Deindustrialization in Indonesia is reshaping the economy as the manufacturing sector steadily declines. Industries like textiles and automotive are struggling due to rising labor costs and competition from cheaper markets.
However, despite these setbacks, Indonesia’s economy continues to grow, driven by sectors like digital technology and services. Investors, undeterred by the manufacturing downturn, remain eager to capitalize on emerging opportunities in these new fields. This shift may be challenging, but it also opens doors to long-term growth in other industries.
The Decline of Indonesia’s Manufacturing Sector
Indonesia’s manufacturing sector, particularly in textiles and garments, has been hit hard in recent years. Many factories that have been operating for decades are now closing their doors, unable to keep up with fierce international competition.
“Over the past two years, we have witnessed the collapse of industries, especially the textile and textile product industry, with 30 factories already closing down,” said Amin, a member of the National House of Representatives, during a statement at the Nusantara I Building in the Parliamentary Complex, Senayan, on November 20, 2024, as reported by Rmol.id.
As labor costs rise and global market dynamics shift, these factories are struggling to survive. Despite this, Indonesia’s overall economy continues to grow, thanks in part to the rise of digital technology and service sectors.
Foreign Investment in Indonesia: Undeterred by Deindustrialization
Despite the decline in manufacturing, foreign investment in Indonesia remains strong. Sectors such as metal industries, automotive, and even textile continue to attract significant interest.
“We are actually very busy today because so many parties want to develop industries in Indonesia, especially several foreign investors,” said Faisol Riza, the Deputy Minister of Industry, during the soft launching of the Daikin factory in Cikarang on December 12, 2024 as reported by Bisnis.com.
This influx of investment reflects a growing confidence in Indonesia’s industrial potential, even as some traditional sectors face challenges. The country’s shift toward more diverse industries, including digital technology and infrastructure, has opened up new avenues for growth, attracting global investors eager to tap into these opportunities.
To further boost investment, the government is preparing incentive packages aimed at attracting investors committed to using renewable energy sources in their projects.
This strategic shift is not only attracting global investors but also supporting Indonesia’s transition to more sustainable industrial practices.
Opportunities Beyond Manufacturing
While deindustrialization presents challenges for Indonesia’s traditional sectors, it has also paved the way for new opportunities in emerging industries. The country is increasingly focusing on diversifying its economy, with digital technology, renewable energy, and infrastructure development at the forefront.
Digitalization has emerged as a key solution to these challenges. Projections indicate that Indonesia’s digital economy could reach USD 90 billion by 2024, growing 13% from the previous year. Technologies such as generative artificial intelligence (AI) are also being adopted, particularly in agriculture and industry, to improve efficiency and drive government transformation.
As manufacturing wanes, sectors like e-commerce, fintech, and green energy are seeing rapid growth. Investors are particularly drawn to Indonesia’s growing tech scene, which is seen as a hub for innovation in Southeast Asia.
The government is also actively supporting this transition by offering incentives for green energy projects, aiming to position Indonesia as a leader in sustainable development. As the economy diversifies, Indonesia is set to unlock new potential for both local and foreign investors in the years to come.
A Bright Future Despite Deindustrialization in Indonesia
While deindustrialization presents significant challenges for Indonesia’s manufacturing sector, it also highlights the country’s potential for growth in emerging industries.
The continued influx of foreign investment, particularly in sectors like digital technology, renewable energy, and infrastructure, demonstrates investor confidence in Indonesia’s economic future.
As the government prepares to offer new incentives to attract sustainable investments, Indonesia is positioning itself as a key player in the global economy. With the right support and strategic focus, Indonesia’s shift towards a more diversified economy will open up new opportunities in the future for both domestic and international investors.
Source: bisnis.com, rctiplus.com, rmol.id
Image: Dodo Hawe, Shutterstock
