Indonesian officials warn minimum wage could cost drinks jobs

By Jennifer Lewis

- Last updated on GMT

Indonesian officials warn minimum wage could cost drinks jobs

Related tags Beverage industry

Officials in Indonesia have warned that several industries in the country, including the beverage industry, could be damaged if the proposed minimum wage increase is not delayed.

According to some estimates, up to 900,000 workers could lose their jobs when the increase comes into effect, because their companies cannot afford the extra cost.

The beverage industry is expected to be particularly hard hit by this move.

Industry Minister, MS Hidayat said recently that companies will struggle to find the extra cash to pay workers, leaving them with no alternative than to cut jobs. "Businesses cannot bear the costs incurred by the new minimum wage, which has increased by an average of 43%,"​ he said.

Growing beverage industry

Over the past ten years, the Indonesian government has taken a proactive role in developing the country’s food and beverage industry.

By 2008, the food and beverage industry employed around 1.3m people in Indonesia, and contributed a total of 16.2% of the value of the manufacturing industry.

Furthermore, the number of food and beverage companies had increased to more than 6,300 from just 4,500 companies in 2001, and around 23% of all manufacturing companies carried out some form of food or beverage processing.

However, more than 1,320 companies are expected to be affected by the minimum wage increases.

Officials fear that the country’s drinks industry could suffer if wage increases were introduced suddenly, and that staff cuts would mean many companies could not cope with customer demand.

Drinks industry discontent…

Employee wages have been an ongoing problem for Indonesia’s drinks industry.  

Workers in the country’s food and beverage industry were found to work longer hours than the national average, and for smaller salaries.

In 2008, the average wage for someone working in the drinks industry was found to be around 20% lower than the national average for a person in the general manufacturing industry.  

To address this problem, it was agreed last year that the 2013 minimum wage should be increased by 30-40%.

The move came after repeated strikes were carried out by workers who were protesting for higher wages. While the wage increases may be welcomed by some workers, many others may find themselves without a job.

Not only does this present problems for employees, but also for companies. Under the country's employment law, businesses would have to go through a complex legal procedure if they wanted to make redundancies, leaving them liable for potential litigation.

This is a process that is both time-consuming and extremely costly. However, the alternative is a legal obligation to increase a large amount of wages.

This then puts businesses in a Catch 22 situation. Unable to afford the wage increases, and unable to afford making people redundant.

One way of addressing this problem was suggested by President Susilo Bambang Yudhoyono last year: labor-intensive sectors could become exempt from having to comply with the new law. 

This is something that the authorities are currently processing, but it is thought that thousands of Indonesian companies could qualify for this exemption.

Actions being taken

In order to protect the country’s beverage industry, Hidayat has said he would take action. "We need to review the decree because we are in an emergency situation,” ​he said.

“This is a special case where we need to prevent massive layoffs and save these businesses. I will be talking to the manpower and transmigration minister very soon to find a solution to the wage freeze holdups."

He added that that the ministry was currently liaising with various official organisations to try to approve various company exemptions, including the Indonesian Employers Association (Apindo), the Indonesian Chamber of Commerce and Industry (Kadin) and workers' unions.

There is also a worry that this compulsory wage increase may drive some beverage businesses out of Indonesia altogether and discourage foreign companies from investing in the country.

Already 10 foreign companies (mainly from India and South Korea) have left Indonesia and relocated to other Asian countries where operating costs are lower and more manageable.

Apindo chairman, Sofjan Wanandi, said that there were likely to be more casualties in the industry. “Many companies have stated that they can only survive until March,"​ he said.

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