In general, manufacturing refers to activities that process one or several raw materials into other products with greater added value. These activities can be carried out by individuals or manufacturers as well as by companies or manufacturing companies. Meanwhile, the manufacturing industry refers to a group of similar companies that process materials into semi-finished or finished goods with greater added value.

In everyday practice, manufacturing activities in the country face several obstacles. Besides the unstable national and international economic conditions, there are various internal challenges in the manufacturing industry that must be faced. These include difficulty predicting demand, difficulty controlling inventory, obstacles to increasing efficiency, difficulty increasing ROI (Return on Investment), a shortage of qualified labor, difficulty managing sales prospects, and challenges in adapting to technological changes.

In short, the problem of the national manufacturing industry is a competitiveness issue. In other words, it is less competitive than similar industries from neighboring countries. As of March 2024, the Indonesia Manufacturing Index, measured by expansion spending or the Purchasing Manager’s Index (PMI), shows a satisfactory level but requires further improvement.

According to data from S&P (Standard & Poor) Global in a survey conducted in March 2024, there was strong growth across Indonesia’s manufacturing industry, both in terms of production and new orders. Indonesia's seasonally adjusted PMI (Purchasing Manager’s Index) rose from 52.7 in February 2024 to 54.2 in March 2024.

S&P Global sets 50 as the midpoint so that a figure below 50 indicates a contraction, while a figure above 50 indicates expansion.

Green Industry

Despite being fairly satisfactory, Indonesia's manufacturing sector is considered to need continuous improvement. The government, through the Ministry of Industry, continually strives to enhance the competitiveness of the manufacturing industry by implementing sustainable principles. One of the efforts is through green industry policies, which broadly cover three pillars of sustainability: economic, environmental, and social.

“Green industry can also be used as a tool to reduce greenhouse gas (GRK) emissions to achieve the set targets,” said Head of the Industrial Services Standardization and Policy Agency (BSKJI) of the Ministry of Industry Andi Rizaldi at the Provincial Level National Green Industry Forum and Green Industry Standard Certification Facilitation Program held in Surabaya on Tuesday (April 30, 2024).

As noted by the editorial team of www.indonesia.go.id, the Head of the Industrial Services Standardization and Policy Agency (BSKJI) further added that the development of green industry is not only the responsibility of the central government but requires active roles from all stakeholders, especially local governments, to encourage industrial entrepreneurs to transform from conventional industries to green industries through the application of green industry standards (SIH). “With the implementation of green industry, it is expected to address various issues and challenges ahead such as climate change and decarbonization,” he said.

The Green Industry Forum initiated by the Ministry of Industry's Green Industry Center was attended by more than 100 participants, including representatives from the Provincial Industry and Trade Offices, industrial entrepreneurs in East Java, representatives from green industry standards (SIH) institutions, and representatives from related Ministries/Agencies. “The active role of all parties to create a better, greener, and more sustainable future will be a positive legacy for future generations,” explained Andi.

Backbone of Social Development Goals

The application of green industry standards (SIH) is one of the instruments that will become the backbone to achieve the goals of sustainable development (Social Development Goals/SDG’s), Environmental Social Governance (ESG), Indonesia's Nationally Determined Contribution (NDC), and Net Zero Emission in the manufacturing sector by 2050 or earlier.

Referring to that, the Ministry of Industry stated it would push green industry standards (SIH) to strengthen market access, access to funding, as well as drive the achievement of decarbonization targets. To this end, the Ministry of Industry focuses on several aspects, such as encouraging SIH to play a significant role in Government Procurement (Green Public Procurement).

Additionally, green industry standards (SIH) are also encouraged to act as safeguarding national products in response to regulatory changes in export destination countries, especially CBAM (Carbon Border Adjustment Mechanism). For example, SIH related to aluminum, steel, and hydrogen.

At the same time, green industry standards (SIH) are also directed to become one of the instruments in achieving the company's benefit value (BMP) to meet the requirements of local content level (TKDN). Furthermore, SIH is also aimed to be an instrument of international trade, both as non-tariff measures (NTM) through the mandatory implementation of SIH to face the influx of imported products, and as one of the factors for fulfilling the criteria of the certificate of origin (COO) within the framework of free trade agreements with partner countries.

Moreover, through green industry standards (SIH), it is hoped to play a role in achieving priority industry targets according to the Ministry's strategic programs to enhance competitiveness while fulfilling national commitments in NDC (Nationally Determined Contribution) and NZE (Net Zero Emission).

Through the National Green Industry Forum, the Ministry of Industry also encourages industry supervisors across Indonesia to synergize and collaborate with all stakeholders. This forum is expected to be a platform for exchanging knowledge, increasing understanding and awareness of the implementation of green industry, including the role of local governments in providing incentive stimuli for industries to transform into green industries.

“In the future, the appreciation of green industry performance in the form of green industry awards will not only be given to industrial entrepreneurs but also to parties that have contributed, including local governments that have actively played a role in developing and transforming their supervised industries into green industries,” said Andi.

Market Opportunities

In the series of this forum, the Ministry of Industry also inaugurated the Green Industry Standard Certification Facilitation Program, which is one of the efforts to help industries transform into green industries. In 2024, the Ministry of Industry targets 70 industrial companies to be facilitated with Green Industry Certification. Referring to the data disclosed by Andi, in Phase I, there are already 48 industrial companies registered as recipients of the facilitation assistance.

On the same occasion, Head of the Green Industry Center Apit Pria Nugraha stated several benefits of applying green industry standards (SIH) and having a Green Industry Standard Certificate. These include increased profits and competitiveness through improved efficiency or productivity, enhancing the company's image nationally and globally, and improving the company's performance in terms of energy bills, utility costs, raw material costs, and environmental management costs.

Other benefits include opening opportunities and ease of access to funding (green financing), opening new market opportunities, especially for green or sustainable products, participating in preserving environmental functions, and encouraging and supporting the acceleration of GRK (greenhouse gas) emission reduction programs.

To achieve increased competitiveness and national economic growth targets by 2045, SDG’s (Social Development Goals), Indonesia's NDC (Nationally Determined Contribution), and NZE (Net Zero Emission), there needs to be an acceleration of the application and transformation of the manufacturing industry into a green industry. “To encourage this acceleration and transformation, there needs to be the provision of stimulus in the form of facilitation incentives. The provision of facilitation incentives, both fiscal and non-fiscal, in accordance with the mandate of Government Regulation number 29 of 2018, can be carried out by the central and local governments,” explained Apit.

Translator: Ratna Puspa Merdika