Downstream Application for Indonesia’s Economic Growth

Downstream Application for Indonesia’s Economic Growth
By Sekretariat Kabinet Republik Indonesia

Downstreaming is a strategy to increase the added value of commodities which are owned by a country. With that strategy, all exported commodities are no longer in the form of raw materials but have become semi-finished goods. Downstreaming strategy is expected to increase the added value of commodities, strengthen the industrial structure, and enhance business opportunities by providing new jobs. In other words, industrial downstreaming refers to the process of modifying or enhancing added value by increasing processing, marketing, and production activities for more complex and high-value products. 

Indonesia is a largest of nickel producer country in the world, it can be denied because Indonesia has abundant diverse natural resources particularly for mineral and coal. Nowadays, Indonesia supplies around 37 percent of the world’s nickel ore, while exports of nickel-based processed products are still very small of amount (under 5 percent). According to the International Energy Association (IEA), the trend of renewable energy affects the surge in demand for nickel on the global market, especially with the demand for friendly environment vehicles that use electric batteries. Currently, electric vehicles only contribute 2 percent of global car sales, but by 2040 electric vehicles will account for 58 percent of global vehicles. With the increasing development of electric car batteries which is currently widespread, Indonesia increasingly needed by many countries to export large amounts of nickel. 

In terms of economic development, downstream industry has a visible positive impact. Industry requires more labor as production activities and product processing increase at a more complex level, so that it can reduce the unemployment rate and improve the economic welfare of society. More complex processing processes with using advanced technology in production obtain products with better quality and higher selling value and encourage the development of innovation in the industrial field to increase industrial competitiveness in the global market. Workers are required to have product management and technological skills to face competition in the industrial world along with more complex production processes. By developing more advanced and value-added industries, the country can reduce raw commodity exports dependence and minimize the risk of fluctuations in global commodity prices and create long-term economic sustainability.

However, industrial downstreaming also has several negative impacts which has to be considered, such as potential of environmental damage that caused by using a lot of natural resources as well as the rising probability of dependence on foreign investors in developing the industrial field. Hence, it is necessary to have appropriate regulations and also be supported by Government policies in Indonesia so that it can foster environmentally friendly industrial downstreaming and at the same time attract investors to maximize the positive impact of industrial downstreaming for investment in Indonesia accompanied by fair economic equality, and sustainable for communities throughout the Republic of Indonesia.