REPUBLIKA.CO.ID, JAKARTA -- Executive Director of the Center of Reform on Economics (CORE) Mohammad Faisal, believes that downstream policies are beginning to bring positive benefits to Indonesia's trade balance. He also highlighted the changes in Indonesia's export structure, which originally focused on commodity exports and switched to manufacturing exports.

He responsed to Indonesia's trade balance records in surplus for 43 consecutive months. Based on data from the Central Statistical Agency (BPS), the trade surplus in November 2023 reached 2.41 billion US dollars. Meanwhile, the cumulative surplus for the period January-November 2023 reached 33.63 billion US dollars.

“Indonesia's export structure has changed since downstreaming, so the export of nickel-processed products increases the type of export for base metals. It belongs to the category of manufacturing that provides added value compared to the export of raw goods,” Faisal told Media Center Indonesia Maju, quoted Friday (5/1/2024).

“It is true that our exports are beginning to feel the benefits of downstream. Although the processing level is still at an early stage and its potential can be refined again. That's better than exporting raw goods. If we are satisfied and stop here, it is precisely other countries that will gain greater added value. This means that this downstream must continue to be processed,” he added.

Although the balance sheet is in surplus, its value compared to October 2023 fell by 1.06 billion US dollars. The other language is that the surplus or excess of exports against imports is diminishing in value.

The doctoral candidate from the University of Queensland stated that downstream is indeed a policy oriented to the long term. If the government continues to inflate its trade surplus by exporting raw goods, Indonesia will lose its bargaining power and its golden opportunity to become a great country in the future.

For information, downstream is an attempt by a country to boost its economy by giving added value to a commodity. Faisal pointed out that when Indonesia committed to optimizing downstream nickel, the government practically banned the export of nickel in the form of raw materials.

“Do we want to have a momentary gain but a small value or a long-term gain of greater value. Downstream may cost us a short-term loss because there are reduced exports. But, long term, we're going to have a product with greater added value. When calculating trade, downstream will be much more profitable than selling raw goods,” he said.

“If downstream is postponed on the grounds that we can export raw materials, it is not good. Because the resources will run out. The more raw goods are exported, the less we feel the value of the benefits. In terms of quantity and opportunities investors coming in will be smaller, because downstream is no longer attractive,” Faisal added.

He also did not deny the emergence of resistance from a number of countries that oppose the downstream policy. Therefore, the alumni of Bandung Institute of Technology proposed two things so that the downstream policy does not disturb the trade balance.

First, the government must determine priority downstream sectors. According to Faisal, Indonesia has a myriad of downstream potential, from the energy sector, fisheries, agriculture, to forestry. However, market and demand calculations should be the main consideration in determining what sector will be Indonesia's flagship weapon.

“If a commodity is made into a product, but the market demand is small, it means that its downstream failure. Therefore, nickel and electric vehicles are probably the most promising because of the market calculations and permits. So we have to determine downstream priorities, it can't all be at the same time,” Faisal said.

The second proposal is that the government must be ready to fight in the political arena through the platform of trade diplomacy. Because, downstream is the same as restricting or protecting a commodity, to which other countries may respond similarly to Indonesia.

“Any downstream, there must be a ban on exports. That's where trade diplomacy needs to be prepared. Because it will be very common when countries protest or challenge downstream policies, and that is the fact that we face with other countries,” Faisal said.

“So if you want to optimize downstream, you can't partially move just the business. Own investment, own trade, own diplomacy. Everything has to be at the same time. That's what developed countries do,” he added.

The Minister of Investment/Head of the Investment Coordination Agency, Bahlil Lahadalia, said that downstream provides significant added value to the products it produces. He mentioned that the export value of nickel commodities reached only 3.3 billion US dollars in 2018. After the export ban and downstream export was imposed, the value of nickel exports continued to grow to reach 33 billion US dollars by 2022.

Bahlil explained that downstream will not only focus on nickel commodities. Based on the 2040 downstream roadmap, the government targets the investment value of downstream reaching 545.3 billion US dollars by 2040 derived from 8 parts and 21 commodities.

One of the downstream opportunities in the future can be seen from PT Freeport Indonesia (PTFI) with the “treasure” still stored in Grasberg Papua. For the Special Mining Business Permit (IUPK) extended from 2018 to 2024, PTFI is optimistic that it can deposit up to IDR 1,200 trillion to the country. After 2024, PTFI is still confident of being able to deposit about 4 billion US dollars or IDR 62 trillion annually.

PTFI, which is the largest copper company in Indonesia, could take advantage of downstream copper as demand for electric vehicles increases. The need for copper is predicted to increase up to four times greater when compared to conventional vehicles.

“For electric vehicle batteries, the copper composition is quite significant at about 10.8 percent, which is also very crucial. We must have sufficient copper reserves if this electric vehicle in the future will be one of the backbone of our transition to the future,” said Vice President Government Relation and Smelter Technical Support of PT Freeport Indonesia, Harry Pancasakti, in December 2023.

Ikuti Whatsapp Channel Republika