One area that undermines trade by m

One area that undermines trade by making Indonesian products less competitive than foreign imports is the country’s low levels of connectivity that are a consequence of its poor logistics system. Connectivity is an issue that poses different challenges depending on whether the bottlenecks are affecting international, inter-island or intra-island trade. The high cost of transporting high quality goods such as shrimp from eastern Indonesia to processing centers in Java makes them too expensive to export, or similarly it is cheaper to import oranges from China than ship them from Kalimantan to Java. These are examples of inefficiencies in inter-island trade. Examples of high intra-island logistics costs include severe road congestion on Java, especially in the greater Jakarta area, together with the poor road quality outside Java, both of which make trucking costs higher in Indonesia than the average for Asia. Finally, the poor performance of Indonesia’s main ports in Jakarta and Surabaya, due to low port productivity and the only partial implementation of the National Single Window (NSW), reduce international connectivity.

The high cost and uncertainty of domestic transportation channels also prevent Indonesia from being more integrated into just-in-time production networks of higher value-added products. Licensing and government-regulated pricing reduce incentives to invest in better services and restrict competition between domestic land and sea freight companies. Restrictions on foreign investment in logistics only worsen the situation by restricting access to new technology.

While Indonesia has made progress in raising port and customs efficiency levels, further improvements are still needed. The average import container dwell time in the main container terminal is five days compared with less than three days in major regional ports. Imports of empty containers clear in less than half the time needed for full containers, showing that most of the delay is caused by border control and inspection procedures as opposed to inadequate infrastructure. Burdensome and unclear administrative procedures contribute to import delays and invite corruption, undermining the competitiveness of industries that use imported components. Also, although Indonesia has a very open economy in terms of tariffs, its non-tariff barriers (NTBs) remain significant and there has been a worrying increase in NTBs recently.

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