing on specific
3 product/geography to
Establishing export attract large OEMs
Automotive leadership in ICE
and EV Up-skilling &
4
Vocational Re-skilling
Developing leading School for all sectors (select
Chemicals biochemical 1-2 first as pilot)
manufacturers
5 SME
Nurturing highly SME eCommerce &
Electronics capable domestic Supports Technology
champions Bank

Source: A.T. Kearney 49

 Making
Indonesia

APPENDIX

50
 Making
Indonesia

Indonesia has to improve its 4IR readiness

Country readiness
Country archetypes East Asia and the Pacific Latin America and the Caribbean South Asia
Country readiness score Eurasia Middle East and North Africa Sub-Sharan Africa
Europe North America

Drivers of
production
score (0-10) Singapore
Drivers of Production Rank 2
Structure of Production Rank 11
Malaysia
Indonesia Drivers of Production Rank 22
Structure of Production Rank 20
59 Drivers of Production Rank
38 Structure of Production
Rank
Viet Nam
Thailand
53 Drivers of Production Rank
48 Structure of Production Drivers of Production Rank 35
Rank Structure of Production Rank 12

Cambodia Philippines
91 Drivers of Production Rank Drivers of Production Rank 66
81 Structure of Production Structure of Production Rank 28
Rank

Structure of
production
score (0-10)

Note: Drivers of production shows potential to adopt the 4IR - consist of Demand factor, Technology & Innovation, Institutional Framework, Global Trade & Investment, Human Capital,
Sustainable Resources; while Structure of production shows the existing factors on the ability for 4IR – consists of scale and complexity of production
Source: A.T. Kearney, World Economic Forum 51
 Making
Indonesia

MoI should leverage the Law 3/2014 to establish National

Industrial Committee (KINAS) to bring this as national agenda
National Industrial Committee (KINAS) Existing regulation Proposed regulations

• Article 112 enables MoI to propose to the president on the formation

of KINAS
Law 3/2014 • KINAS’s main objective is to facilitate nation-wide, interagency, cross
stakeholders alignment in accelerating national industrial development
agenda

• Establishment of KINAS
Presidential Decree • Appointment of KINAS members : relevant ministers, head of
government agencies, head of industry association (KADIN, APINDO)
(Perpres) on National • Grant authority to KINAS to conduct alignment, program
Industrial Committee development, monitoring and evaluation of implementation at
national level

Decree of the head of • Establishment of “Making Indonesia 4.0” working group as

KINAS – “Making manifestation of mandate from presidential decree
• Cross functional – multi stakeholders representation
Indonesia 4.0” • Day to day execution of KINAS’ authority and mandate, specific to
working group national 4IR implementation

52
 Making
Indonesia

We have identified initial key members of KINAS and “Making

Indonesia 4.0” working group
National Industrial Committee (KINAS) functional model
President of the Republic of • National level direction
Indonesia • Strategic decision via presidential decree
• Sponsorship to drive implementation
• Strategic coordination
• Decision making on the alignment of programs,
budgets, policies related to the industry Minister of Industry as Head
• Provide recommendations and seek approval of KINAS
from the President

Members of KINAS: • Program tracking and

• Economy Coordinating Minister monitoring
• Energy and Mineral Resources Minister • Program reporting
• Finance Minister • Administrative
• Discuss alignment of programs, budget, KINAS
• Trade Minister supports to KINAS
policies related to national industrial agenda Secretariat
• Manpower Minister members and
• Provide recommendations to Head of KINAS and Program
• Public Work Minister working groups,
• Responsible to conduct alignment of programs, Management
• Home Affair Minister including legal
budgets, policies in their respective ministries Office
• Agriculture Minister drafting, preparation
and institutions • Fishery and Maritime Resources Minister of public information
• Education and Research Minister
• Information and Communication Minister
• Cooperative and SME Minister
• Head of Indonesia Investment Board
• Development of thinking, recommendations • Head of National Planning Agency • Provide special
specific to mandated tasks • Head of KADIN / APINDO expertise and
• Selected representatives of KINAS members capabilities to support
and other relevant stakeholders for the topics Experts Pool KINAS and working
(academia, research centers, and others) and/or groups (i.e. financing,
Working Groups – including “Making
• Support the ministries and agencies on the 4IR Working Group Groups and National Institutional technology,
Indonesia 4.0” Working
alignment of programs, budget and policies 4IR Working Group Partners education,
Industrial Resilience Working Group
related to topics management)
• Propose acceleration program, if required

Source: A.T. Kearney 53

 Making
Indonesia

MoI should target to launch the “Making Indonesia 4.0”

roadmap during the Indonesia’s Industry Summit 2018
Launch timeline (2018)
Public Launch
March June - July

Feb April - May August onwards

One on one meeting to get buy in with:

• President
Stakeholders awareness and

• Key ministries: Bappenas, BKPM, Trade, Kominfo, Finance

Targeted stakeholders forum to improve awareness and

communication

stakeholders support:
• Workshops with KADIN / APINDO “Making Indonesia 4.0” roadshows by KINAS:
• Industrial association workshops (targeted to 5 key priority • Workshops with related ministries and government agencies
sectors) (Bappenas, BKPM, Trade, Kominfo and Finance) on policy and
• Other ministries: Education, Manpower, Agriculture, Fisheries, program alignment
Energy
• Regular think thank forum: CSIS

Public communication to improve public awareness: Public communication to improve awareness and communicate
• Series of articles and roadshow on “Making Indonesia 4.0” in programs and progress:
national media (magazines, newspapers, government websites) • Articles in national and regional media, roadshows, and seminars

KINAS formation preparation:

Launch preparation

• Legal drafting of presidential decree and head of KINAS’ decisions

and content

– including members and working group nomination

• Discussion with Ministry of Finance on budget allocation for
KINAS KINAS
Functional KINAS
onboarding
Strategic initiatives and quick wins preparation:
• Identify quick wins and develop timetables
• Detail out strategic initiatives

Source: A.T. Kearney 54

 Making
Indonesia

Close alignment and clear governance is required to ensure

effective coordination between KINAS and functional ministries
Split of responsibilities KINAS working group and functional Example - MoI
ministries

KINAS MoI • Lead internal MoI

Working group
(“Making Indonesia 4.0”)
• Ministries’ representatives
(including MoI)
• Agencies’ representatives
• Other relevant parties – experts,
academia, institutional partners
coordination in relation
MoI’s representative in working to “Making Indonesia
group 4.0” and KINAS
agenda
MoI technical directorates • Issue policy,
regulations and
guidelines aligned with
Directorate General Agro KINAS agenda
Alignment, harmonization • Develop MoI’s program
of initiatives, programs, aligned with “Making
budgets Directorate General Chemical and Textile Indonesia 4.0”
roadmap and KINAS
Directorate General Metal, Electronics and agenda
• Liaise with industry
Transportation
players within sectors

MoI functional units

• Provide supports to
Planning R&D Legal technical directorates
bureau bureau bureau on program
development
Industrial
Education SME
zone
bureau directorate
directorate

Source: A.T. Kearney 55