Manufacturing Industry in Indonesia: Assessing Its Progress and Future Prospects

Abstract

The article evaluates Indonesia’s industrialization journey from the 1960s to the present, analyzing its historical progress, current challenges, and future pathways toward enhancing its manufacturing sector. Despite the signifcant role of manufacturing in economic development, Indonesia struggles with issues such as premature deindustrialization, stagnant economic growth, limited participation in global value chains, and low-skilled workforce. The article explored the history of industrialization from the start of the “New Order,” the effects of the Asian Financial Crisis (1997-1998), to the subsequent recovery period, highlighting the need for policy reforms to promote innovation, liberalize trade and foreign direct investment (FDI), and improve human capital quality. Key challenges identifed include limited technological adoption, insuffcient quality job creation, and the potential negative impact of protectionist policies, particularly in the context of climate change and environmental sustainability. Hence, comprehensive policy instruments that focus on institutional development, infrastructure enhancement, and human capital improvements, aiming to align Indonesia’s industrial growth with sustainable economic development objectives, are necessary for advancing Indonesia’s manufacturing industry in the future.