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Indonesia’s half-trillion-dollar move up the value chain
reen economic transformation
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By moving up the production value chain across 21 commodities, including coal, nickel, tin, copper and bauxite, the country will add value and competitiveness to its commodity exports. Indonesia’s downstreaming policy, which is adding export value by developing the country’s refining and manufacturing industries, is increasingly attracting foreign direct investment that is promoting technology sharing and innovation, creating jobs and upskilling the workforce while respecting ESG principles.
For foreign investors, this initiative increases access to critical raw and processed materials—and also opens up new markets in Indonesia and beyond.
Abundant natural resources are not the only things that Indonesia has to offer.
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says Bahlil Lahadalia, Indonesia’s Minister of Investment. "The country is the biggest market in Southeast Asia and a gateway to the dynamic single market."
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“Indonesia’s downstream plan will have profound significance for the global energy transformation and promotion of green and sustainable development,” says Chen.
To further Indonesia’s green credentials, Indonesia’s Ministry of Investment/BKPM has provided almost US$13 billion in sustainable investments to 69 projects including solar power plants in Banten and East Kalimantan and waste treatment in East Java.
As part of its efforts to slow climate change, Indonesia also plans to launch a carbon exchange this year. Recently, the Financial Services Authority (OJK) launched OJK Regulation No. 14/2023 on carbon trading through carbon exchanges. This is a significant move for the country, as coal-fired plants generate more than half of Indonesia’s electric power and the country has the capacity to supply up to 20% of global carbon credit demand by 2030 exclusively from natural climate solutions (NCS), according to McKinsey.
Only business entities operating in Indonesia will be allowed to trade allowances on the exchange, which will have a cap-and-trade system that limits pollution levels.
In February, the Indonesian government launched the first phase of mandatory carbon trading for nearly 100 coal-fired power plants owned by state utility Perusahaan Listrik Negara (PLN), and it has made agreements to accelerate their closure.
“We believe that a carbon market will address climate change issues. It is one part of our incentives to encourage sustainable finance and drive more green investment. Thus, a transparent, inclusive, and fair carbon economic ecosystem must be created,” says Lahadalia.
Southeast Asia’s largest economy is ripe for economic transformation. With abundant natural resources, healthy economic growth and a youthful population, Indonesia’s economy is primed for a seismic shift.
Indonesia’s ambitious policy to optimize and add value to the country’s natural resources will create around $545.3 billion of investment opportunities through 2040, according to the downstreaming roadmap prepared by the Ministry of Investment/BKPM.
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ecord Foreign Investment
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Indonesia is already reaping the benefits of its downstreaming revolution. According to the Indonesia’s Ministry of Investment/BKPM, the country’s total foreign direct investment hit a record of $45.6 billion in 2022, an increase of 44.2% from the year before, due mainly to the country’s downstreaming policy. Basic metal and non-machinery industry contributed the largest share to total foreign direct investment at 24%; followed by mining (11.3%); chemical and pharmaceutical industry (9.9%); transportation, warehouse, and telecommunication (9%).
The “policy will ultimately improve the structure of the balance of payments, strengthen the external position and create a more resilient economy,” states an International Monetary Fund (IMF) report on Indonesia published in June 2023.
The world’s largest nickel miner, Indonesia holds the key to the global shift toward electric vehicles, with nickel a main component of EV batteries.
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argeted Policies
Indonesia’s liquid capital markets are aiding the country’s ambitious downstream policy, and are proving to have the depth to support these initiatives.
Indonesia has benefited from a bumper crop of resource-related listings this year, with many analysts saying they could deliver a record in initial public offering proceeds.
Several foreign investors that have built smelters in the remote provinces of Central Sulawesi and North Maluku have raised significant equity on the Jakarta Stock Exchange.
Listings so far this year include nickel companies Trimegah Bangun Persada (Harita Nickel), which raised $614 million, Merdeka Battery Material, which raised $620 million, and Pertamina Geothermal Energy, which raised $597 million.
The country is already the top listings destination among Southeast Asia’s six largest markets, accounting for more than half of the IPOs and proceeds raised in the first half of this year.
On the regulatory side, Indonesia’s Ministry of Investment/BKPM continues to improve the country’s investment regime and strengthen coordination among stakeholders to facilitate investment.
The ministry has prepared a roadmap for downstream strategic investment to guide foreign investors, and also launched a partnership feature on the country’s business licensing platform, Online Single Submission (OSS), in December 2022, which helps large businesses connect and partner with micro, small and medium-sized enterprises.
President Joko Widodo also released Presidential decrees Number 11 of 2021 on the Task Force for Investment Acceleration to boost investment realization and improve the country’s ease of doing business. The Task Force is chaired by Minister of Investment/Head of Investment Coordinating Board (BKPM).
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INDONESIA
Driving the EV Revolution
INDONESIA
A transformative and sustainable investment destination
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1. https://www.imf.org/en/Publications/CR/Issues/2023/06/22/Indonesia-2023-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-535060
2. Ministry of Investment/BKPM
3. https://iea.blob.core.windows.net/assets/b496b141-8c3b-47fc-adb2-90740eb0b3b8/AnEnergySectorRoadmaptoNetZeroEmissionsinIndonesia.pdf
4. https://www.ft.com/content/5a5b1cfb-bc18-44c4-8600-df2d7d6c8b14
5. https://www.imf.org/en/Publications/CR/Issues/2023/06/22/Indonesia-2023-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-535060
6. https://www.businesstimes.com.sg/international/asean/indonesia-set-record-fundraising-2023-large-ipos-still-expected-s-e-asia-h2
7. https://www.businesstimes.com.sg/international/asean/indonesia-set-record-fundraising-2023-large-ipos-still-expected-s-e-asia-h2
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A green and low carbon economy is one of the main strategies to transform our economy. In the roadmap towards net zero emissions by 2060, Indonesia has set ambitious targets by 2030. They include 42% of new and renewable energy in the energy mix, dominated by solar, also utilization of 2 million electric cars and 13 million electric motorcycles. Thus, we are strengthening the incentives and regulations for green investment to mobilize more capital for green projects.
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A transformative and sustainable investment destination
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says Bahlil Lahadalia, Indonesia’s Minister of Investment, referring to the increase in the country’s decarbonization targets from 29% to 31.8% (by its own efforts) or from 41% to 43.2% (with international support) in November 2022.
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The Reuters news staff had no role in the production of this content. It was created by Reuters Plus, the brand marketing studio of Reuters.
PRODUCED BY REUTERS PLUS FOR
The Reuters news staff had no role in the production of this content.
It was created by Reuters Plus, the brand marketing studio of Reuters.
PRODUCED BY REUTERS PLUS FOR
Chen Xuehua, founder and chairman of Huayou Cobalt Co. Ltd., a new high-tech enterprise specializing in manufacturing and the research and development of lithium-ion batteries that has operated in Indonesia since 2018, agrees.
“Indonesia’s downstream plan is an important opportunity for us to develop the globalization of the lithium-ion battery materials industry ,” says Chen. “It has strengthened our capability to serve the global market and global clients because now we have better resources and better policies.”
Moving up the value chain for nickel ore is already a booming success. With strong government support for development of Indonesia’s domestic mineral processing and refining industry, the export value of iron, steel and battery materials tripled in three years from just $8.6 billion in 2019 to $28.2 billion in 2022.
In 2020, Indonesia stopped nickel exports to boost its processing and refining industry, and Chinese companies have invested $30 billion in the nickel value chain in the last few years, according to a September 2022 report by the International Energy Agency.
South Korea is also keen to jump on the bandwagon: In April 2022, LG Energy Solution, the world’s leading non-Chinese producer of EV batteries, announced a partnership with Posco, Huayou Cobalt, two Indonesian state-owned companies and LX International, another South Korean firm, with a series of investments that will total $9 billion.
Besides these industry investments, “we will also work with our partners to jointly build green energy projects driven by wind power, solar power and hydropower, to build a green energy supply chain,” says Huayou Cobalt’s Chen.
“Downstreaming is how Indonesia can take the leap from a middle-income to a high-income country,” says Minister Lahadalia. “It will help to double our income per capita in the next decade.”
Everything in Indonesia is aligned to achieve this value-adding downstreaming transformation. With supportive government policies, a business-friendly environment and a liquid and accessible equity market, it is hard to ignore that Indonesia is on the cusp of a game-changing pivot.
aking the Leap
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Supported by broad-based reforms to promote an enabling business environment, diversify the economy and mitigate climate change, notes the IMF report
Going forward, Indonesia is well-placed for continued strong and inclusive growth.
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“Indonesia’s downstream plan will have profound significance for the global energy transformation and promotion of green and sustainable development,” says Chen.
Indonesia is already reaping the benefits of its downstreaming revolution. According to the Indonesia’s Ministry of Investment/BKPM, the country’s total foreign direct investment hit a record of $45.6 billion in 2022, an increase of 44.2% from the year before, due mainly to the country’s downstreaming policy. Basic metal and non-machinery industry contributed the largest share to total foreign direct investment at 24%; followed by mining (11.3%); chemical and pharmaceutical industry (9.9%); transportation, warehouse, and telecommunication (9%).
The “policy will ultimately improve the structure of the balance of payments, strengthen the external position and create a more resilient economy,” states an International Monetary Fund (IMF) report on Indonesia published in June 2023.
The world’s largest nickel miner, Indonesia holds the key to the global shift toward electric vehicles, with nickel a main component of EV batteries.
Indonesia’s liquid capital markets are aiding the country’s ambitious downstream policy, and are proving to have the depth to support these initiatives.
Indonesia has benefited from a bumper crop of resource-related listings this year, with many analysts saying they could deliver a record in initial public offering proceeds.
Several foreign investors that have built smelters in the remote provinces of Central Sulawesi and North Maluku have raised significant equity on the Jakarta Stock Exchange.
Listings so far this year include nickel companies Trimegah Bangun Persada (Harita Nickel), which raised $614 million, Merdeka Battery Material, which raised $620 million, and Pertamina Geothermal Energy, which raised $597 million.
The country is already the top listings destination among Southeast Asia’s six largest markets, accounting for more than half of the IPOs and proceeds raised in the first half of this year.
On the regulatory side, Indonesia’s Ministry of Investment/BKPM continues to improve the country’s investment regime and strengthen coordination among stakeholders to facilitate investment.
The ministry has prepared a roadmap for downstream strategic investment to guide foreign investors, and also launched a partnership feature on the country’s business licensing platform, Online Single Submission (OSS), in December 2022, which helps large businesses connect and partner with micro, small and medium-sized enterprises.
President Joko Widodo also released Presidential decrees to accelerate investment and land use management.
1. https://www.goldmansachs.com/intelligence/pages/gs-research/the-path-to-2075-slower-global-growth-but-convergence-remains-intact/report.pdf
2. https://iea.blob.core.windows.net/assets/b496b141-8c3b-47fc-adb2-90740eb0b3b8/AnEnergySectorRoadmaptoNetZeroEmissionsinIndonesia.pdf
3. https://www.whitehouse.gov/briefing-room/statements-releases/2022/11/15/indonesia-and-international-partners-secure-groundbreaking-climate-targets-and-associated-financing/
4. https://www.eco-business.com/news/indonesias-coal-burning-reaches-record-high-amid-rise-of-industrial-smelting/
5. https://www.adb.org/news/adb-and-indonesia-partners-sign-landmark-mou-early-retirement-plan-first-coal-power-plant
argeted Policies
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Indonesia’s green transformation is vital in driving its next stage of economic growth. Southeast Asia’s largest economy offers immense opportunities in clean energy technologies, sustainable finance and a fair carbon market ecosystem.
Indonesia’s net-zero ambitions
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Indonesia’s green transformation is vital in driving its next stage of economic growth. Southeast Asia’s largest economy offers immense opportunities in clean energy technologies, sustainable finance and a fair carbon market ecosystem.
Indonesia’s net-zero ambitions
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Nusantara, Indonesia’s new capital city, will be one of the world’s first forest cities. Located on Borneo Island, the city will feature cutting-edge technology based on sustainable and inclusive development. Nusantara will set a new standard for all Indonesians to live by.
Nusantara: A New Beginning
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Nusantara, Indonesia’s new capital city, will be one of the world’s first forest cities. Located on Borneo Island, the city will feature cutting-edge technology based on sustainable and inclusive development. Nusantara will set a new standard for all Indonesians to live by.
Nusantara:
A New Beginning