Trade Surplus Amidst Downstream Industry Development: Will it Continue After the 2024 Election?

In recent years, the Indonesian government has been striving to increase the value added of its national resources. One of the ways it has done this is through downstreaming in the mining sector and restricting the export of raw materials, especially nickel.

In line with this, Indonesia's trade balance has recorded a surplus for 44 consecutive months, from May 2020 to December 2023.

According to the Central Bureau of Statistics (BPS), during this period, Indonesia's trade balance surplus was consistently contributed by the non-oil and gas sector.

On the other hand, the oil and gas sector consistently contributed to a deficit, as shown in the graph.

Presidential and Vice-Presidential Candidate Teams' Stance on Downstreaming

In the lead-up to the 2024 General Election, representatives from the campaign teams of three presidential and vice-presidential candidate pairs stated their intention to continue the downstreaming program.

Wijayanto Samirin, a member of the expert council for the Anies-Muhaimin National Team, said that his candidate pair agreed to expand the downstreaming program for nickel and palm oil.

"Indonesia controls 60% of CPO production and almost 50% of nickel production worldwide. This means Indonesia must be able to determine the prices of both commodities," said Wijayanto in a Katadata Forum discussion at the Aone Hotel, Central Jakarta, Thursday (25/1/2024).

However, Wijayanto emphasized that the practice of downstreaming in the mining industry will be limited and must adhere to the principles of environment, social, and governance (ESG).

Meanwhile, Dradjad Wibowo, a member of the expert council for the Prabowo-Gibran National Campaign Team, said that his candidate pair would continue downstreaming for 21 commodities.

Dradjad also emphasized that the downstreaming program must consider environmental sustainability.

"The success of maintaining forest sustainability allows our downstreaming to continue. But failure to maintain forest sustainability will halt our downstreaming," said Dradjad.

Hotasi Nababan, the Deputy Secretary of the Ganjar-Mahfud National Winning Team, also stated that his candidate pair would continue downstreaming.

"Seriously pursued downstreaming is one of the keys to achieving the 7% economic growth target," said Hotasi.

Anticipating the Challenges of Downstreaming

Although the presidential and vice-presidential candidate teams are optimistic about downstreaming, the continuation of this policy presents several challenges that need to be anticipated.

According to Jeany Hartriani, Product Manager of Katadata Green, the challenges in mining downstreaming include the risk of deforestation, social conflict, and environmental damage.

There are also challenges in waste management, the involvement of local communities, the availability of skilled local labor, and the emergence of corruption and mining mafias.

To overcome these challenges, Jeany presented three recommendations regarding the mining downstreaming program, based on the results of a series of discussions by Katadata Green with community organizations and research institutions.

"In the area of governance, a detailed roadmap and measurable targets are needed, the application of ESG principles to reduce the negative impacts of downstreaming, and certainty in technology and knowledge transfer," said Jeany in the Katadata Forum discussion at the Aone Hotel, Central Jakarta, Thursday (25/1/2024).

"In the area of investment policy, a review of incentives such as tax holidays and royalty discounts is needed to prevent over-investment in smelters, and a focus on policies prohibiting the export of raw materials," she said.

"Finally, in the area of focusing downstreaming, the recommendation includes creating a prioritization scale for downstreaming based on industry and commodity readiness, and developing a waste battery recycling industry," said Jeany.