Thanks to North Maluku and Efforts to Narrow Inequality

North Maluku's economy is growing impressively. However, budget management is not yet optimal, meaning disparities still exist.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Berkat Maluku Utara dan Ikhtiar Persempit Ketimpangan

KOMPAS/RADITYA HELABUMI

The fish caught by fishermen are ready to be distributed in Kawasi Village, Obi Island, South Halmahera, North Maluku, on Sunday (26/11/2023). The high potential of fish in the waters of Obi Island is one of the main sources of livelihood for residents, including fishermen in Kawasi Village.

North Maluku is blessed with land and islands rich in natural resources. Nickel contained in this area has been one of the sources of boosting regional economic growth in the last decade. However, inequality is still a problem

The Central Statistics Agency (BPS) of North Maluku recorded that the economic growth in North Maluku in Q3-2023 compared to the same period in 2022 showed a positive trend. As in the previous five years, the economic growth of this province is still in the double digits. In Q3-2023, the economic growth of North Maluku (Malut) was 25.13 percent, with a gross regional domestic product (PDRB) worth Rp 21.6 trillion. In Q3-2022, the economic growth of Malut was 24.85 percent with a PDRB worth Rp 17.6 trillion.

The structure of Maluku's Gross Regional Domestic Product (GRDP) based on field of business using prevailing prices in the third quarter of 2023 is still dominated by the manufacturing industry at 32.85 percent, followed by mining and quarrying at 20.17 percent, agriculture, forestry, and fisheries at 12.65 percent, wholesale and retail trade, repair of motor vehicles and motorcycles at 10.05 percent, as well as government administration, defense and mandatory social security at 8.08 percent. The contribution of these five fields of business to Maluku's economy reaches 83.80 percent.

Also read: Downstream Nickel and the Story of Our Natural Resources

KOMPAS/RADITYA HELABUMI

On Saturday (25/11/2023), the nickel smelting factory with Rotary Kiln Electric Furnace (RKEF) technology, located at the mining and nickel processing industrial zone of Harita Nickel Group on Obi Island, South Halmahera, North Maluku, was in operation.

The impressive economic growth cannot be separated from the significant contribution of nickel mining in the Maluku Islands. The three largest nickel mining contributors in Maluku come from the districts of South Halmahera, Central Halmahera, and East Halmahera. All three regions produce nickel, but the latter two are still struggling with poverty and inequality.

The rapid growth of the mining and mineral processing sector in North Maluku has resulted in a decline in traditional sectors such as agriculture and fisheries. Inevitably, this has led to inequality and poverty as well. During the Fagogoru Grand Assembly in late October 2023 in Ternate, Governor Abdul Ghani Kasuba of Maluku Utara explained that poverty pockets were found in regions surrounding mining, such as Central Halmahera and East Halmahera.

"Regions with high growth rates are actually the poorest, I don't know whose fault it is," he said.

Rich, but poor

KOMPAS/RADITYA HELABUMI

Residents buy fresh fish caught by fishermen in Kawasi Village, Obi Island, South Halmahera, North Maluku, on Sunday (11/26/2023). Various types of fish caught by fishermen include tuna, skipjack, red snapper, grouper, and barramundi.

According to BPS data from 2023, Halmahera Timur ranks first as the area with 13.14 percent poverty rate, followed by Halmahera Tengah with 12 percent. It's surprising since areas like Halmahera Tengah have a jumbo growth rate, from 31.93 percent economic growth in 2020 to 102.31 percent in 2022.

Even in 2021, the economic growth of East Halmahera Regency, led by Bupati Ikram Sangadji, has grown by 161.8 percent. This region is home to two large nickel mining companies, namely PT Weda Bay Nickel and red plate mining company, PT Aneka Tambang Tbk.

South Halmahera is also one of the mining areas that is currently thriving. Since President Joko Widodo banned the export of nickel ore before it is further processed domestically, the economy of this region has grown from 12% in 2019 to 21.34% in 2022.

The presence of a high-pressure acid leaching (HPAL) nickel processing plant on Obi Island in South Halmahera Regency is predicted to drive local economic growth figures soaring. Unlike Central Halmahera and Eastern Halmahera, the poverty rate in South Halmahera is relatively lower than several other districts and cities in Malut. In 2022, the percentage of poor residents in South Halmahera was recorded at 4.99%, down 0.2% from 2021, which reached 5.19%.

Even in 2021, South Halmahera Regency, led by Bupati Ikram Sangadji, has grown by 161.8 percent. In this area, there are two large nickel mining companies, namely PT Weda Bay Nickel and the red plate mining company, PT Aneka Tambang Tbk.

Although economic growth is high, the extent to which it has an impact and is directly felt by the people is a different issue. Therefore, budget management is important.

The budget is not right

KOMPAS/RADITYA HELABUMI

Fishermen bring in their catch of yellowfin tuna in Kawasi Village, Obi Island, South Halmahera, North Maluku, on Sunday (26/11/2023). In addition to searching for fish in the waters of West Obi, fishermen from Kawasi Village also go out to sea as far as Mano in the waters of South Obi.

Head of the Regional Office for the Directorate General of Treasury (DJPb) of the Ministry of Finance in North Maluku, Tunas Agung Jiwa Brata, explained that the growth in the mining and processing sectors has allowed the economy of Maluku Utara to continue growing optimally by the year 2023. Tax revenue from these two sectors has also grown, where tax revenue from mining has grown by 126.27 percent, and processing sector revenue has grown by 86.61 percent. At the same time, revenue from traditional sectors, namely fisheries, marine, and forestry, has declined by 21.65 percent.

Even the economic growth of North Maluku in 2024 is predicted to remain strong, ranging from 18 percent to 22 percent.

"Mining and processing continue to grow amidst fluctuations in global commodity prices. Meanwhile, the agricultural and maritime sectors experience a decline due to decreased production and the increasing distance of fishing areas. The index of income inequality also rose to 0.300 in 2023," he said.

Also read: Nickel Exploitation Needs to be Accompanied by Empowerment of Mining Area Communities

KOMPAS/RADITYA HELABUMI

Member of a farmer group harvest watermelons in Buton Village, Obi Island, South Halmahera, North Maluku, on Sunday (26/11/2023). The Buton Village farmer group receives cultivation assistance and agricultural infrastructure support, as well as market absorption by Harita Nickel in the management of rice and watermelon farmland.

The tremendous economic growth has also increased the regional budget's ability to finance development programs. For example, in 2021, the total transfer of funds from the central government to the Maluku Islands (Malut) was Rp 11.08 trillion, which increased to Rp 12.05 trillion in 2022 and Rp 11.85 trillion in 2023. In 2024, the transfer of funds will once again reach Rp 12.5 trillion.

The largest component of the Maluku Utara Regional Budget (APBD) still comes from the General Allocation Fund (TKD), accounting for up to 90 percent. However, the majority of the budget is used for routine employee spending. Ideally, the budget should be optimized for infrastructure spending in order to improve the welfare of the community. Spending on economic functions has also sharply declined over the years, and the allocation of funds for social protection is still very small.

Until the end of October 2023, for example, the total budget expenditure for the Malut local government amounts to IDR 7.9 trillion. Of this figure, IDR 1.9 trillion or 26.25 percent is allocated for salary and benefits of civil servants, while only IDR 915 billion or 12 percent of the total expenditure is allocated for building roads, irrigation networks, and other infrastructure. The absorption of Physical Allocation Funds used for infrastructure is also still low, at 63.73 percent.

Also read: Nickel and Regional Economic Progress

KOMPAS/RADITYA HELABUMI

The mothers prepared lunch during the midday break amidst rice harvest in Buton Village, Obi Island, South Halmahera, North Maluku on Sunday (26/11/2023). The Buton Village farming group received cultivation assistance, agricultural facility support, and market absorption from Harita Nickel in the management of rice and watermelon agricultural land.

The slow absorption of funds has caused the public to be late in enjoying the benefits of the development program. The slowness of budget absorption is evident from the realization of regional spending based on function. In the second quarter of 2023, regional spending for education only reached Rp 99 billion out of a total budget of Rp 3 trillion, or only about 3 percent. Whereas, during the same period in 2022, spending realization for education could reach 27 percent.

The management of the budget that is yet to be optimized is also evident from the decrease in the amount of the Regional Incentive Fund (DID) transferred from the central government to Malut, from IDR 189 billion in 2021 to IDR 154 billion (2022), IDR 93 billion (2023), and IDR 68.18 billion (2024). The Special Allocation Fund for physical development also decreased to IDR 1.25 trillion.

Also read: Nickel, a double-edged sword in North Maluku

KOMPAS/RADITYA HELABUMI

Aerial photo of a nickel smelter with High Pressure Acid Leaching (HPAL) technology located in the mining and nickel processing industry area of Harita Nickel Group on Obi Island, South Halmahera, North Maluku on Saturday (11/25/2023).

The annual decrease in central transfers can be interpreted as a "criticism" towards the North Maluku Provincial Government, particularly with regards to their track record in managing regional budgets.

Iklan

Actually, this ineffective budgeting pattern in local government can be found throughout Indonesia as stated by Finance Minister Sri Mulyani on several occasions. To solve this problem, the Ministry of Finance has enacted Law Number 1 of 2022 concerning Financial Relations between the Central Government and Local Governments (HKPD). It is hoped that the mechanism of budget allocation will be directed towards physical development and community empowerment, rather than routine spending.

The decrease in central transfers every year can be interpreted as a 'critique' from the center to the North Maluku Provincial Government, especially regarding the track record of local budget management.

"An improvement is needed in the budget allocation plan to continuously reduce the portion of employee expenses in the APBD posture and reallocate it towards increasing capital expenditure for public services. The HKPD Act is an effort to ensure this. Although the economic growth in North Maluku is good, the overall welfare index is still stagnant," said Tunas Agung."

In detail, the total amount of the Revenue Sharing Funds (DBH) for the coal and mineral sector from the central government to Maluku Utara (Malut) has significantly increased, particularly since the implementation of the ban on nickel ore exports in 2019. According to the data from the Directorate General of Fiscal Balance at the Ministry of Finance, the total amount of DBH for the coal and mineral sector in Malut was Rp 61 billion in 2019, then increased to Rp 115 billion in 2020, and skyrocketed to Rp 379 billion in 2023.

Grow lamely

KOMPAS/RADITYA HELABUMI

One of the power plants that is being built in the mining and nickel processing industry location of the Harita Nickel group on Obi Island, South Halmahera, North Maluku, on Friday (11/24/2023). Indonesia currently contributes 40 percent of global nickel production.

This increase should be a way to solve the inequality problems in Malut. Inequality in this region is worrying.

According to the analysis conducted by DJPb Malut, the Theil Entropy Index for districts and cities in Malut remains high with an average value of 4.09 in 2022. This index indicates the inequality between regions caused by the growth being concentrated in one sector without improvement in other sectors.

The Theil entropy value for 2022 is highest in Central Halmahera with a value of 28.48. This number is concerning given its significant increase from 2018, which was 4.37. Meanwhile, the Theil entropy index value in Southern Halmahera is 1.67 and the lowest in Western Halmahera is 0.49. A higher value of the index, away from 0, indicates a high level of regional inequality.

In addition, the Williamson Index figure in Malut is also very high. The index value has been consistently increasing since 2018, from 0.26 to 0.27 in 2019, and then to 0.36 in 2020. Over the past two years, the inequality index has surged to 0.63 in 2021 and further to 1.08 in 2022. The continuously growing index value is also a sign of widening inequality. The growth of the mining sector, accompanied by the decline of the agricultural and plantation sectors, is one of the reasons.

Also read: Nickel, Today's Treasure from Obi Island

KOMPAS/RADITYA HELABUMI

Signage markers in the mining and nickel processing industrial area of the Harita Nickel group located in Obi Island, South Halmahera, North Maluku, on Friday (24/11/2023).

With the situation of the use of regional budget and DBH, the impressive economic growth does not fully reflect the welfare of the society. Even for basic necessities like infrastructure, education and health, they have not been well fulfilled. Moreover, in 2024, DBH will rise by 24.69 percent to Rp 2.77 trillion from Rp 2.2 trillion in 2023.

The figures are expected to be accurately realized considering the slow absorption of funds in North Maluku and lack of proper targeting.

Regarding regional economic growth, the industry sector is also paying attention because it is part of efforts towards sustainable downstream business and nickel industrialization.

Head of Community Affairs Harita Nickel Latif Supriadi said, the Harita Group which operates on Obi Island has made a number of efforts to empower the local community. The transaction value of Harita's corporate social responsibility (CSR) program involving local residents is around IDR 12 billion per month. These fresh funds circulate in the community, thereby helping to move the real sector around Obi Island.

Efforts to empower the community include various trainings and mentoring for the people on Obi Island. "We, among other things, provide assistance in the agriculture sector. In Buton Village, for instance, they are able to regularly supply watermelon for the company's needs. In addition, residents are also trained in making tempeh and tofu to be absorbed by the company," he said.

KOMPAS/RADITYA HELABUMI

Members of a farmer group are inspecting watermelons in Buton Village, Obi Island, South Halmahera, North Maluku, on Sunday (26/11/2023).

Training and mentoring, according to Latif, are needed so that residents can become more empowered and benefit from the presence of the nickel processing industry in their area. However, this effort is not easy as it requires time and effort in weaving community connections in the field.

Also read: ”Boom”Indonesian Nickel, Will It Continue?

Not yet enjoyed by residents

Faculty member of the Faculty of Economics and Business at Satya Wacana Christian University in Salatiga, Central Java, Bayu Wijayanto, who was contacted from Jakarta on Thursday (7/12/2023), said that downstreaming is essentially for increasing added value. However, there is a phenomenon where certain regions experience economic growth through nickel downstreaming, but poverty remains stagnant or even increases.

According to Bayu, the policy of downstreaming must be accompanied by various other policies at the regional level. "The opportunities for downstreaming of mines, including nickel, can be seized by the local people, resulting in quality economic growth that is truly enjoyed by the local community," said Bayu.

Bayu stated that the increase in regional economic growth with the entry of investments, without accompanying improvements in the well-being of the lowest layers of society, is actually not a new problem. This condition reflects the lack of involvement of local communities around a particular commodity, which has not yet occurred or is not optimal.

Also read: Nickel Management and Dependence on Foreigners Determine the Battery Ecosystem

KOMPAS/RADITYA HELABUMI

Workers show production results in the form of mixed hydroxide precipitate (MHP) at a nickel smelter (smelter) with High Pressure Acid Leaching (HPAL) technology in the Harita Nickel group nickel mining and processing industry area on Obi Island, South Halmahera, North Maluku, Saturday (25/11/2023).

In addition, there is a factor of weak coordination between the central and regional governments in comprehensive policies aimed at creating high-quality economic growth. According to Bayu, coordination is an expensive commodity in Indonesia and a classic problem. As a result, local resources often do not meet investor expectations and needs, leading to resources being sought from outside the region.

Vocational education that matches the needs is also continuously encouraged. "Although we see that the government has paid attention to vocational education, the effectiveness of the graduates being fully utilized by investors is questionable. I think things like that need to be reconsidered," said Bayu.

The increase in regional economic growth, accompanied by the influx of investment, without a corresponding increase in the welfare of even the lowest segments of society, is not actually a new issue.

Previously, M Rizal Taufikurahman, an economist at the Institute For Development of Economics and Finance (Indef), stated that from research conducted, it is known that the response of each region's economic structure towards mining investment is different from one another. This is because it concerns the interaction between sectors in the area, including mining, agriculture, processing industries, farming/mining-based processing, and others.

Some respond quickly, while others are slow even when they are on the same island. Therefore, according to Rizal, in every infrastructure-based project, readiness of human resources must be considered first. Then, there must be inter-sector connections that can accelerate the economic response of an incoming investment. This will accelerate the acceptance, equality, and household income.

Also read: A New Chapter of Nickel Downstreaming on Obi Island

KOMPAS/RADITYA HELABUMI

The production results are in the form of nickel sulfate at a nickel smelter (smelter) with High Pressure Acid Leaching (HPAL) technology in the Harita Nickel group's nickel mining and processing industry area on Obi Island, South Halmahera, North Maluku, Saturday (25/11/2023).

Another aspect is that Maluku also has to start thinking about the welfare of its post-mining citizens. Solely depending on the extractive industry sector would be a risk for the region. When mining operations come to an end and there is no longer any reciprocity between mining and local residents, socio-economic problems are likely to occur.

The situation was also disclosed by the Head of Welfare Affairs of Kawasi Village, Bambang Bakir (40). Bambang, for example, currently receives orders for 700 kilograms of chicken per day from the Harita Nickel Group. When the company finishes its operations on Obi Island, he is unsure where he will market his chickens. His fate may change drastically once the mine finishes its operations.

Bambang's concerns appear to also be on the minds of local governments in preparing plans for when the mining boom comes to an end and residents are already dependent on this extractive industry. When that time comes, the area and its residents should be ready and more empowered.

Also read: Electric Vehicle Batteries Targeted to Be in Production in 2024