Indonesia needs to toughen up for Asean Economic Community

As the largest economy in Southeast Asia, Indonesia has a lot at stake in the full implementation of the Asean

Economic Community by year end. With the 10-member states creating a single market and production base of 600 million people and a combined gross domestic product of US$2.4 trillion, Indonesia needs to have an edge to reap benefits from the regional bloc that could be equal to the world’s seventh largest economy.

By technical measurement, Indonesia is ready for the AEC,given that, by now, its scorecard shows the country’s readiness at 94 percent, higher than the Asean average of 92 percent. The blueprint consists of measures and initiatives that need to be implemented to achieve the AEC goals, including specific programs to empower the workforce and small and medium enterprises (SMEs) to beready for Asean competition. There are dozens of local ministries and government bodies in charge of the implementation.

Even so, the biggest concern for Indonesia in welcoming the AEC remains in the services and SMEs sectors. A Herculean task lingers for Indonesia to solve its human capital issues,as evidenced by the slow progress made in professional certification systems and the low ratio of certified professionals to population in comparison with several Asean neighbours. Also, in comparison with the Asean giants Singapore,Malaysia, Thailand and the Philippines, Indonesians still lack English speaking skills, and the ability to speak any Asean language to be able to work there, let alone the skills required by the high standards of some countries in the regional bloc. Some Asean neighbours have even upped their English and Asean language skills at schools and education centres in anticipation of AEC.Meanwhile, many SMEs, which collectively generate over half of Indonesia’s GDP and employ the majority of workforce, are still in the dark when it comes to the benefits and threats of the AEC. The benefits are of course limitless for them to expand their goods and services in the single market, but the threats are also daunting. Many fear that local SMEs could be crushed by Asian giants and multinationals eagerly vying to invest in the single production base.

There have been concerns in the domestic market that given its huge population of 240 million people but low business investment spending, Indonesia will only be the market (consumer), instead of the investor (supplier), in the economic integration, with many fearing that the AEC will only benefit Asian and multinational giants wanting to invest in the regional grouping. While investment flows into the region will create jobs for the locals, they are feared to only exploit local resources without the local industries gaining a competitive edge.

Investment spending of Indonesian companies remained low in comparison to their Asean peers, although some big state companies have been quick to tap into the AEC opportunities by establishing footprints in the region,

such as Semen Indonesia, Bank Negara Indonesia,Wijaya Karya and Pertamina in Myanmar; Bank Mandiri in Malaysia; Tiga Pilar in Vietnam; etc.Indonesia needs to toughen up its services sector,SMEs and workforce so they can compete with the potential flows of human resources and investment into the country from regional peers, as it risks being complacent by relying only on its big market.So while technically the country is ready for the AEC, its readiness may not warrant the full benefits of its involvement in the single market. Ergo, the most

important thing now is for the country – from policymakers, businesses to labour – to work on how

the services sector, SMEs and workforce can make the most of the regional integration.