Jakarta, IO – The transformation of Indonesia’s economy through downstreaming will require a conducive business climate. Consequently, the central government and regional governments must be willing and brave enough to eliminate all factors inhibiting investment, within and outside the bureaucracy.
Another focus highlighted by President-elect Prabowo Subianto is the domestic business climate. This has been widely publicized, as stated on two occasions, not long ago. First, he mentioned it in the opinion column of Newsweek, entitled ”The Road Ahead for Indonesia”, in which he stressed the importance of improving the domestic business climate to be more streamlined and advanced for successful national economic development. Prabowo also noted that the progress of economic development is highly dependent on the contribution of the business sector, and that progress will thus be more readily realized if the government supports and cooperates with the business sector.
“We have a prominent role in building a modern and advanced economy, by implementing the right policies and creating a good business climate for developing new and promising businesses or start-ups,” said Prabowo, in the opinion article. He also talked about the steps and initiatives he proposes, to improve Indonesia’s business climate, including enhancing the digitalization of public services.
Prabowo reiterated his focus on improving the domestic business climate when he inaugurated the “One Map Policy Geoportal 2.0” in Jakarta in the third week of July 2024. He emphasized the need for a conducive business climate and governance, so Indonesia can develop into an investment destination. “A state and the nation that can give assurance and the most efficient and best business climate is the one that can obtain investment. We need the investment, so we need a good climate and good governance,” said Prabowo.
Prabowo also proposes that improving the business climate is relevant to a national economic transformation agenda. With changing times, the Indonesian economy needs structural changes to be more productive, competitive and able to respond to evolving market needs. Natural resource diversity is necessary in the global market. In addition to oil and natural gas, the global market also requires such natural resources as gold, silver, manganese, copper, coal, iron sand, tin, nickel and bauxite ores.
The industrial sector also needs non-metallic mineral resources, whose end products are used in people’s daily lives. For example, phosphate for agricultural fertilizers, sulfur for the chemical, paper, and pharmaceutical industries and kaolin for ceramics and paper production. In addition, industrial mineral resources are in high demand, including salt, zeolite and talc, which are often used in the food, chemical, cosmetic and pharmaceutical industries.
The global market has sustained demand for the variety of food crops from Indonesian agricultural and plantation sectors. Statistics Indonesia (BPS) recorded that the volume of agricultural exports as of June 2023 reached 21.2 million tons – not only palm oil, but also natural rubber, cocoa, coffee, ornamental plants, seaweed, algae and porang. Indonesian local spices, such as pepper that grows in many regions, cloves, cinnamon, vanilla, nutmeg, cardamom and andaliman, have become an inseparable part of society in many regions.
These natural resources are highly strategic and precious for the Indonesian people, and can thus improve people’s welfare, if managed wisely and sustainably. The downstreaming of mining natural resources and food crops can create jobs and increase the productivity of rural communities, as they become more productive in planting and processing resources.
Increasing productivity and efforts to add value to all natural resources will open up numerous new jobs, because developing a national economy requires not only the latest technology, but also the role of skilled and productive workers at all stages of production, quality control and distribution.
The resolution to cease selling natural resources in the form of raw materials should be encouraged. Willingness and commitment to process all natural resources into finished products must also be encouraged. When such determination and willingness is evident, governance of all economic potential in villages can be transformed, with a downstreaming program. Economic transformation and downstreaming programs have been promoted so often; the program design has also been created. In a dialogue with the Indonesian Chamber of Commerce and Industry (Kadin) in January 2024, Prabowo expressed his determination to realize a downstreaming program for 21 commodities, including mineral resources and food crops. Prabowo’s economic team has even calculated the total funding needed for natural resource downstreaming, which totals some USD 545 billion.
The downstreaming program inevitably requires new investment, both local and foreign. In addition to providing new technology in the production sector, the downstreaming program will require a variety of imported capital goods. Investment for downstreaming can be realized if the domestic business climate is conducive. Everyone should understand that conducive investment can be realized if the authorities are willing and brave enough to eliminate all factors traditionally inhibiting investment, within and outside the bureaucracy.
It is a classical issue that capital owners or investors have numerous complaints when they start running their businesses in Indonesia. The main gripes are the complexity and uncertainty of regulations, inadequate infrastructure, licensing issues with unusual requirements, land acquisition that often causes problems to workforce qualifications, along with the inevitable corruption and nepotism. Investors frequently question overlapping regulations or investment policies between the central government and regional governments.
Investors who have obtained permits from the central government often face uncertainty when dealing with local governments, because of different or contradictory policies. Another form of uncertainty is changes in regional policies following a change of leadership, such as the governor or regent.
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To upgrade the domestic business climate, such classical issues should be addressed by Prabowo’s economic team. The central and regional governments must standardize their perceptions about the urgency of investment, as the role of local governments in realizing the downstreaming programs is quite significant: all natural resource potentials are in fact in the regions.
As an initial consolidation for the continuation of economic development, Prabowo should encourage standardized perceptions in the National Development Planning Conference (Musrenbangnas) to synchronize central and regional government development planning. Through a Musrenbangnas forum, all regional heads are urged to passionately prepare natural resource downstreaming programs, according to the potential of their respective regions.
To realize downstreaming, central and regional policies must aim in the same direction, and investment policies that overlap between the central and the regions must no longer be tolerated.