Local Manufacturers Stand to Gain as Plants Leave China i

Relocating manufacturers from China will quicken that sector's growth in Indonesia until 2021, providing ample investment opportunities in the country's numerous industrial complexes, according to a report by real estate consultant Jones Lang LaSalle, or JLL, released on Thursday (20/04). (JG Photo/Safir Makki)

By : Tabita Diela & Rahajeng Kusumo | on 7:15 PM April 20, 2017
Category : News, Business, Economy

Jakarta. Relocating manufacturers from China will quicken that sector's growth in Indonesia until 2021, providing ample investment opportunities in the country's numerous industrial complexes, according to a report by real estate consultant Jones Lang LaSalle, or JLL, released on Thursday (20/04).

The study, titled "A Revival of Southeast Asian Manufacturing Hubs," said low-cost, export-oriented foreign manufacturers are facing the new reality of rising labor and land costs at a time when China is trying to refocus its economy towards higher domestic consumption rates, increased services and larger exports.

Typical manufacturing wages are now $3.90 per hour in China, compared to around $1-1.40 per hour in Indonesia and Vietnam, the report said.

"Our top picks for investing in industrial real estate are in Indonesia and Vietnam," said Regina Lim, head of Southeast Asia capital markets research at JLL.

"Indonesia's manufacturing sector is expected to grow 6-7 percent annually until 2021  up from 5 percent in 2016  thanks to a stabilizing currency and changes to economic policy. Meanwhile, Vietnam's edge is in its young and skilled workforce, relatively low cost base and stable political climate."

Indonesia recently implemented policies to encourage foreign participation in the country's industrial sector by providing tax incentives and relaxing restrictions in its negative investment list.

The JLL report also noted that Indonesia is looking forward to strong levels of domestic consumption as the country's middle-income population is expected to increase to 80 million by 2020  providing wider markets for manufacturing goods.

However, there are still few listed industrial property developers in the country  the largest of which include Bekasi Fajar Industrial Estate, Kawasan Industri Jababeka, Lippo Cikarang, Puradelta Lestari, Surya Semesta Internusa and Intiland Development.

The sector grew 11.6 percent so far this year  according to Jakarta Globe's calculations  outperforming Jakarta Composite Index's total 6 percent increase.

This year, Indonesia will welcome new investments from at least eight footwear companies that plan to relocate production bases to the country from China and South Korea, said Achmad Sigit Dwiwahjono, the Industry Ministry's director general for chemicals, textile and miscellaneous industries.

Those companies will invest nearly Rp 7.6 trillion ($570 million) in Indonesia this year, much higher than last year's Rp 1.9 trillion investments in the footwear and leather products industry.

The government initially set a target of Rp 2 trillion investments in the sector this year.

JLL warned, however, that Indonesia and its Southeast Asian counterparts need to implement lasting reforms to sustain long-term manufacturing growth.

"The ability of Southeast Asia to move up the value chain will depend on the extent to which China's costs increase. It will also hinge on the growth of domestic consumption in these markets, the quality of education provided, the availability of infrastructure and the ease of doing business," Lim said.

 

Show More

 
MORE NEWS