A Study on Impact of COVID-19 on Global Value Chains (GVCs) Relevant to Indonesian Exports and Development of a Recovery Roadmap
Indonesia has been severely hit by the COVID-19 pandemic. Overall, Indonesia's economic growth contracted by 2.07% during the pandemic in 2020 compared to a growth rate of 5 percent in 2019. Although the pandemic inflicted considerable hardship on the Indonesian economy, early recovery has been observed thanks to containment and support measures. These included effective public health response and the deployment of a set of fiscal and monetary measures, made possible by substantial buffers owing to prudent macro-economic policies in preceding years as well as sizable international support.
Those observations are extracted from the final report on Impact of COVID-19 on Global Value Chains (GVCs) Relevant to Indonesian Exports and Development of a Recovery Roadmap conducted by ARISE+ Indonesia in collaboration with the Ministry of National Development Planning (Bappenas). The report was presented during a webinar on 4 November 2021.
The study, led by senior international trade economist Paul Baker, aimed at gathering a deep understanding the impact of COVID-19 on the Indonesian economy with an in-depth analysis of specific value chains.
In her opening speech, the Deputy Minister for Economic Affairs of Bappenas, Ms Amalia Adininggar Widyasari, stated that the study would help the government analyse the overall trade and GVCs performance from global and Indonesian perspectives against the implemented policy responses.
"So, we can sharpen trade recovery and investment policies due to the impact of the pandemic and enhance Indonesian participation in GVCs," Ms Widyasari said.
The report showed that the food and beverage sector saw a large trade surplus for Indonesia with a value of USD 22 billion, and the growth slightly surpassed the performance of 2018. Indonesia remained the second-largest net exporter of FBT products in the world. Indonesia also saw an increase in its automotive net exports, at USD 3 billion, due to a relatively significant drop in imports in 2020. Indonesia is one of the top exporters in the automotive sector in the Asian region.
Indonesia is among the few footwear producers that experienced growth during the pandemic, with its net exports expanding from USD 3.5 billion in 2019 to USD 4.2 billion in 2020. The top 3 players in the footwear sector (China, Vietnam, and Italy) suffered a decrease in net exports in 2020.
The international market demand for textiles and apparel experienced quite a significant drop, and some producer countries suffered a substantial decline in exports in 2020. Yet, Indonesia increased its participation in the global value chains with USD 5.1 billion worth of export. Meanwhile, in the electronics sector, Indonesia improved its trade balance from USD -9.6 billion (2019) to USD -8.8 billion (2020), though activity in the sector was hit.
A survey on the impact of the COVID-19 pandemic on businesses in Indonesia and the relevance and effectiveness of government trade responses was also conducted. The survey revealed that regulation relaxation and tax incentives are additional government interventions most needed by industries. The study concluded with a recommended roadmap for Indonesia's more sustainable economic recovery divided into three phases, that is immediate, short term, medium and long term.
The webinar also featured prominent panellists from the government and private sector, including the Director-General of Resilience, Territorial and International Industrial Access of the Ministry of Industry, Mr Eko S.A. Cahyanto; the Director of Market Development & Export Information of the Ministry of Trade, Hari Widodo; the Head of Bilateral Committee of the Chambers of Commerce and Industry (KADIN), Alexander Yahya Datuk; the Government and Public Affairs Director of NIKE, Devi Kusumaningtyas; the Vice President Director of PT Panasonic Manufacturing Indonesia representing GABEL (Association of Electronics and Home Appliances Producer), Daniel Suhardiman; and the External Affairs Director of PT Hyundai Motor Manufacturing Indonesia, Tri Wahono Brotosanjoyo.
Delivering closing remarks, the Director of Trade, Investment, and International Economic Cooperation of Bappenas, Ms P.N. Laksmi Kusumawati, emphasised the importance of the GVCs as one of the prime movers for Indonesia's economic recovery and encouraged the Indonesian businesses to improve participation in the GVCs.
Presentation Materials
