Technological Disruptions in Employment and the Financial Sector

BKPM Chairman Thomas Lembong shared his thoughts on manufacturing automation and the fintech industry at the Economist’s Indonesia Summit

By Christ Ponderosa
Monday, June 11, 2018

At the Economist’s Indonesia Summit, the Chairman of the Indonesia Investment Coordinating Board (BKPM) Thomas Lembong said he was not worried about automation posing a threat to employment.

During a panel discussion at the summit, held at the Shangri-La Hotel, Jakarta, on April 5, Lembong said that although capital was very selective, Indonesia need not worry because it was experiencing a rising middle class and a boost in the tourism, lifestyle, and services industries. He also cited the fact that the nation has the biggest emerging market in the world as another reason that makes Indonesia appealing to investment.

Lembong said that Industry 4.0, also known as the fourth industrial revolution was inevitable, and, going against the common perception, he was confident that with it there would be a lot of opportunities for job creation. In reference to a report released by McKinsey Global Institute in November last year that estimated between 400 and 800 million of today’s jobs being automated by 2030, he said he was optimistic that despite what looks like a concerning possibility to many, automation will create new jobs that require workforce retraining, but such retraining was not likely to be difficult, since those new jobs would require skilled workers, but not highly skilled ones.  

If anything, Lembong thought that automation was good for Indonesia, as it tended to make things smaller, more portable and modular, and automating manufacturing would help spread a more effective and efficient supply chain network to customers across the archipelago.

One of the panelists was cofounder, President Director and CEO of Nippon Indosari, Wendy Sui Cheng Yap, who said that technology and automation enabled an increased efficiency in her company’s manufacturing processes. She said she supported Industry 4.0, because technology had allowed her company to achieve consistency in product quality, while also increasing flexibility in the most cost-efficient manner.

In response to the potential destruction of current jobs and the creation of new ones, Yap emphasized that it was the responsibility of each company to provide training to help workers adapt to the disruptions that automation were likely to create.

President Director and CEO of Sritex, Iwan Setiawan Lukminto, shared similar views on automation, saying that despite the need for education levels to be increased and for the quality of human resources to be maintained, technology had allowed his company to simplify manufacturing processes and made them more efficient, while simultaneously enabling greater customization through the use of the Internet of Things (IoT).

Mayor of Makassar, Mohammad Ramdhan Pomanto spoke of the provincial capital’s status as a transportation and business hub, and how bringing in automated manufacturing could help it become the logistics center of Indonesia. He also said that making it a smarter city was his vision, which he planned to accomplish by ensuring a stable qualified supply of human capital ready to embrace Industry 4.0.

The summit featured another panel discussion titled “Finance Disrupted,” where conversations centered on the question of whether fintech firms posed a threat or an opportunity for Indonesia’s traditional banks. While the majority of the audience felt that it depended on how the traditional banks adapted, the consensus was that a change in regulations was necessary to accommodate collaboration between fintech and Indonesia’s banking industry.

Cofounder and CEO of Investree, Adrian Gunadi, said that fintech was a threat to the banking industry in the market segment that provides SME funding. The use of technology in the segment decreased the cost of borrowing, and fintech firms were able to lend foreign funds at a faster rate. Founder of Convergence Ventures, Adrian Li, said the game changer in the financial sector was the faster speed and greater accuracy in credit scoring and rating that fintech firms provided.

In response to this, the Executive Vice President of Bank Rakyat Indonesia, Kaspar Situmorang, said that the traditional banking industry needed to develop better technology to counter the “attack” that fintech firms had launched into the financial segments that had not been captured by the banking industry. President Director and CEO of OCBC NISP, Parwati Surjaudaja, shared similar views and recommended that banks try to find a market segment that was not in direct competition with fintech firms.

Li identified consumption financing as a segment in the financial sector that fintech firms had not yet touched, and where banks could provide more innovative services. He cited the example of student loans, saying there was a strong demand for these types of products, but still niche in Indonesia’s consumption financing market and thus underserved.

Surjaudaja said competition from fintech firms came as a surprise to the traditional banking industry, primarily because it was operating within its comfort zone, due to strong protection from regulators, which created a false sense of confidence and complacency.

Lembong said the banking industry in Indonesia was very conservative, partly due to the trauma of the 1998 Asian financial crisis, with an imposed capital requirement of 23 percent — considerably higher than the global 12-14 percent. While this contributed to very high liquidity in Indonesia’s banking sector, it also caused the banking industry to refrain from taking enough risks, which eventually hurt the economy. Lembong also said that fintech was becoming an alternative funding source whose impact would be felt tremendously in the next 10-15 years, with the explosion of new funding sources, such as crowd-sourcing/funding.

On the role of the government in regulating the financial sector, the panelists said that greater clarity in supervisory guidelines was necessary. Surjaudaja also suggested the government looked at the whole financial system when drafting regulations, so as to ensure that a holistic view of the industry was considered. Li warned of the importance of having a clear goal and target in mind when crafting policies: “It is important to be clear who it is exactly [that] we are protecting [by having a certain regulation].”

When asked about the possibility of a trade war between China and the US, and its impact on Indonesia, Lembong said that it was time to admit that China was becoming “very central to and very active in global trade and tourism,” although the US was still leading global investment.

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