Can Indonesia’s 50 Cent-an-Hour Workers Mimic China’s Success? – by Chris Brummitt (Bloomberg News – April 9, 2015)

http://www.bloomberg.com/

As the sun lowers into the Java Sea, Asep Saefullah and his friends sit by a pond among the rice fields near his village in Indonesia, chatting, smoking clove cigarettes and fishing.

Not for much longer. Work has begun on an industrial park with a power station and water treatment plant that will create as many as 190,000 jobs. It’s part of a grander plan to turn this stretch of coastline on the island of Java into an export city, with a container port and a highway to the capital, Jakarta.

This is Indonesia’s shot at recreating the success of Shenzhen, the marshy village in southern China that became the heart of that nation’s industrial expansion in the late 1990s. Now China is too expensive for many factories, and industries that poured money into cities from Shenzhen to Shanghai for two decades are looking for somewhere with lower costs and lots of cheap workers.

“The great China boom was really bad for the Southeast Asia economies,” said Tim Condon, the Singapore-based head of Asia research at ING Groep NV. “With the China slowdown, all that moves in reverse. Southeast Asia’s manufacturing sector is the big winner, as it was in the early 90s.”

Beauty Contest

That’s created a beauty contest among Southeast Asian low-income nations looking to lure investment, including Vietnam with its high-technology parks and the Philippines with its young population and English-language skills. Indonesia’s trump cards are the region’s biggest economy and some of its lowest wages.

Workers in Central Java, the province of 30 million people where Saefullah is fishing, earn as little as 50 cents an hour – – less than $100 a month. In the industrial area around Jakarta, they get almost twice that. In Vietnam the minimum monthly wage is $146, while it’s about $200 in the Philippines and $240 in Malaysia.

The race to get a slice of China’s manufacturing is part of Indonesian President Joko “Jokowi” Widodo’s effort to wean his country off a dependence on exports of minerals and palm oil.

Mining Boom

In 2001, at the start of the China-driven boom in energy and mining, Indonesia received 52 percent of its export revenue from commodities and about 20 percent from manufactured goods, according to data compiled by Bloomberg. A decade later, commodities accounted for 68 percent, while manufacturing had slid to about 14 percent.

China’s economic growth slowed after that, hitting countries like Indonesia and Australia that had ridden the resources boom. Yet Indonesian factories have struggled to make up for the downturn because of bureaucracy, corruption and poor infrastructure.

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