Indonesia still imports many low-complexity items such as the hoe, most of them from China. (Antara Photo/Akbar Tado)

Hoe Import Debacle Exposes Indonesian Industry's Shortcomings


NOVEMBER 12, 2019

Jakarta. The recent debacle over hoe imports in Indonesia offers valuable lessons for the local industry to create greater efficiency and better cross-sector coordination. 

The fact that Indonesia still needs to import low-complexity items like the hoe from China and Japan has made President Joko "Jokowi" Widodo furious.

Central Statistics Agency data showed Indonesia imported 506 tons of hoes valued at $330,030 from 2015 to September 2019.

Only seven kilograms of the hoes, for a measly value of $65, were imported from Japan, the rest came from China. 

From January to September this year, Indonesia imported 268 tons of hoes for a total value of $101,600.

The lessons to be learned, according to a local study, are how Chinese businesses have created greater efficiency and their government better coordination in managing the economic giant's small industries.

According to the study by think tank Cikini Studi, locally made hoes retail at around Rp 60,000 ($4)-Rp150,000 per piece without handles.

Meanwhile, imported hoes sold on e-commerce sites Tokopedia and Bukalapak cost only around Rp 12,000-Rp 28,000.

"[The imported hoes] are indeed much cheaper. To explain why they are cheaper, we have to consider several factors. The reason is not cheap labor costs as China no longer relies on cheap labor. The answer lies in better efficiency and coordination," Teddy Mihelde Yamin, the think tank's public policy researcher, said.

Logistics costs in China are low at only 14.8 percent of its gross domestic product (GDP). Indonesia's are much higher at 24-25 percent, he said.

China also subsidizes several of its industries, such as electricity, fuel and raw material.

The Chinese government also provides various industry incentives from training to tax cuts to stimulate entrepreneurship and production. 

Another reason is the ease of doing business in China. The country is ranked 46th in the world in ease of doing business, while Indonesia is ranked 73rd. 

Indonesia also lags behind China in the competitiveness index, at 50th in the world while China is at 28th.

Micro, small and medium enterprises (MSMEs) engaging in the hoe business in Indonesia are far behind their Chinese counterparts in terms of competitiveness, Teddy said. 

"We can actually learn a lot from this hoe import debacle. China practically built a giant close-knit village of small entrepreneurs – the Taobao entrepreneurship cluster initiated and supervised by Alibaba's Jack Ma. Inside it there is a large variety of MSME businesses, from factories, logistics companies, to agencies who take care of the accounting and manage their IT system," Teddy said. 

Meanwhile, in Indonesia, "production is scattered and each company does its own shipping. Business owners have to do everything themselves, from looking for raw materials and financing to finding buyers. There's no system and no accounting. Electricity is subject to an industrial tariff and logistics are self-managed. Efficiency is a pipe dream, especially with a long supply chain," Teddy said. 

"The government, through the new Cooperatives and SMEs Minister Teten Masduki, should play a more pivotal role. We can adopt some of the concepts from China and apply them to our scattered industrial centers to cut inefficiencies in our MSME industry," he said.

Teddy said new infrastructures should be built with the aim of cutting logistics costs. If this happens, the relevant ministries will only have to duplicate the same strategies in industrial centers throughout Indonesia.

The government should keep in mind that China began developing their system 40 years ago under Deng Xiao Ping, who had started the country's drive toward increased efficiency.

According to Teddy, Indonesia should focus on developing an entrepreneurship spirit, greater industry efficiency and strong coordination if it were to catch up with China. 

Industry Minister Agus Gumiwang Kartasasmita said he believed the local industry is ready to meet the domestic demand for hoes. 

"This is a homework for the government. But we all have the same goal to encourage growth in the domestic industry," Agus said. 

Importing Hoes Is Illegal

The Trade Ministry has revealed that importing hoes into Indonesia is actually illegal, except in semi-finished form. 

"Imports [of hoes] are not allowed. In 2019, we only issued one import permit for hand tools. Still in sheet form, unsharpened with no edges, paint or branding. That import was for around 800,000 tons," Indrasari Wisnu Wardhana, the director general of foreign trade at the ministry, said last week.

"We have never given an import permit for a finished hoe. If someone has imported it, that's a violation of the law," Indrasari said. 

Veri Anggrijono, the ministry's director general of consumer protection and commerce supervision, said his office had raided importers in Surabaya and Tangerang suspected of bringing in ready-made hand tools from China to Indonesia.

"If they don't have an export permit, we will recommend revoking their business license," he said.