A survey of Indonesian industry has highlighted how the populous southeast Asian nation's manufacturing sector continues to operate below its potential.
HSBC's purchasing managers index for October showed industrial activity slowing on every measure. All five subcomponents – output, new orders, employment, suppliers' delivery times and stocks of purchases – registered below the watermark of 50 separating expansion from contraction. Worryingly, this was the third consecutive month industrial employers cut jobs.
Shrinking factory growth is just what Joko Widodo, Indonesia's new president with reformist credentials, needs to address.
Foreign investors have long hoped the manufacturing sector would help Indonesia unshackle its fortunes from China, the main customer for its natural resources. As well as coal and nickel, the country offers plentiful land, a young population and cheap wages. The rupiah is near a five-year low against the dollar.
But Indonesia's factories have struggled to grow since the 1990s financial crisis, hobbled by weak infrastructure and a lack of workforce skills. As the below chart from the World Bank's latest quarterly report on Indonesia shows, manufacturing's share of GDP is static.
The World Bank says:
If Indonesian manufacturing firms are to take greater advantage of the Rupiah depreciation since mid-2013, and from the anticipated continued pick-up in demand from high-income economies, long-standing bottlenecks, for example, relating to logistics costs and infrastructure quality, need to be addressed
Corruption and inequality can be blamed. Indonesia's roads are potholed because budgets disappear. Productivity is low as blue collar workers see few prospects for advancement. The lack of a strong rule of law deters investment.
Mr Widodo offers hope. Unconnected with the dynastic power base, his rise is compared to Barack Obama's and sends good signals about social mobility. His decision to have ministers vetted by the anti-corruption watchdog shows he abhors crony capitalism.
But his party controls a fifth of parliamentary seats. The status quo represented by Prabowo Subianto, the former general defeated in the presidential race, who is expected to spend the next five years undermining the president, remains strong. Multinationals are clearly attracted to Indonesia. They will only swarm in if Jokowi's reform drive works out.
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