Next down the chain – an editorial

Less than a month before leaving office, President Joko “Jokowi” Widodo has been on the move in the last week, visiting multiple locations where milestones have been reached for some later-stage projects in the supply chain, just to show how well the policy is working.

This included inaugurating a copper smelter in Sumbawa, East Nusa Tenggara, and overseeing the start-up of copper cathode production in Gresik, East Java, as well as witnessing the first injection of bauxite into an alumina smelter in West Kalimantan. The president has inaugurated many similar lower-level projects in the past.

From the beginning, the downstream policy that was one of Jokowi’s hallmarks was not always greeted with this level of optimism, with frequent complaints about export bans that affected foreign buyers and local companies that had not yet completed their smelters. Others pointed to the environmental and social impact it had on local livelihoods.

Still, we should give credit where credit is due. The downstreaming policy has increased the added value of domestic exports compared to shipping only in raw form. The trade balance has remained positive for over four years in a row, which is good for the economy and the rupee.

Currently, it is mostly nickel and copper, and soon also bauxite. Further plans for the next stage are already on the table, waiting for the incoming government’s nod. These include other minerals such as gold and tin, as well as commodities from the agricultural, plantation and perhaps fishing sectors.

However, for downstream policies to be truly viable, we need to delve deeper into supply chains, because currently all we produce in our mills is the transformation of raw materials into slightly less crude forms. Moreover, a significant part of the production of local steel mills is still exported for further processing in the supply chain.

Ironically, Indonesia often later imports these products as inputs for the domestic industry. In some cases, the country sources completely finished products from foreign factories that purchased processed minerals from our smelters.

This means that, as part of a government-led downstreaming program, we need to build more midstream industries based on the goods we have already started to process domestically.

Further investment will then be needed to attract industries that will transform them into semi-finished or finished products. Indonesia has achieved good results in converting nickel into stainless steel, but still needs to go further in its anticipated electric vehicle industry.

Of course, we also need this type of investment to promote sustainable development, whether in the form of clean energy use, waste management, or the employment of local workers.

At this stage, downstream policies are good, but they will not lead to the industrialization we so desperately need to realize our ambition to become a high-income country. The path will not be easy, and the dream will only come true if efforts to cross paths with different administrations continue over the years.

President-elect Prabowo Subianto should consider continuing the downstream program. Such a commitment is intended not only to ensure continuity itself, but also to justify the huge investment by companies that have placed their trust in the government’s policies and aspirations in the downstream market.

Ultimately, dollars can only do so much to bring awareness to these things, what really matters is the political will of the powers that be to actually want it. Incentives and investments can only follow where the political winds of our leaders take us.

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