Downstreaming is Endless

Comfort tends to procrastinate. This maxim can also be seen in commodities that for years are sold just the way they are in the form of raw materials.

MAWAR KUSUMA WULAN/KOMPAS

In order to support the downstream copper policy, PT Freeport Indonesia (PTFI) built a copper smelter in the Java Integrated Industrial Special Economic Zone (SEZ) and Industrial Port Estate (JIIPE) in Manyar District, Gresik, East Java, Tuesday (7/2/2023).

Revenues can be made in a short time, especially when commodity prices soar, thereby making one complacent. Now, efforts to get added value to the downstream are slowly realized. It is time to realize a plan that has been echoed years ago.

President Joko “Jokowi” Widodo, at an event held by the Indonesian Economist Association, said the national economy had been in transition from the consumption economy to the production economy. Economic growth based on raw commodities must be abandoned to switch to industrialization and downstreaming (Kompas, 10 July 2015).

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In Kompas100 CEO Forum, the President said Indonesia's biggest challenge was to overcome the trade balance deficit and current transaction. Therefore, downstreaming and industrialization must be encouraged and boosted, especially for the mining sector (Kompas, 28 November 2018).

At that time, Indonesia's current account, which for years was deficit, became a trigger for industrialization and downstreaming. Based on Bank Indonesia (BI) data, the current account deficit in January-September 2018 amounted to 2.86 percent of GDP. The 2016 current account deficit amounted to 1.82 percent of GDP and in 2017 it was 1.7 percent of GDP.

KOMPAS/MOHAMAD FINAL DAENG

A worker inspects ferronickel products processed from nickel ore at the PT Aneka Tambang (Antam) factory in Pomalaa, Kolaka Regency, Southeast Sulawesi, Friday (11/5/2011).

In downstreaming, various types of added value can be obtained. Product prices are multiplied many times compared to raw goods. The processing industry can absorb labor in the midst of a situation where 8.42 million people were unemployed in Indonesia as of August 2022, according to data from Statistics Indonesia (BPS). Technology can be adopted. New markets for processed products can be targeted, even created. Furthermore, exported processed products can increase export income and "compensate" import expenditure for raw materials, auxiliary materials and capital goods.

Nickel ore, one of the raw materials for batteries, has been in the process of being prohibited from export since 2020. Bauxite ore will be prohibited from export as of June 2023. Provisions on processing or purifying metal minerals in the country in order to increase this added value refer to Law No. 4 of 2009, which was amended by Law No. 3/2020 on Mineral and Coal Mining.

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A large map of the downstream ecosystem is needed so no things or stages are scattered, which leads to nonoptimal results. This ecosystem involves various industries that support each other in order to realize downstreaming that provides maximum benefits.

There are industries that process raw minerals into semi-finished and finally, finished products, supporting industrial financing, and there are also those who support processed products available in the market and easily reached by consumers. No less important is the industry that manages the waste or industrial products that are no longer used. The enthusiasm and commitment from upstream to downstream and maintenance of sustainability should not stop.

This article was translated by Hyginus Hardoyo.