Regional Value Chain, AEC andChallenges for Archipelagic Countries
Yose Rizal DamuriCentre for Strategic and International Studies Jakarta
ESRI Workshop on the Potentials of the Asian Economic Zone, Tokyo 27 September 2013
Regional and Global Value Chain
Slicing-up production at finer level; Each unit is responsible forsmaller 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
Manufacturing products areno longer produced in onecountry
But outputs of a processinvolving numerousproduction bases spreadaround the world “made in the world”
In this method ofproduction, trade becomeone of the most importantaspects Components need to cross
border several times
Global Value Chainof I-Phone
Manufacturing products areno longer produced in onecountry
But outputs of a processinvolving numerousproduction bases spreadaround the world “made in the world”
In this method ofproduction, trade becomeone of the most importantaspects Components need to cross
border several times
Global Production Network: Indonesia’s Position
The graph shows position ofcountries in global productionnetwork 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 andPhilippines seem to be inpheripery Archipelagic condition poses
challenges in developing andjoining production networks
The graph shows position ofcountries in global productionnetwork 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 andPhilippines seem to be inpheripery Archipelagic condition poses
challenges in developing andjoining production networks
Source: Damuri 2012, International Production Sharing: Insights from Network Analysis
East Asia’s Indicators of GVC: Electronics
1.52
2.53
3.54 This shows the length
of value chain in EastAsia countries Indonesia and Philippines
again have problems inextending theirinternational value chain
The graph also showsthe distance to the finalconsumers Indonesia mainly focuses
on
00.5
11.5
Domestic International Distance
This shows the lengthof value chain in EastAsia countries Indonesia and Philippines
again have problems inextending theirinternational value chain
The graph also showsthe distance to the finalconsumers Indonesia mainly focuses
on
Source: Calculated from OECD TIVADatabase
Closer look At Indonesian situation:A Case of Archipelagic country
Closer look At Indonesian situation:A Case of Archipelagic country
Comprises of: 17,508 islandsOf which around 6000 inhabitedFive main island
Extends 5120 km from west to east and 1760 km from North toSouth
Land Area: 1.904.443 sq kmSea Area: 3.116.163 sq kmTotal Area: 5.020.606 sq km
Traditionally not in the heart of the WorldMain Trade Routes
Shipping Costs
It is cheaper to ship goods to othercountries than to other parts of Indonesia
Poor Quality of Infrastructure
3.74
3.64
3.23
Indonesia (92)
Philippines (98)
Vietnam (119)
5.44
4.86
4.28
3.81
0.00 1.00 2.00 3.00 4.00 5.00 6.00
Malaysia (29)
Thailand (49)
China (69)
India (87)
Infrastructure Quality Index 2012 (1-7)WEF Global Competitiveness Index
Lack of infrastructure investment….
Source: World Bank 2013
Has resulted to high-cost economic activity, especially inlogistics
For example: congestions in ports long waiting timefor exports and imports
Dwell Time inTanjung Priok Container Terminal
Source: JICT
ASEAN Economic community:Opening-up Some Opportunities
ASEAN Economic community:Opening-up Some Opportunities
ASEAN Economic Community
In 2007, ASEAN leaders agreed toaccelerate the establishment of AECby 2015 ASEAN is committed to strengthening
economic integration of its existinginitiatives
In order to achieve AEC at the rightschedule, ASEAN members adoptedAEC Blueprint A significant development in the
process of integration as previously it isprocess-driven and open ended
Divided into 4 primary objectives 17 elements and 176 priority actions Carried out in four implementation
periods
In 2007, ASEAN leaders agreed toaccelerate the establishment of AECby 2015 ASEAN is committed to strengthening
economic integration of its existinginitiatives
In order to achieve AEC at the rightschedule, ASEAN members adoptedAEC Blueprint A significant development in the
process of integration as previously it isprocess-driven and open ended
Divided into 4 primary objectives 17 elements and 176 priority actions Carried out in four implementation
periods
Trade Facilitation: Number of Days toExport/Import
Trade Facilitation: Single Window
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 relatedagencies 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
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 relatedagencies 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
PhysicalPhysicalConnectivityConnectivity
InstitutionalInstitutionalConnectivityConnectivity
PeoplePeople--toto--PeoplePeopleConnectivityConnectivity
ASEANICT
MasterPlan
ASEANStrategicPlan on
Transport
TransportFacilitationAgreements
ATIGAASEANTourismStrategic
PlanMRAs
ASEAN Connectivity
ASEANICT
MasterPlan
ASEAN Planof Action for
EnergyCooperation
ASEANStrategicPlan on
Transport
CrossCross--Pillar CoordinationPillar Coordination
AFAS
TransportFacilitationAgreements
ATIGA
ACIA
ASEANTourismStrategic
PlanMRAs
ASEANEducationWork Plan… … …
ASEAN Connectivity in Action
Master Plan for the Acceleration and Expansionof Indonesia’s Economic Development (MP3EI)
MP3EI is a roadmap that isformulated as an attemptto:“Transform theIndonesian economyinto a developednation, which recognizedby the worldcommunity, throughhigh, inclusive, andsustainable economicgrowth.”
The vision is “to create aself-sufficient, advanced, just, andprosperous Indonesia”
MP3EI is a roadmap that isformulated as an attemptto:“Transform theIndonesian economyinto a developednation, which recognizedby the worldcommunity, throughhigh, inclusive, andsustainable economicgrowth.”
The vision is “to create aself-sufficient, advanced, just, andprosperous Indonesia”
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 facilitateinternational trade as well as an entry point for foreign tourists
MP3EI is planning to strengthen connectivity that integrates growthcenters inside economic corridors Also between corridors
It further strengthen international connectivity especially to facilitateinternational trade as well as an entry point for foreign tourists
MPAC and MP3EI Although MP3EI describes the importance of
international connectivity, it mostly focuses ondomestic 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
Although MP3EI describes the importance ofinternational connectivity, it mostly focuses ondomestic 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
Indonesia and Regional Value Chain: OtherIssues 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 economicpolicy 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
Joining GVC and RVC remains to be difficult for Indonesiancompanies 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 economicpolicy 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