Representatives of The World Bank conducted a General Discussion Forum (FGD) with business people who are members of the East Java Chamber of Commerce and Industry (Kadin) to explore real information about domestic economic conditions in the country, especially East Java.

Lead Economist of The World Bank, Habib Rab revealed that the World Bank is conducting a comprehensive study on long-term economic growth in Indonesia, including in the private sector including the manufacturing and services sectors. The study is also conducted on taxation in Indonesia.

To encourage a productive exchange of ideas and gain valuable insights from the private sector, the World Bank requested input from Kadin whether the study conducted was in line with reality or there were things that could be obtained as feedback to sharpen the analysis and data.

"And as expressed by Kadin Jatim, some of the points we have raised are indeed happening in the field. In essence, our analysis is already in the right direction," said Habib Rab, in a release from Kadin Jatim, Thursday (2/5/2024).

He emphasised that it is important to continue consulting the private sector so that the analysis is sharper so that the data does not only tell stories but also talks about the reality on the ground, how and what the business world is experiencing. "Not just numbers but we can know what is behind it," he said.

On this occasion, Habib Rab said that Indonesia's current condition is still quite good. The per capita income of the people has also shifted from middle income to upper middle income level, in contrast to India, Nigeria, the Philippines and Egypt where the per capita income is still at the middle income level.

However, Indonesia's annual Gross Domestic Product (GDP) growth continues to slow down. The growth of the manufacturing sector, which is the main contributor to the Indonesian economy, for example, when compared with various countries, its growth is quite slow, inferior to China, Mexico, Egypt, Nigeria, and even India.

According to The World Bank Senior Economist Alexandre Hugo Laure, this is partly due to the lack of research and development as well as the low adaptation of technology and innovation by large industries in Indonesia. "Research and development expenditure is low compared to peer countries," he said.

Spending on research and development by industries in Indonesia is only around 9%, far behind competitors. And only 5% of companies spend funds on research and development.

"Only a few companies introduce innovation, either product or process innovation. The adoption of technology and energy efficiency is also very small in Indonesia and only a few companies adopt environmentally friendly management practices," he said.

This condition is confirmed by Prof Tommy Kaihatu that the tendency of large companies in Indonesia is less interested in innovating because they feel they already have a large market with good growth.

"According to them, why do research and development. While the small ones, MSMEs, the performance improvement comes from innovation. But they do not have access to innovation because they do not have funds for R&D, do not have access to export markets, do not have access to funding and so on. Besides, the competence of the MSME workforce is small or low," he said.

Likewise with the application of technology, existing large companies are not interested in innovating because they are considered a waste of money. Meanwhile, small ones (MSMEs) cannot innovate because they do not have the resources, both sources of funds, human resource competencies and so on.

However, Prof Tommy Kaihatu continued, there are still opportunities for private sector development in East Java, especially in the fields of processing or manufacturing industry, trade, agriculture and agribusiness, tourism and infrastructure and construction.

"In addition to the opportunities mentioned above, there are also opportunities related to the development of domestic and export markets, as well as plans to implement downstream natural resources which will open opportunities for East Java entrepreneurs to collaborate with foreign investment. We have row materials, human resources and markets," said Prof Tommy.

So far, he continued, the backbone of Indonesia's GDP is from taxes. But what must be emphasised is that Indonesia can actually increase GDP from the non-tax or non-fiscal side, such as the downstreaming of domestic industries. "So I propose that downstreaming in all sectors must be accelerated," he said. Because when downstreaming occurs, many derivative industries are opened that can absorb labour.

However, the competence of the workforce must be trained seriously. Government programmes aimed at improving competence must continue to be maximised, as has been done by the East Java Chamber of Commerce to become the task force for the revitalisation of vocational education.

Kadin East Java Chairman Adik Dwi Putranto affirmed that Kadin is committed to improving the quality of the domestic workforce through accelerating the implementation of the revitalisation of vocational education and training. Through the Kadin Institute, a number of efforts have been made, ranging from preparing workplace trainers to harmonising the curriculum. Labour certification also continues to be carried out to produce a qualified and competitive workforce.

Performance improvement, Mr Adik added, can also be done by dominating the domestic market as the overseas market is currently slowing down. But Indonesia has a challenge, through e-commerce platforms, the transactions that occur between two countries are no longer Business to Business but the pattern has become Business to Consumer (B to C). With B to C, it seems as if Indonesia's imports are small but when you realise it, it turns out that the volume is very large. Thus, it hampers domestic products.

"Therefore, there must be a policy that is truly pro to our domestic industry in order to reclaim the local market," Adik concluded.