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The Spatial Distribution of Manufacturing Industries: an Analysis of Central Java

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The Spatial Distribution of Manufacturing Industries: an Analysis of Central Java Ekonomi dan Keuangan Indonesia Volume 41, Nomor 2, 1993 The Spatial Distribution of Manufacturing Industries: An Analysis of Central Java Piet Rietveld Daniel D. Kameo ABSTRAK Artikel ini menganaiisis distribusi spasiai kegiatan manufaktur di Jawa Tengah menurut Kabupaten - berdasarkan data 1988. Kedua penulis menemukan bahwa lokasi industri umumnya berorientasi pada daerah perkotaan. Lebih dari 25 persen perusahaan industri beriokasi di daerah-daerah Kotamadya. Angka tersebut lebih besar jika kabupaten-kabupaten yang berbatasan dengan kotamadya ikut dimasukkan. Kecenderungan ini berkaitan erat dengan ketersediaan faktor-faktor produksi. terutama infrastruktur. Lokasi industri akan mengarah ke daerah-daerah yang memiliki fasiiitas teiepon, jalan. air dan listrik yang lebih baik. Dalam kaitan ini. daerah perkotaan jelas lebih baik daripada daerah pedesaan. 1 This paper is partly based on the study "Analisis Perkembangan Lokasional Industrialisasi di Jawa Tengah," Department of Economics, Universitas Kristen Satya Wacana, Salatiga, 1992. This Study contains contributions by Daniel Kameo, M.A., Gatot Sasongko, M.S., Yos Indrajit SE, and Prof. Drs. Sadyadharma. Youdi Schipper and Niels Vtaanderen contributed to the statistical analysis in Section V. 211 Rietveld dan Kameo I. INTRODUCTION The manufacturing industry has been a very dynamic sector in the Indonesian economy during the past two decades. During the 1970's this development was overshadowed by the extremely rapid development of the oil sector, but after the stagnation of the international oil market in 1982, manufacturing has become a leading sector in economic growth in Indonesia. Part of the manufacturing growth is immediately related to the use of natural resources, mainly oil and timber. This growth of resource based activities took place especially on the islands of Sumatra and Kalimantan. But footloose industries, being much less dependent on natural resources have been very dynamic too. These footloose industries, which are mainly located on Java, produced ever increasing production volumes to come to meet domestic demand. Some of these sectors (clothing, textiles, footwear) started to become major exporters in the 1980's. From a spatial perspective the growth oh the manufacturing sector was beneficial for resource rich regions such as Sumatra and kalimantan. The eastern part of Indonesia could only benefit to a limited extent. The island of Java was also a major beneficiary of the dynamics in the manufacturing sector, i.e., for the footloose activities. The cities of Jakarta, Bandung and Surabaya and their surrounding areas developed into large industrial centers giving the provinces of West and East Java a clear industrial face. In Central Java, on the other hand, the manufacturing sector has a much more modest presence. As indicated in Table 1, Central Java remains far behind West and East Java in terms of non-oil manufacturing output. When oil processing is taken into account, the Central Java share in total output increases somewhat due to the presence of petro-chemical activities in Cilacap. In this respect. Central Java is an exception compared with the other parts of Java where oil related manufacturing is absent. Oil processing plants are primarily located on Sumatra and Kalimantan. In terms of total manufacturing employment, the position of Central Java is of about the same level compared with that of West and East Java. Obviously, average output per worker is lowing Central Java and the share of small scale firms is high in this province. Another difference between Central Java on the one hand and East and West Java on the other hand concerns the existence of a clear industrial center. In central Java there is no outstanding industrial center of a size comparable with Jakarta, Bandung or Surabaya. The province's capital city, Semarang, never had a strong industrial base and specializes in services and trade. The city of Yogyakarta, Located near Central Java, specializes in tourism and education. The province of central Java has a number of centers of more limited size, however, such as Pekalongan, Kudus, Salatiga, and Surakarta, each with its own profile of 212 The Spatial Distribution of Manufacturing Industries Tabel 1 Regional Distribution of Manufacturing Activity in Indonesia, 1985 Perc»rlllig4rffN^tiku«tlT<^ Quputt in Large, Errrpfoyment in Regfon in Large and llifedium Scaie ' iiMcH^um, and Smafi Large, *4edfufri,an{S ln(histry(Exoiuciing $cate indu$i]> Smsk Scale IndusUy OS) (IftctudingoR} Jakarta 18.7 12.1 12.2 West Java 26.9 16.8 21.0 Central Java/ 7.6 11.1 21.6 Jogjakarta East Java 21.1 13.5 23.4 Sumatera/Kaliman- 21.9 43.9 16.9 tan Rest of Indonesia 3.7 2.7 4.9 Total Indonesia 100.0 100.0 100.0 specialization. These cities are located in the Northern and Eastern part of the province. In addition, the oil related activities in Cilacap on the south coast should be mentioned. Another way to illustrate the lack of interest from large investors to invest in Central Java is provided by investment figures of the regional investment board (BKPMD). As indicated in Table 2, West Java (including Jakarta) has been able to attract the lion's share of investments for which BKPM approval is necessary (almost 70%). The share of Central Java is only 6% for domestic investment and 7% for foreign investments. It is important to observe that Central Java never was a major area of large scale manufacturing activity. It was always dominated by West Tabel 2 Regional Distribution of Approved BKPM Investments (1968-1989) Oopwstielnvftstnient Foreign Invwtnwd Jakarta 9.8 West Java 37.1 Central Java/Jogyakarta 6.5 East Java 10.1 Sumatera/Kalimantan 28.2 Rest of Indonesia 8.3 Total Indonesia 100.0 Source: BPS, BKPM 213 Rietveld dan Kameo and East Java. The high level of regulated in manufacturing as well as the strong bureaucracy have certainly stimulated investors to located near the spatial center of government power, i.e., the Jakarta region. That major improvements have been realized in infrastructure has been improved as witnessed for example by the container facilities in the port of Surabaya and the toll road in the Surabaya area. But also in Central Java infrastructure underwent major improvements not as spectacular as in East and West Java (cf also Dick and Forbes, 1992). The present level and quality of Central Java infrastructure certainly allow higher levels of large scale manufacturing activity; nevertheless, it seems that infrastructure remains a bottleneck in further economic development all over Java. This is of course no surprise since the recent levels of economic growth in the private sector are so high that it was difficult to match these by investments in the public sector. Infrastructure will continue to play a main role in Indonesian economic policy, therefore, and it may be expected to have a considerable influence on spatial development patterns, not only at the high levels of spatial aggregation here, but also at the lower inter-Kabupaten level. It is to this level that the present paper will be addressed. This paper aims at analyzing the spatial distribution of manufacturing activity in Central Java at the kabupaten level. Trends in investments will be studied in section 11. In section 111 we discuss the spatial distribution of large and medium scaled manufacturing activity, followed by a discussion of small scale industry in section IV. Section V contains a statistical analysis of location patterns with special attention to the role of infrastructure as a location factor. Section VI concludes. II. INVESTMENT TRENDS IN THE MANUFACTURING INDUSTRY Data from the Regional Investment Coordination Board (BKPMD) show that both foreign investment (PMA) and domestic investment (PMDN) significantly since early Pelita 1 to 1989. In that period, the domestic investment increased from the total of Rp. 88.454 billion in Pelita 1 and Pelita 11 to more than double that amount, Rp 199.625 billion in Pelita 111, and again that amount increased more than double, Rp 461.400 billion in Pelita IV. In the year 1989 alone, the realized domestic investment reached Rp. 314.000 billion. Foreign investment has also experienced a significant increased since Pelita 1. Although it has been concentrated only in nine regions, the total amount has increased from Rp 73.541 billion in Pelita 1 to the total of Rp 316.061 billion in Pelita IV. In the year 1989 alone, foreign investment reached the total of Rp 429.000 billion. At the level of central Java, the shares of domestic and foreign investment were 55% and 45%. The spatial distribution of the two categories was rather different, however. For PMDN, 71% of the total investment was invested in rural 214 The Spatial Distribution of Manufacturing Industries areas (Kabupaten) while most of the PMA, 64% was invested in the urban areas (Kotamadya). In addition, it must be noted that the investment disparities among regions are relatively high. In total, 83% of the investment, PMA and PMDN is concentrated in only eight regions, namely Kotamadya Semarang, Kotamadya Surakarta, Kotamadya Salatiga, Kabupaten Kendal, Cilacap, Semarang, Karanganyar and Kabupaten Sukoharjo. Gradually a process of deconcentration has taken place as can be seen from the coefficient of variation as an indicator of interregional disparities. The coefficient of variation for the total investment in Pelita 1 and Pelita 11 is 2.8, which later decreased to 2.0 in Pelita III and 1.9 in Pelita IV. i III. SPATIAL DISTRIBUTION OF MEDIUM AND LARGE SCALE INDUSTRIES AND EMPLOYMENT ABSORPTION Data from the 1988 central Java Industrial statistics show that there are clear spatial concentrations of manufacturing activity among the 35 regencies/municipalities in central Java. Food, beverages and tobacco (ISlC 31) manufacturing, although relatively equally distributed, are still concentrated in certain regions. More than 45% of the total establishments are concentrated in Kabupaten Klaten, Kabupaten Boyolali, Kabupaten Kudus, Kabupaten Pati and Kotamadya Semarang.
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