GoLive Indonesia co-founders Professor Christopher Findlay (University of Adelaide) and Professor Mari Elka Pangestu (University of Indonesia, a former Indonesian Minister of Trade and Minister of Creative Economy) presented their work “The Services Sector as a Driver of Change: Indonesia’s Experience in the ASEAN context” at the 10th Sadli Lecture on Tuesday 12th April 2016 in Jakarta.
The event was hosted by LPEM at the University of Indonesia, Indonesia Project at Australian National University and the ISD (Indonesia Services Dialogue). Annual Sadli lecture series continue to highlight important and local issues using a regional context.
In his opening remarks, Indonesian Trade Minister H.E. Mr Thomas Lembong shared his recent experience of trade negotiations with the European Union and Australia. He highlighted that the negotiations have been focussed on two aspects: i) the services sector; and ii) the digital economy. Any country that has not provided enough attention to the services sector will be left behind.
The Minister nicely summarised that:
The services sector is “the 21st century’s issue.
In his keynote speech, Professor Christopher Findlay summarised that the services sector contributes to Indonesia’s 45% of GDP and 43% of employment. About 60 million people are employed in services, which indicates an increase of 20 million in the last decade. Indonesia exports mainly travel and transport and also imports travel and transport.
Despite its potentials, this sector is under-developed.
Employment is still mostly in unskilled and informal sector such as trade in construction, but growing in other more formal sectors.
Services sector grows with income. Professor Findlay pointed out that services growth is fundamentally about the organisation of production in particular the use of contracting out services.
The services sector is about providing value adding activities by each other. He also observed that there is an interesting connection with urbanisation.
In regards to its connection with trade, whilst services require contract, technological change improves ‘tradeability’.
Services sector also supports participation in global value chains. In short, Professor Findlay concluded that the services sector contributes to productivity growth and other sector’s competitiveness.
Within the policy context, Professor Mari Elka Pangestu observed that services sector tends to be regulated because of the simultaneity of consumption and production. Moreover, the services sector regulates first mover advantage and market power in order to regulate competition.
According to OECD and World Bank data, Indonesia has a relatively restrictive policy regime in services especially for restrictions on foreign entry and employment of people. In their econometric analysis, Prof Findlay and Prof Pangestu find that the services restrictiveness index explains more of the variation in services that other variables.
Professor Pangestu pointed out that policy in the services sector is complex and difficult to assess. There is also a complex coordination required across agencies and this requires political will. Several steps to develop modern services sector include diversifying the economy and taking the advantage of technological developments; providing source of foreign exchange; and enhancing human capital and providing jobs.
Policy decision making should also improve transparency; generate better policy information; and implement reforms.
As defined by Prof Pangestu:
Quite often bad times lead to good policy and good times lead to bad policy.
A remaining question is how we can contribute to this growth and policy discussion and ensure that the growth and policy development is inclusive?
More details fabout Prof Findlay and Prof Pangestu’s talk can be found from their BIES article.