Economists Of Downstream Values Begin To Have A Positive Impact On Indonesia's Trade Balance

JAKARTA Executive Director of the Center of Reform on Economics (Core), Mohammad Faisal, assessed that the downstream policy has begun to provide positive benefits to Indonesia's trade balance.

He also highlighted the change in Indonesia's export structure, which initially focused on exporting commodities, turning into manufacturing exports.

He said this was in response to Indonesia's trade balance which had a surplus for 43 consecutive months.

Based on data from the Central Statistics Agency (BPS), the trade surplus in November 2023 reached 2.41 billion US dollars. Meanwhile, the cumulative surplus for the January-November 2023 period reached 33.63 billion US dollars.

Indonesia's export structure has changed since there was downstream, so exports of processed nickel products increase the type of export for basic metals. This is included in the manufacturing category which provides added value compared to exports of raw goods," said Faisal in his statement, Saturday, January 6, 2024.

It's true that our exports are starting to benefit from downstreaming. Although the level of processing is still in the early stages and the potential can be refined again. That's better than exports of raw goods. If we are satisfied and stop here, it is another country that will get a larger added value. That is, this downstream must continue to be processed," he added.

Although the balance sheet is a surplus, the value compared to October 2023 decreased by 1.06 billion US dollars.

Another language is that the surplus or excess of exports to imports is getting smaller in value.

Faisal stated that downstreaming is indeed a long-term oriented policy.

If the government continues to scale the trade balance surplus by exporting raw goods, then Indonesia will lose its bargaining power and its golden opportunity to become a big country in the future.

For information, downstreaming is an effort by the state to boost its economy by providing added value to a commodity.

Faisal gave an example, When Indonesia is committed to optimizing downstream nickel, the government practically prohibits the export of nickel in the form of raw materials.

Do we want to make a profit for a moment but the value is small or long-term gain with a larger value. Downstreaming may cause us to lose in the short term because there are reduced exports. But, in the long term, we will have products with larger added value. If the trade calculation, downstreaming will be much more profitable than selling raw goods," he explained.

"If downstreaming is postponed on the grounds that it can export raw materials, that's not good. Because the resources will run out. The more raw goods are exported, the less we feel the value of the benefits. The quantity and opportunities for investors to come will be smaller, because downstreaming is no longer attractive," continued Faisal.

He also did not deny the emergence of resistance from a number of countries that oppose downstream policy.

Therefore, the alumnus of the Bandung Institute of Technology proposes two things so that downstreaming policies do not interfere with the trade balance.

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

"If one commodity is used as a product, but the market demand is even less, that means it fails to downstream. That's why nickel and electric vehicles may be the most promising because of market calculations and partnerships. So we have to determine the downstream priority, not all of them can be at the same time," said Faisal.

The second proposal is that the government must be ready to fight in a political arena through a trade diplomacy platform. This is because downstreaming is tantamount to providing restriction or protection against a commodity, which may be another country giving a similar response to Indonesia.

"Every time there is downstreaming, there must be an export ban. That's where there must be readiness for a diplomacy trade. Because it will be very common when countries protest or challenge downstream policies, and that's the fact we face with other countries," he said.

"So if you want to optimize downstreaming, you can't move partially only for business. Investment itself, self-trade, diplomacy itself. Everything must be the same. That's what developed countries are doing," he added. Investment Minister/Head of the Investment Coordinating Board, Bahlil Lahadalia, said that downstreaming provides significant added value to the products it produces.

He said the export value of nickel commodities only reached 3.3 billion US dollars in 2018.

After the export and downstream bans were imposed, the value of nickel exports continued to grow to reach 33 billion US dollars in 2022.

Bahlil explained that downstreaming will not only focus on nickel commodities. Based on the 2040 downstream roadmap, the government targets the investment value from downstream to reach 545.3 billion US dollars by 2040 which comes from 8 parts and 21 commodities.

One of the opportunities for downstreaming in the future can be seen from PT Freeport Indonesia (PTFI) with treasures' that are still stored in Grassberg Papua.

For the Special Mining Business Permit (IUPK) which was extended from 2018 to 2024, PTFI is optimistic that it can deposit up to Rp1,200 trillion to the state.

After 2024, PTFI is still confident that it will be able to deposit around US$4 billion or Rp62 trillion annually.

PTFI, which is the largest copper company in Indonesia, can utilize copper downstream in line with the high demand for electric vehicles.

The reason is, the demand for copper is predicted to increase up to four times more when compared to conventional vehicles.

"For electric vehicle batteries, the composition of copper is quite significant around 10.8 percent, this is also very crucial. We must have sufficient copper reserves if indeed this electric vehicle in the future will be one of the backbones of our future transition," said Vice President Government Relations and Smelter Technical Support of PT Freeport Indonesia, Harry Pancasakti, in December 2023.