Indonesia’s Industrial Export AmbitionsPresident Joko Widodo has overseen a centralization of research, development, and industrial production.
By James Guild
November 01, 2022
In June 2022, the Department of National Defense of the Philippines awarded a contract for two landing platform docks (LPDs) to Indonesia’s state-owned naval yard, PT PAL. This is the second time the Philippines has ordered a pair of LPDs from PAL, so it appears they were satisfied with the first batch. PAL originally acquired the ability to build these amphibious landing craft from a Korean partner as part of a purchase and technology transfer deal back in the 2000s.
Ships are not the only industrial product Indonesia is exporting to the Philippines. A subsidiary of PT Len, the state-owned electronics and technology company, inked a contract to provide signaling systems for the Philippines National Railways earlier this year. The Philippines is currently in the midst of a massive railway investment boom, and Indonesia’s state-owned industrial companies are looking to capitalize on that.
Railway systems and infrastructure have been a particularly strategic component of Indonesia’s industrial export ambitions. State-owned INKA, which produces rolling stock for both the domestic and export markets, has big plans to expand its footprint in Africa and around the region. They have had some success, including closing a deal to export 262 freight carriages to New Zealand. But they are still far from being the regional powerhouse they one day hope to be.
Indonesia has long sought to position itself as an industrial export hub. These ambitions were typified by former President B. J. Habibie, who as minister of research and technology oversaw a cluster of state-owned industrial companies that tried to jump-start high-tech manufacturing like aerospace. Nowadays, those efforts are generally thought of as wasteful examples of government largess that failed to achieve their objectives.
But companies like INKA, PT Len, and PT PAL are legacies of Habibie’s original techno-developmentalist vision. And under current President Joko Widodo, there has been a renewed push to integrate them in a centralized fashion and better coordinate research and development, operations, and diplomatic outreach to boost strategic industrial exports like ships, rolling stock, and signaling systems.
That was the logic behind centralizing research and development at the national level with BRIN (the National Research and Innovation Agency). It is also the logic behind the recent merger of five state-owned defense companies under PT Len. The idea is that by centralizing R&D and production, the state can streamline these functions and direct them more effectively toward nationally strategic goals, such as securing a larger share of industrial export markets.
Questions remain, however. For one, is the state really the best agent to coordinate technological development, and can innovation thrive in a centralized bureaucratic environment? Another pressing question is whether Indonesia’s industrial SOEs are capable of meeting the technical challenges. These issues were neatly illustrated by the Black Eagle program, a consortium of Indonesian stakeholders tasked with indigenously developing a medium altitude long-range drone. The project was recently shelved as the technical (and perhaps organizational) challenges become increasingly acute.
Can the centralization of research and development and industrial production overcome these obstacles going forward? We have to wait and see. I think an important determinant of future success is going to be the extent of foreign collaboration. PT PAL had success partnering with foreign companies willing to transfer technology, skills, and knowledge. That’s how they acquired the ability to produce LPDs for export. And there is a good chance the AUKUS deal will make French companies like Thales more willing to transfer technology to strategic partners in the region, like Indonesia.
Ultimately, such decisions and the negotiations behind them are as much about politics as they are about R&D and production. So there is an argument to be made that for strategic technology-intensive sectors, like defense manufacturing or industrial production aimed at export markets, the state might be a more appropriate agent of development than the private sector and market forces. It will take many years before we can start to measure the outcomes here, but the lines are starting to be drawn as the Indonesian state looks to again take a central role in reviving the country’s industrial export ambitions.
James GuildJames Guild is an expert in trade, finance, and economic development in Southeast Asia.
Indonesia’s Industrial Export Ambitions
President Joko Widodo has overseen a centralization of research, development, and industrial production.