Regional Value Chain, AEC and Challenges for Archipelagic Countries

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1 Regional Value Chain, AEC and Challenges for Archipelagic Countries Yose Rizal Damuri Centre for Strategic and International Studies Jakarta ESRI Workshop on the Potentials of the Asian Economic Zone, Tokyo 27 September 2013

2 Regional and Global Value Chain Slicing-up production at finer level; Each unit is responsible for smaller task in value chain Placing them at different locations Based on comparative advantages Involving trade-investment-services nexus Trade Investment International contract manufacturing

Global Value Chain Global Value Chain of I-Phone

country But outputs of a process involving numerous

world In this method of production, trade become one of

3 Global Value Chain Global Value Chain of I-Phone Manufacturing products are no longer produced in one country But outputs of a process involving numerous production bases spread around the world made in the world In this method of production, trade become one of the most important aspects Components need to cross border several times

closely linked Easiness in conducting trade However, both Indonesia and Philippines seem to be in pheripery Archipelagic condition poses

4 Global Production Network: Indonesia s Position The graph shows position of countries in global production network The central nodes show more important countries Closer countries indicate more importance Production networks are regional in scope EA countries tend to be closely linked Easiness in conducting trade However, both Indonesia and Philippines seem to be in pheripery Archipelagic condition poses challenges in developing and joining production networks Source: Damuri 2012, International Production Sharing: Insights from Network Analysis

5 East Asia s Indicators of GVC: Electronics This shows the length of value chain in East Asia countries The graph also shows the distance to the final consumers Domestic International Source: Calculated from OECD TIVA Database Distance Indonesia and Philippines again have problems in extending their international value chain Indonesia mainly focuses on

6 Closer look At Indonesian situation: A Case of Archipelagic country

Extends 5120 km from west to east and 1760 km from North to South Comprises of: 17,508 islands Land Area: 1.904.

7 Extends 5120 km from west to east and 1760 km from North to South Comprises of: 17,508 islands Land Area: sq km Of which around 6000 inhabited Sea Area: sq km Five main island Total Area: sq km

8 Traditionally not in the heart of the World Main Trade Routes

9 Shipping Costs It is cheaper to ship goods to other countries than to other parts of Indonesia

10 Poor Quality of Infrastructure Vietnam (119) 3.23 Philippines (98) 3.64 Indonesia (92) 3.74 India (87) 3.81 China (69) 4.28 Thailand (49) 4.86 Malaysia (29) Infrastructure Quality Index 2012 (1-7) WEF Global Competitiveness Index

11 Lack of infrastructure investment. Source: World Bank 2013

12 Has resulted to high-cost economic activity, especially in logistics For example: congestions in ports long waiting time for exports and imports Dwell Time in Tanjung Priok Container Terminal Source: JICT

13 ASEAN Economic community: Opening-up Some Opportunities

members adopted AEC Blueprint A significant development in the process of integration as previously it is process-driven

14 ASEAN Economic Community In 2007, ASEAN leaders agreed to accelerate the establishment of AEC by 2015 ASEAN is committed to strengthening economic integration of its existing initiatives In order to achieve AEC at the right schedule, ASEAN members adopted AEC Blueprint A significant development in the process of integration as previously it is process-driven and open ended Divided into 4 primary objectives 17 elements and 176 priority actions Carried out in four implementation periods

15 Trade Facilitation: Number of Days to Export/Import

16 Trade Facilitation: Single Window

17 Trade Facilitation: Single Window Since 2008, Indonesia already operated a National Single Window (NSW) portal Enable firms to submit necessary papers, verify status, and get decision related to the importation and exportation of goods All trade services have been done through the NSW portal that can be accessed everywhere Currently, there are 14 agencies have been linked up to NSW apart from customs and excise In 2015 there will be 3 more agencies to be linked up Nine major ports, including airports, account for 90 percent of the value of Indonesia s foreign trade INSW has already facilitated 20 thousand companies This is part of ASEAN Single Window initiative that connects customs and related agencies in the region Indonesia achieved 97% total score in 2010 NSW Scorecard Review However, our survey in 2013 shows that NSW does not run smoothly all the time. IT infrastructure General infrastructure (electricity) Coordination issue especially in non-major ports

Cooperation Transport Facilitation Agreements AFAS People-to Peopleto--People

18 ASEAN Connectivity Physical Connectivity ASEAN Strategic Plan on Transport Institutional Connectivity ASEAN ICT Master Plan ASEAN Plan of Action for Energy Cooperation Transport Facilitation Agreements AFAS People-to Peopleto--People Connectivity ATIGA ACIA Cross--Pillar Coordination Cross ASEAN Tourism Strategic Plan ASEAN Education Work Plan MRAs

19 ASEAN Connectivity in Action

developed nation, which recognized by the world community, through high, inclusive, and

20 Master Plan for the Acceleration and Expansion of Indonesia s Economic Development (MP3EI) MP3EI is a roadmap that is formulated as an attempt to: Transform the Indonesian economy into a developed nation, which recognized by the world community, through high, inclusive, and sustainable economic growth. The vision is to create a selfsufficient, advanced, just, and prosperous Indonesia

Strengthening Connectivity in MP3EI MP3EI is planning to strengthen connectivity that integrates growth centers inside economic corridors Also between

21 Strengthening Connectivity in MP3EI MP3EI is planning to strengthen connectivity that integrates growth centers inside economic corridors Also between corridors It further strengthen international connectivity especially to facilitate international trade as well as an entry point for foreign tourists

22 MPAC and MP3EI Although MP3EI describes the importance of international connectivity, it mostly focuses on domestic connectivity Attempt to connect separated centers of production and commerce Unlike policy in some other countries that aimed connectivity to outside economies Indonesia seems to be in the periphery of infrastructure planning of SEA Especially on land transportation connectivity The MPAC found little enthusiasts in Indonesia Partly because of the intention to connect directly with the ROW

23 Indonesia and Regional Value Chain: Other Issues Joining GVC and RVC remains to be difficult for Indonesian companies Part of the problem is lack of sufficient infrastructure As an archipelagic country, it poses unique problems of connectivity However, many other problems are also related to economic policy and regulations Poor business and investment climate that hold back FDIs and outsourcing Restrictive trade policy that make it difficult to source inputs from abroad: obsessions to added-value and import-phobia Poor quality of supporting services Monopoly and SOEs dominance in various services lead to high-cost economy Many business services necessary for GVC remain to be closed

Locally Integrated, Globally Connected for National Competitiveness and Social Welfare

Locally Integrated, Globally Connected for National Competitiveness and Social Welfare I N D O N E S I A N N A T I O N A L L O G I S T I C S T E A M C O O R D I N A T I N G M I N I S T R Y F O R E C O