Commentary: Innovation Is an Economic Imperative for Indonesia

Home Affairs Minister Tjahjo Kumolo inspects some recent creations as part of Village Development Week in Banda Aceh, on Wednesday. (Antara Photo/Irwansyah Putra)

By : Jamie N. Jones  | on 4:35 PM October 08, 2015
Category : Opinion, Commentary

Around the world, national governments are recognizing that investment in science, technology and innovation is a key driver of economic growth. In the past five years, more than forty countries have published national innovation plans; Indonesia is among them. But the success of the Masterplan for Acceleration and Expansion of Indonesia's Economic Development (MP3EI) and the Mid-Term National Development Plan (RPJMN) 2015-19, will not come from planning but from effective implementation of a focused strategy.

In the 1970s, Indonesia made significant investments into science and technology, acknowledging the important role innovation plays in development. But that support has dwindled and Indonesia’s growth has primarily been driven by trade.

A comparative look around the region indicates Indonesia is falling behind its neighbors in science and technology. According to a recent report on innovation in Southeast Asia by the Organization for Economic Co-operation and Development, Indonesia’s investment in R&D, which was 0.08 percent in 2009, is well below other regional competitors like Malaysia, Thailand, and Singapore whose R&D investments were 0.82 percent, 0.21 percent, 2.2 percent, respectively. From 2000-11, Indonesia had on average 15 patents granted per year by the United States Patent and Trademark Office, compared to Singapore’s average of 632.

A look at Indonesia’s institutional landscape to support innovation reveals a complicated and impractical path crossing multiple ministries, agencies and research bodies. There is no centralized effort to form and coordinate innovation-enabling programs. The National Innovation Committee (KIN) was established in 2010 to perform this role, but with the political change in 2014, KIN was dissolved and no organization has been established to serve that function, which is imperative for Indonesia’s long-term competitiveness and development into a knowledge-based economy.

Important lessons for how to best facilitate the role can be learned from Singapore’s cross-ministry coordination to generate efficient and focused R&D outcomes and Malaysia’s Agensi Inovasi Malaysia (AIM), which coordinates and centralizes national-level innovation strategy. In each case, their efficacy stems from the tactical execution of a focused strategy that bridges across ministries and agencies.

From the private sector perspective, firms considering R&D investment must navigate the previously described labyrinthine, while also dealing with a lack of consistency and transparency in the tax system and weak implementation of tax regulations that were designed to encourage R&D. This uncertainty makes firms considering R&D investment uneasy and discourages investment.

A series of acts to improve intellectual property rights between 1989 and 2004 were steps in the right direction; however, the best of intentions fell short when it came to implementation. Firms remain concerned about intellectual piracy and government enforcement mechanisms. According to the Indonesian Institute of Sciences (LIPI), of the investments made in R&D in Indonesia, the government accounted for 84.5 percent (2001-06) and the private sector contributed only 14.7 percent.

The impact of weak R&D investment by the private sector is reflected in the percentage of Indonesia’s manufacturing exports in high and medium-high technology industries which are trending downward, 23 percent in 2000 to 18 percent in 2010, according to the OECD harvested data from the STAN Bilateral Trade Database.

Relying on a production and trade based economy without sufficient investment in the innovation-economy is a dangerous policy course that will ultimately collapse as labor prices rise and firms move to locations that can provide higher value-added activities that innovation delivers.

The good news is that Indonesia has a rich base of assets from which to work, including a large domestic market with growing purchasing power, ample natural resources from which to create value-added products, and a multi-industry manufacturing base that is ripe for technology-upgrading.

The government is also ramping up support and attempts to reinvigorate Indonesia’s science and technology ecosystem can be seen by the recent merger of the Ministry of Research and Technology and the Directorate General of Higher Education to form Ristekdikti. Additionally, the Indonesian Academy of Sciences is developing the Indonesia Science Fund designed to fund long-term research projects and develop young research talent. These are all steps in the right direction.

Indonesia must close the science, technology and innovation gap with its geographic neighbors or run the risk of getting passed by. Indonesia is poised for significant growth, but to remain competitive Indonesia must chart a path forward that eliminates bureaucratic inefficiency and promotes science, technology and innovation efforts supported by the public sector and directly engaging the private sector.

Planning and strategy development will not be enough. Indonesia must set a clear path to implementing the strategies, which should include committing to transparency and consistency in innovation-promoting policies, increasing investment in R&D, and catalyzing linkages between the private sector and academe.

Equally important will be the ability to effectively coordinate across ministries in order to advance ideas to action. By doing so, Indonesia can set itself on a trajectory toward an innovation-driven economy, avoid the looming middle-income trap and ensure its future as a leader in Southeast Asia and the world.

Jamie N. Jones is an innovation adviser at RTI International and an adjunct professor of entrepreneurship and innovation at the Kellogg School of Management at Northwestern University. The author’s views are her own and do not reflect the views of the organizations. Contact her at jnjones@rti.org or 

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