The context of the 2022 global recession, where demand for apparel exports to the US and Europe saw a sharp decline, also adversely affected domestic industry. The US suffered its highest inflation rise in 40 years, forcing consumers to save more. Continuing inflationary conditions, coupled with aggressively rising benchmark interest rates, have spelled a disaster for textile exports from developing countries. Panic spread through companies with a production base in Indonesia. As a result, production orders almost stopped. Even goods that had already been produced were being held back from shipping, as demand collapsed in main export destination countries.
Farming dilemma
Apart from the apparel sector, labor data as of August 2022 shows that a decline in labor occurred in absorption in the agricultural sector. Compared to its August 2021position, there was a decrease of 1.1 million people. The decline in labor absorption in the agricultural sector is quite worrying, because it has historically been the largest absorber of manpower.
Problems in the agricultural sector are quite complicated, starting from the lack of technological adaptation, little interest of younger workers in this sort of employment, the rapid conversion of agricultural land into industrial land and infrastructure, to government assistance in the form of fertilizer subsidies that are only sufficient to cover 30% of national fertilizer needs.
Agriculture also faces challenges stemming from the relaxation of import policies, as contained in the Job Creation Law. The import position is equated with domestic production, creating a gap for the flood of imported foodstuffs. If you look at the food portion of salt, sugar, meat, wheat and garlic, import content is quite high. Dependence on imports creates a disincentive for local farmers. As a result, working in the agricultural sector is less attractive and promises weaker income than any other average profession.
The dilemma of labor in the agricultural sector needs to be resolved immediately, because a food crisis demands a quick response from domestic agriculture. Without massive job openings in the agricultural sector, there will not only be a threat to the demographic bonus, but also food security will be imperiled, in the long term.
Mining Boom for Who?
The increase in commodity prices, including that of nickel, which triggers job creation in the mining sector, often elicits a fundamental question: “Who actually benefits from rising prices for nickel and its derivatives?” This is relevant, considering sizable nickel demand globally, for the raw material used in electric car batteries. The fact is that 50% of nickel mining companies are controlled by foreign players, namely, companies from China. In addition, nickel smelters are set up for the benefit of advanced processing plants in China. With mining controlled by foreign interests, there is an automatic correlation with less optimal absorption of labor.
The nickel bonanza tends to increase the flow of foreign workers into Indonesia. Meanwhile, local workers, although often categorized as low-skilled workers, are often treated like stepchildren. Companies affiliated with foreign interests tend to prioritize foreign workers for various reasons, including the issue of a common language. Discrimination against local job opportunities, especially in filling strategic posts in nickel smelter companies, needs to be changed. The government cannot remain silent, as there are job opportunities in new industries such as nickel processing, but the job opportunities for local workers are limited. Liberalization of foreign workers will cause turmoil in the region, because conditions are inversely proportional to the difficulty of young people in securing work.
Economic contradiction
Under the cloud of a global economic recession, Indonesia’s economic growth data was announced at 5.72% YoY for the third quarter of 2022. This growth is not encouraging. A post-pandemic society is the main factor. There was a loosening of mobility, which encouraged people to start shopping in person (offline). Compare this to the same quarter in the previous year, where there was a significant increase in COVID-19 cases and triggered strict social restrictions: in terms of mobility, conditions during the third quarter were much better.
A commodity price bonanza still supports the economy, so that growth in the agricultural and mining sectors was still quite high in the third quarter. The absorption of labor in the mining sector, although the portion is small, is still hopeful. But the next question is, with the global economic recession, should we not fear that there will be a decline in demand for raw materials? If demand in developed countries that rely on raw goods from Indonesia does indeed decline, it is certain that the next effect will be a commodity price reversal. The painful effects of the end of the last commodity price bonanza were felt by Indonesia in 2012-2014, which resulted in a deep weakening of the Rupiah exchange rate.
Future effects
The situation of a rising wave of layoffs could have several implications in the long term. The demographic bonus might turn into a demographic disaster, as productive age citizens are unable to support the needs of non-productive age ones. The term “sandwich generation” appears, signifying a scenario where young people of productive age face pressure from their families, such as the cost of living necessities, housing and insurance costs, along with children’s education. Meanwhile, young people who have just entered the workforce are faced with the responsibility to deal with parents who need financial and health assistance because their pensions are insufficient to cover daily necessities. As a matter of fact, a sandwich generation is a quite common phenomenon in various developing and developed countries.