Labor absorption in Indonesia is getting weaker by year. (Image via Indoforwarding)

Investment in Indonesia no longer labor-absorbent

According to the Investment Coordinating Board (BKPM), investment's labor absorption in Indonesia is no longer strong enough to absorb more workforce. It is due to the shift from manufacturing to service.

From the data compiled by BKPM, the realization of domestic investment (PMDN) and foreign investment (PMA) in the manufacturing sector for January – September 2019 only reached Rp147.3 trillion. The amount fell 33.7 percent compared to the amount in the same period in 2018, at Rp222.3 trillion.

But, the realization amount was not the only thing that fell short. The labor absorption from the realization of investment also fell simultaneously. During January – September 2019, labor absorption reached 703,300 people. The amount fell by 0.2 percent compared to the number in the same period in 2018, at around 704,800 people.

Indonesian economists explained that the shift from the secondary sector was because the sector did not yield any incentive for the investors. Instead, they reaped storms. For some investors, manufacturing a product in Indonesia costs more than in other countries.

One of the causes was labor absorption. The manufacturing sector is labor-intensive, yet the labor absorption fell.

The other reason was that the manufacturing sector was buffeted by other tertiary, digital sectors such as financial technology (fin-tech), e-commerce, online ride-hailing services, and more. These digital sectors grew more than two-digit, even more than national economic growth stuck at 5 percent, thanks to its popularity among the Indonesian people.

The slump in investment’s labor absorption renders it non-optimal to support the national economy. Some economists blamed the absence of government programs to encourage manufacturing, export, and improvement of human resource’s quality.

Since 2012, Indonesia’s economic growth decreased from 6.5 percent to stagnant at 5 percent due to its lame export performance. Even until the change of President from Susilo Bambang Yudhoyono, generally known as “SBY”, to Joko Widodo, generally known as Jokowi, the problem persisted.

They pointed out that structural adjustment is what Indonesia needs, just like in the 1980s. The economists worried if Jokowi still maintains the same pattern, Indonesia’s export performance will be left behind by other neighboring countries.