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Factory Closures Hinder Economic Gains from Commodity Boom
Indonesia entered a global commodities boom in recent years, buoyed by high prices for nickel, coal, and other resource exports. However, this surge has failed to translate into strong overall economic performance because of a sharp decline in the manufacturing sector, historically the bedrock of middle-class employment and inclusive growth. While resource exports are capital intensive, offering fewer labor-intensive jobs, industrial output has diminished considerably.
Several well-known factory closures have underscored this trend, including in textiles and apparel, with job losses exceeding 40,000 in the first half of the year alone. These closures reflect more than just company-level setbacks, they signal a structural retreat from production to extractive industries. As a result, Indonesia’s middle-class growth is faltering, with rising informal employment and stagnant purchasing power gradually eroding household resilience.
Consumer-centric firms, ranging from fast-moving consumer goods to retail and hospitality, are already experiencing revenue shortfalls. Even large multinational brands are recalibrating expectations as domestic demand softens. Meanwhile, efforts by policymakers, including ambitious growth targets, remain out of reach without fundamental reform. Economists argue that reversing this trajectory requires improving the investment climate, deregulating industry, and reinvigorating labor-intensive sectors that can deliver widespread employment opportunities.
Despite positive GDP growth figures hovering around 5% in recent quarters, skeptics caution the underlying data may not reflect reality given weak industrial metrics. Concerns linger about social stability; if underemployment persists, disillusionment could rise across the middle-income demographic. Structural policy changes, not only fiscal stimulus, are seen as essential to restoring economic diversity, competitiveness, and sustainable growth in Indonesia.
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