94627 THE WORLD BANK I BANK DUNIA Investing in Indonesia Institutions for Inclusive and Sustainable Development 3t 6 1011 1131,10 iT glilrpipp! I ! i 1 l '1 4-, F ..TE COM TItIVENESS TO NCREASE 5TMJ\/ NT, TR E AND GOODOBS iIndonesia has made limited progress in of inefficiencies in inter-island trade. increasing exports in manufactured and Examples of high intra-island logistics processed products. Indonesian producers costs include severe road congestion have raised concerns about their ability to on Java, especially in the greater Jakarta compete against low-cost producers, both area, together with the poor road oat home and in foreign markets Declining quality outside Java, both of which make growth in manufacturing and a shrinking trucking costs higher in Indonesia than ushare of manufacturing sector exports the average for Asia. Finally, the poor have also raised questions concerning performance of Indonesia's main ports the competitiveness of Indonesia's in Jakarta and Surabaya, due to low manufacturing sector. port productivity and the only partial One area that undermines trade implementation of the National Single This has given Indonesia a unique by making Indonesian products less Window (NSW), reduce international opportunity in the wake of the crisis to competitive than foreign imports is the connectivity. increase both its global market share country's low levels of connectivity that The high cost and uncertainty of and domestic sales. In order to seize are a consequence of its poor logistics domestic transportation channels also this opportunity fully, Indonesia needs system. Connectivity is an issue that prevent Indonesia from being more to push ahead with trade reforms and poses different challenges depending on integrated into just-in-time production avoid protectionism that would stifle whether the bottlenecks are affecting networks of higher value-added products. efficiency and innovation. Together with international, inter-island or intra-island Licensing and govern ment-regu lated Indonesia, by late 2010 only China and trade. The high cost of transporting pricing reduce incentives to invest in Hong Kong had succeeded in bringing high quality goods such as shrimp from better services and restrict competition their international trade back to their eastern Indonesia to processing centers between domestic land and sea freight respective absolute pre-global financial in Java makes them too expensive to companies. Restrictions on foreign crisis values. .export, or similarly it is cheaper to import investment in logistics only worsen the However, despite the rapid growth in oranges from China than ship them from situation by restricting access to new exports of resource-based commodities, Kalimantan to Java. These are examples technology. While Indonesia has made progress in raising port and customs efficiency levels, tfurther improvements are still needed. The average import container dwell time in the main container terminal is five days compared with less than three days in major regional ports. Imports of empty containers clear in less than half the time needed for full containers, showing that most of the delay is caused by border control and inspection procedures as opposed to inadequate infrastructure. Burdensome and unclear administrative procedures contribute to import delays a and invite corruption, undermining the competitiveness of industries that use imported components. Also, although Indonesia has a very open economy in terms of tariffs, its non-tariff barriers (NTBs) remain significant and there has been a worrying increase in NTBs recently. Key Issues Going forward, an aggressive push on trade 1. Create a Regulatory Reform reform designed to achieve higher growth Commission. International experience would help to increase employment suggests that a coordinated top-down opportunities in higher-value industries, approach based on a strong legal while also increasing international and foundation is oftenthe only way to leadership will be needed to push the domestic trade. A number of ongoing overcome bureaucratic resistance core agencies to change their back- efforts are designed to streamline and to reform. The Government could office procedures and cooperate in simplify trade-related procedures, but consider forming a Regulatory Reform simplifying trade systems. require a greater effort to yield results. Commission. Such a commission 3. Promote innovation and export For example, despite the recent creation could be composed of teams focusing diversification. Indonesia should of a single window for trade (NSW) to on different topics, such as a future consider promoting public-private replace a manual system with an online possible connectivity council. R&D partnerships for new product system, traders are still required to visit 2. Push ahead with the National development and align fiscal each agency individually. Also, electronic Single Window (NSW). Eliminate the incentives for the private sector to systems appear to have been added on top requirement to submit paper copies move into downstream processes. of existing manual systems resulting in of trade documents and create a Other practical action would be to double submissions and double checking. functioning NSW as agreed with support the efforts of the Export High-priority action is required in the ASEAN, using a single administrative Import Financing Agency (LPEI) and following areas. document, single submission, single related agencies to develop financing and synchronous processing and and guarantee instruments to support single approval. If such a NSW is exports of new products or exports to to achieve its full potential, strong new markets. overome ureucraic esisanc torfr. h oenmn ol consderformng Reg atry Rfor '11 The Wonld Bank s working wit 1 Advising on be rpactice in settinc up the Coordinating Ministry for Economic institutions and processing regulatory Affairs (MEA), the Ministry ofTrade and refor in trade fa.cilitation. the Indonesian Chamber of Comrrerce 2. Tr~aining in risk management for and Industry (Kadin) to facilitate trade in governmnt agcndesparticipating in to, out of, and inside Indonesia. The World the NSW. Bank is supporting the Government to 3. Strengthening institutional capacity of improve connectivity and also enhance the Ministry of Trade to take informed the policy formulation process and policy decisions. support trade facilitation measures, such 4. Supporting the Ministry of Trade to as the Indonesia National Single Window build capacity to better understand and the development of a National the nature and impact of Non-Tariff Logistics Blueprint. Its advisory work on Barriers (NTBs). trade includes the following: 5. Strengthening the capacity of public institutions and private sector organizations to conduct dialogues on services and connectivity. ~4 Investing in Indonesia Institutions Indonesia Stock Exchange Building Tower 2,12th floor for Inclusive and Sustainable Development Jalan Jenderal Sudirman Kay. 52-53, Jakarta 12190, Indonesia p h. +62 21 5299 3000 1 f ax. +62 21 5299 3111 http://www.worldbank.org/id