In every crisis, new opportunities emerge. The global COVID-19 pandemic has had a strong impact on global trade networks and shipping routes with logistics suppliers grappling with disruptions and economic slowdowns. The pre-COVID-19 globalized world has come to a halt. The question facing governments and corporations alike is what comes next? How will global supply chains shift and reform? How can Indonesia boost its manufacturing capacity? How can we harness the potential of the digital revolution to strengthen the economy, and lastly, how can we make these advances sustainable?
Coordinating Economic Minister Airlangga Hartarto recently said the government is working hard to attract international investors looking to relocate their factories from mainland China. If successful, this could position Indonesia as a major manufacturing powerhouse. The ongoing disruption to global supply chains is fundamentally reshaping how companies think about shifting products from manufacture to consumers. This might mean a requirement for greater warehousing space closer to their consumer markets, so they can keep greater inventory on hand to guard against possible shortages. Manufacturers worried about the risk of disruption may also start shifting production bases to diversify their investments. The disruption of global trade and supply chains offers a silver lining in terms of investment prospects for a large number of countries, including Indonesia. Companies looking to diversify beyond mainland China will need to set up a new base for their operations, and Indonesia is an attractive choice. Indonesia has several strategic advantages over its competitors in the region. It is rich in natural resources; has a large domestic market; and a ready pool of productive workers. President Joko “Jokowi” Widodo and his administration is working on multifaceted reform policies, which aim to further strengthen the country’s competitive advantages. In addition, the pandemic has forced those companies that were more conservative with their digital adoption to be more open to adapting to new operational models.
HSBC’s latest report “Navigator: Building Back Better” shows that almost two-thirds (64 percent) of businesses in Indonesia strongly agree that periods of adversity can accelerate the adoption of transformational technology as they look to enhance or improve how they work. This is significantly higher than the other global markets surveyed (44 percent). Greater adoption of digital technologies could potentially help Indonesia attract greater foreign direct investment (FDI) as well as move up the manufacturing value chain. Indonesia already has a vibrant e-commerce sector, which in 2019 was valued at US$21 billion in gross market value (GMV), making the country the largest e-commerce market in Southeast Asia. A recent report by HSBC Global Research pointed out that 50 percent of goods consumption could be made online in developed countries by 2030. As the millennial generation is currently dominating the workforce, by 2030, some 40 percent of consumers globally will be “digital natives”.
The forces driving the digital economy include demographics, culture, consumer patterns and readiness. I would argue that Indonesia scores highly on three of the four factors and is working hard to improve is the country’s state of readiness by shifting infrastructure spending to focus on improving information and communications technology, data centers, the Internet of Things and artificial intelligence. These factors have given banks like us the opportunity to play our role in promoting and attracting FDI into Indonesia. HSBC Indonesia is using its unrivalled global network to promote Indonesia as a destination for FDI. The COVID-19 pandemic has not only impacted Indonesia but Southeast Asia as a whole. All members of ASEAN are working hard to revive their economies and mitigate the economic impact on the most vulnerable members of their societies. To this end, ASEAN leaders are expected to launch the ASEAN Pandemic Recovery Fund in November to help fill the region’s $2.8 trillion infrastructure gap over the next few years as well as providing more immediate economic stimulus.
Linking the ASEAN Pandemic Recovery Fund to climate and sustainability commitments will go a long way to reducing the impact of climate change on the region’s economies and peoples. The Asian Development Bank has projected that ASEAN gross domestic product could fall by 11 percent by 2100 unless climate change issues are addressed aggressively. Climate change represents a grave threat to continued economic growth and prosperity in Southeast Asia. The COVID-19 pandemic has presented leaders and societies with a unique opportunity to build future economic resilience against natural disasters and help the region move away from high-emission development pathways. These are challenging times for Indonesia and the region. The right decisions made today in terms of investing in digital technologies and sustainable growth policies will position the region as a major global economic center for decades to come. As governments navigate the immediate health and economic threats posed by the pandemic, they should not lose focus on the longer term picture of creating a healthy, prosperous and environmentally sustainable region.
