High investment needs for industrial development
Indonesian Investment Minister Bahlil Lahadalia has announced a so-called "Downstreaming Roadmap" to 2040. It is intended to provide the framework for the further processing of domestic raw materials. The aim is to sell these with higher added value on the world market. A total of 21 raw materials are in focus. These are mainly mineral raw materials, but also agricultural materials and fisheries products. The minister put the necessary investment requirements at US$545.3 billion. More than three quarters of this is said to be attributable to the processing of mineral ores and coal.
The plan of action was drafted in 2022. The Indonesian certification and consulting company Graha Sucofindo won the tender for the concrete development of the downstream roadmap worth the equivalent of $5 million. It is not yet clear which processing stages of the individual raw materials will be prioritized.
The topic of "downstream development", i.e. strengthening the processing industry for existing raw materials, is not new in Indonesia. The economy is still dependent on the export of raw materials. Their refinement usually takes place elsewhere, as there is a lack of know-how.
The nickel industry serves as a model
There is already a blueprint for the desired direction of development in the nickel industry. In 2020, Indonesia imposed an export ban on nickel ore. It should no longer be delivered to China and Japan but processed further in the country. As a result, with investments from mainly China, numerous nickel smelters were set up and plants for the production of stainless steel (for which nickel is required) were built. The center of the boom is the island of Sulawesi with its numerous nickel mines.
Out of nowhere, Indonesia became one of the world鈥檚 largest steel exporters. The export of nickel products also multiplied in just a few years. The Ministry of Investment (Badan Koordinasi Penanaman Modal or BKPM) speaks of investments of $30 billion in the nickel value chain. The economic success of the measures is great. And facts were created that the EU鈥檚 successful lawsuit against the export ban before the World Trade Organization could no longer change.
Today, international automotive groups who want to procure nickel for the batteries of electric cars in Indonesia are queuing up. It should be noted that China is far ahead of other nations in securing their supply.
Mineral raw materials have priority
For other raw materials, Indonesia's market power is not as strong. The export of bauxite will be banned from June 2023 to create incentives for the construction of aluminum smelters in the country. But this raw material is available in large quantities worldwide. The Indonesian processing industry has not yet built-up sufficient capacity and is asking for the export ban to be postponed. Analysts expect the industry to lose hundreds of millions of dollars because customers are now buying the unprocessed bauxite elsewhere. Only after a few years can Indonesia achieve a positive economic effect through the sale of higher-quality intermediate products.
Next on the export ban list are copper concentrate and refined tin. Appropriate measures could be announced as early as 2023. There are much larger suppliers of copper on the world market than Indonesia, and the effect is likely to be similar to that of bauxite. Indonesia is one of the world's largest producers of tin. But here, too, the processing industry is not yet prepared for an export ban.
Coal is also on the downstream roadmap list. Indonesia is one of the world鈥檚 largest coal miners and exporters, which, among other things, is alleviating the European energy crisis. The raw material is also shipped to Germany. In Indonesia, coal is to be used for the import substitution of chemical products. Several coal gasification plants are currently being built to produce, among other things, methanol 鈥� or dimethyl ether, which can be added to the expensively imported liquid gas that most Indonesians use to cook with.
Opportunities for German technology
It is still unclear to what extent the downstream action plan also intends export bans beyond mineral raw materials. In many areas the position is too weak for this. Exceptions are palm and palm kernel oils, for which Indonesia accounts for 60 percent of world exports. Overall, Germany is likely to be comparatively little affected by possible changes in the procurement of raw materials. Less than 0.4% of German imports come from the archipelago. However, palm oil is mainly obtained from third countries. The extent of the dependency can therefore not be read from the trade statistics.
From the downstream raw materials list, Germany only buys copper ores and their concentrates in larger quantities directly from Indonesia. The import share of total German imports was almost 10% in 2022. The second most important raw material is tin, with an import share of around 20%.
On the other hand, the downstream roadmap could increase the demand for German technology. Indonesia produces practically no machinery and equipment itself. In addition, German technology enjoys a good reputation in the archipelagic nation, though it has lost significant market share to cheaper competitors from China for the past couple of decades.
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