President Jokowi’s Downstream Economy: Three New Smelters Encourage Indonesian Industrial Independence
By Fitria Hamzah )*
President Joko Widodo (Jokowi) officially inaugurated three new smelters as part of economic downstream efforts in Indonesia, which aim to encourage the independence of domestic industry. These three smelters are respectively the copper smelter owned by PT Freeport Indonesia (PTFI) in Gresik, the copper smelter owned by PT Amman Mineral Internasional Tbk (AMMN) in Sumbawa, and the bauxite smelter (SGAR) owned by PT Borneo Alumina Indonesia (BAI) in Mempawah, West Kalimantan. The construction of this smelter marks a concrete step for Indonesia towards a new chapter in national industrialization that is capable of processing natural resources domestically, no longer exporting raw materials.
Indonesia has long been a country that produces raw materials that are exported abroad for further processing. This practice provides low economic value for the country. President Jokowi revealed that efforts to downstream minerals have faced many challenges, especially from developed countries which have so far enjoyed the benefits of importing Indonesian raw materials. However, globalization, which is under pressure due to global geopolitics, the Covid-19 pandemic, and the economic recession, actually provides an opportunity for Indonesia to accelerate this downstream process.
The three smelters inaugurated by President Jokowi have the potential to drive major transformation in Indonesian industry. The PT Freeport Indonesia smelter in Gresik, for example, is the world’s largest single-line design copper smelter, capable of refining 1.7 million tonnes of copper concentrate annually and producing 600,000 to 700,000 tonnes of copper cathode per year. Investment for this smelter reaches IDR 56 trillion, and President Jokowi estimates that state revenue from this facility could reach IDR 80 trillion per year, including dividends, royalties, income tax (PPh), regional taxes and export duties.
Meanwhile, PT Amman Mineral Internasional’s smelter in Sumbawa requires an investment of IDR 21 trillion and plays an important role in processing copper. This smelter will not only increase the added value of copper commodities but also create new jobs, encourage downstream industrial growth, and open up opportunities for technology transfer. With this smelter, Indonesia will no longer rely on exports of raw materials, but will start selling finished products with higher economic value.
A similar thing happened to the bauxite smelter owned by PT Borneo Alumina Indonesia in Mempawah, which required an investment of IDR 16 trillion. This smelter is expected to be able to process bauxite into aluminum which can meet domestic needs, as well as stop Indonesia’s dependence on aluminum imports. President Jokowi said that around 56% of Indonesia’s aluminum needs are currently still imported, and with the operation of this smelter, the country’s foreign exchange of IDR 50 trillion which has been lost due to aluminum imports can be saved.
The construction of a smelter not only functions to increase the added value of commodities, but also creates other positive impacts on the national economy. One of them is increasing labor capacity, as stated by the General Chair of the Indonesian Mining Experts Association (Perhapi), Rizal Kasli. The construction of the PT Freeport Indonesia smelter in Gresik, for example, is expected to absorb a large number of workers, as well as encourage the growth of domestic industry, especially industries that require copper as a raw material, such as the electrical cable industry.
Apart from that, Rizal also emphasized the importance of the government’s role in building this smelter. One of the government’s contributions is ensuring the construction of the smelter through the requirements for extending the operating permit which is linked to the realization of the smelter project. With this strategy, the government succeeded in creating strong bargaining power and forced large mining companies such as Freeport to build processing facilities domestically.
The presence of a smelter also opens up opportunities to reduce imports of raw materials for domestic industry. Products produced by smelters, such as copper cathodes, can be directly absorbed by domestic downstream industries, so that Indonesia is no longer dependent on supplies of raw materials from abroad. This will certainly strengthen national economic resilience and create a more integrated industrial supply chain within the country.
Mineral downstreaming is not only an effort to increase the added value of commodities, but is also the foundation for Indonesia’s economic transformation. President Jokowi said that the construction of this smelter was part of the government’s efforts to make Indonesia a developed industrial country that no longer depends on exports of raw materials. By processing its own natural resources, Indonesia can create new jobs, increase the country’s foreign exchange, and encourage more inclusive economic growth.
The economic downstream steps promoted by President Jokowi through the construction of three new smelters are an important milestone in Indonesia’s efforts to become an independent industrial country. By processing natural resources domestically, Indonesia will not only obtain greater added value, but also create jobs, increase foreign exchange and strengthen downstream industries. All of this is part of President Jokowi’s big vision to bring Indonesia into a new era as an advanced industrial country capable of standing on its own two feet.
)* the author is an observer of economic policy
