The services sector is an increasingly important and challenging part of the Indonesia economy in terms of its contribution to the economy and employment, and its role in Indonesia’s economic development.
The services sector is now the largest sector in the economy, ahead of agriculture, manufacturing and mining. It contributed an estimated 58 per cent of Indonesia’s GDP and 43 per cent of employment in 2005 although current research indicates that the employment share has grown substantial since that time. It is also estimated that 40 per cent of intermediate input used by services industry in Indonesia come from services industry.
Growth in services is therefore important because of the direct contribution to national wealth and jobs creation. Growth is also essential to avoid constraints and bottlenecks in business activity and national development.
The services sector produces a wide range of “intangible goods” like travel, hospitality and health which are consumed every day by as final products in Indonesia and which provide export revenue as they are consumed by foreigners. Just as importantly, the services sector provides the economic linkages which enable the economy to function effectively, particularly services like finance, telecommunications, utilities, transport and distribution services.
Users of services, which include all businesses as well as individual consumers, also have a strong interest in the quality and efficiency of the services sector. The quality and efficiency of delivery of services influence the cost of doing business, the investment climate, employment creation and the international competitiveness of the Indonesian economy. Health and education services are a critical component of national welfare and of economic development. The effectiveness of new physical infrastructure largely depends on the performance of related services.
All of these issues are also particularly important in the economic development of the regions of Indonesia which are underserved in services compared with the major centres and where regional governments have little knowledge of the complexity of regulation in the services sectors.