Developing Sustainable Resource-Based Industries

8 01 2009

With abundant natural resources, 230 million population, and a strategic geo-economic position, Indonesia which has been independent more than 63 years should have become a developed and prosperous nation. Unfortunately, up until now Indonesia is still a developing nation with high unemployment and poverty and a declining competitiveness. If we fail to anticipate the repercussion of the on going global financial crisis, the country’s economy would even worsened in the years to come.

Many factors have been affecting Indonesia’s poor development achievements, from bad governance, an abusive political and legal system, to a lack of technological capacity. However, one of the most determining factors is inappropriate economic development policies which fail to develop the country’s competitive advantages that can create a sustainable economic growth and provide large employment opportunities. Most of our leading industries developed since New Order Government, such as textile, electronics, automotive, pulp and paper, and agroindustry are in essence a foot-lose industry with a high import content. About 90% of Indonesian industries so far rely heavily (more than 70 per cent) on imported raw materials and technologies.

It is therefore timely for Indonesia to boost competitive advantages based upon its comparative advantages. As a resource rich country, our main comparative advantages are actually in the form of resource-based industries (RBI’s) which include agriculture, forestry, fisheries and ocean resources, biotechnology, energy and mineral resources, tourism, and non-conventional resources that include among others hydrate gas, deep sea water industries, bioenergy from marine algae, pharmaceutical products from aquatic organisms, wave energy, tidal energy, and OTEC (Ocean Thermal Energy Conversion).

There are seven main reasons that support RBI’s as a competitive advantage of Indonesia. First, the growing population of both Indonesia and the world, predicted to reach 300 million and 7.5 billion people respectively by 2030, will dramatically increase demand for food, energy, pharmaceutical products, timber, pulp and paper, mines and minerals, other natural resources and environmental services. Second, as major portion of natural ecosystems (e.g. forests, lakes, rivers, and coastal zones) and agricultural lands in almost all developed countries have been converted into housing, industrial zones, cities, roads, harbors, airports, and other infrastructures, the capacity of those countries in producing natural resources and their derivative products is decreasing. Third, RBI’s generate large forward- and backward-linkage industries, and thereby creates much bigger multiplier effects. Fourth, all RBI’s provide much bigger employment opportunities than other industries (economic sectors). One per cent of economic growth generated by RBI’s can absorb as many as 500,000 workers, while financial or non-tradable sectors provide only for about 40,000 workers (Bappenas, 2007). Fifth, since almost all RBI’s activities located in rural areas, coastal zones, small islands, and outside Java and Bali, development of RBI’s should create growth and prosperity centers throughout the archipelago. At the same time, such a balance economic development will automatically resolve a chronic national problem which is a skewed development intensity and population distribution between Java and outer islands, and between urban and rural areas. This in turn will increase economic efficiency and productivity of the country, and strengthen the national unity. Sixth, more efficient and productive RBI’s will be able to improve purchasing power and welfare of the RBI’s owners, employees, and stakeholders that make up about 70% of Indonesian total workers. These roughly 70 million prosperous Indonesians who work in RBI’s and their upstream and downstream industries as well as related services will need more housing, clothing, medicines, household equipments, radio, TV sets, electronic equipments, computers, automobiles, and other consumer goods. This means strong and growing RBI’s will also strengthen and develop other industries such as chemical industries, cement factories, electronics, automobiles, and ICT (Information and Communication Technology). Lastly, most RBI’s are based on the utilization of renewable resources and environmental services. Thus, if we apply environmentally friendly development principles in managing RBI’s development, then it ensures Indonesian sustainable development.

The question is then why RBI’s have by far not been able to promote Indonesia become a developed and prosperous nation. In the first place, because we have not applied appropriate and state of the art technology in production (extraction), handling and processing (manufacturing), and marketing activities of most RBI’s. More than 70% of our farmers and fishermen are traditional with a lack of technological capability. The way our traditional farmers and fishermen producing agricultural commodities and catching fish still depends heavily on the whim of nature such as weather conditions, rainy and dry seasons, soil properties, and fluctuation of fish population. As a result, the production of agricultural commodities and other renewable resources is far from efficient, productive, and reliable. In addition, frequent shortages of fertilizers and other production inputs as well as a lack of irrigation system, roads, electricity, telecommunication networks, and other infrastructures in most of rural areas and outer Islands have hampered efficiency, productivity, and sustainability of our agriculture and other renewable resource-based sectors including aquaculture, capture fisheries, animal husbandry, and forestry. Majority of our traditional farmers and fishermen have not been able to meet economy of scale of their business, so that their products are generally only enough for their subsistence, not generating sufficient profit for their prosperity. For example, the economy of scale of rice field business in Java is 2 ha, while the current average of land ownership is only 0.4 ha per farmer with a tendency of decreasing. This partly explains why most farmers in Java are getting poorer over time.

Underdevelopment of handling and processing technology (downstream industries), and storage and distribution system has resulted in roughly 20% product loss during post harvest, less added values, and inability to supply agricultural products and other renewable resources which meet quality standards, competitive price, and supply sustainability required by both domestic and global markets. A lack of an integrated approach which put together production, processing, and marketing aspects into one business system has also aggravated the poor performance of most RBI’s in the country.

Besides wasting our foreign exchange, legally and illegally imported subsidized agricultural commodities such as rice, wheat, corn, soybean, sugar, fruits, vegetables, cows, and milk from China, Thailand, Vietnam, USA, Australia, and other countries has also paralyzed Indonesian farmers competitiveness who receive no or very small subsidy. Moreover, illegal logging, illegal fishing, illegal mining, smuggling, and other illegal economic activities have not only resulted in the state financial loss as much as US$ 50 billions annually but also reducing our RBI’s competitiveness. Contract agreements with multinational corporations in oil and gas as well as other mining businesses have benefited them more than to the nation. Last but not least, state budget and credits allocated for RBI’s has been relatively very small.

In conclusion, as a nation we must have a vision that by 2030 “Indonesia shall be a developed, just, and prosperous nation through sustainable RBI’s development”. Based upon such a vision, the mission of RBI’s development is: (1) to make RBI’s as a major source of the country’s sustainable economic growth, (2) to produce highly competitive natural resources and their downstream products to meet the ever increasing domestic demand and for significant exports, (3) to distribute economic benefits of RBI’s development fairly to all Indonesian people, and (4) to maintain carrying capacity and quality of natural ecosystems including their embodied natural resources to ensure RBI’s development taking place on a sustainable fashion.

To materialize such vision and mission, we have to apply appropriate sciences and technology in all management chains of RBI’s including production, handling and processing, distribution and marketing on an integrated business system basis. In order to increase added values, competitiveness, create more jobs, and generate larger multiplier effects, we have to strengthen and develop down stream industries of natural resources. Biotechnology that includes genetic engineering, bioremediation, and extraction of natural products (bioactive substances) from biota and microorganisms for food and beverages, pharmaceutical products, and various other industries should also be boosted on an environmentally sustainable manner. Quality seeds, feed, fertilizers, and other production inputs should be available any time at a reasonable price for farmers, fishermen, and other producers of renewable resources throughout the archipelago. We must improve existing irrigation system, road, electricity, telecommunication networks, fishing ports, harbors, airports, and other infrastructures and simultaneously develop new ones according to local and regional needs. Supporting industries for RBI’s such as agricultural machineries and equipments, fishing gears, boat engines, pedal wheels for brackishwater ponds, cold storages, shipyards and dockyards, mining and energy machineries and equipments, coastal and ocean engineering and construction, and ICT technology should also be strengthened and developed.

We have to protect productive agricultural lands, plantation, forest, aquaculture, fishing grounds, and other renewable resource systems from conversion into other land uses, pollution, and other forms of environmental degradation. This can be done by implementing stringent spatial planning, pollution control, conservation of biodiversity, mitigation of natural hazards (e.g. tsunamis, landslides, earthquakes, storms, and floods), and rehabilitation of damaged natural ecosystems.

Government and private sector must working synergistically to protect domestic market from illegal and excessive imported agricultural commodities and other natural resources that may undermine competitiveness of our farmers and other producers of natural resources. At the same time, we have to boost domestic market, and strengthen and diversify export markets. By doing so, we facilitate national producers, processors, and packers of natural resource-based products to be able to sell their commodities and products at any quantity and any time with an economically profitable price. Illegal logging, illegal fishing, illegal mining, and other illegal economic activities should be immediately and thoroughly eradicated.

Access to credits, technology, information, and other productive economic assets should be made easier for individual farmers and fishermen, cooperatives, national companies, traders, and other stakeholders involved in RBI’s business and development. Investment climate including procedures for obtaining business license, land clearing, policy consistency, and business safety and security should be more conducive and attractive for both domestic and foreign investors. Monetary and fiscal policies must also be conducive for the flourishing of RBI’s development. Last but certainly not least, is manpower development through well planned education, training, and supervision programs according to RBI’s development needs. Likewise is research and development programs for strengthening existing technology and developing new technology to make our RBI’s always in the competitive edge.

It is strongly believed that by implementing such a vision and roadmap of RBI’s development, Indonesia will not only be able to alleviate chronic national problems of high unemployment and poverty but also capable of becoming self-sufficient and the largest exporters of food, energy, mines and minerals, and other natural resources and their downstream products on a sustainable basis. More than that, Indonesia shall be joining Brazil, Russia, India, and China which have been predicted to be new economic powers of the world by 2030.




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