Indonesia continues to strengthen its downstreaming strategy to maximize the potential of its natural resources. The government designated list has 28 commodities as national downstreaming priorities, encompassing key sectors such as minerals, plantations, fisheries, seaweed and energy. Commodities such as nickel, bauxite, palm oil, and coal are the primary focus due to Indonesia’s significant potential in global reserves and international market demand.
Beyond the Ore: Can Downstreaming Make Indonesia a Developed Economy?
For most of its modern history, Indonesia has done one thing with its natural wealth: dig it up, cut it down, or pump it out, and sell it raw —nickel, bauxite, copper, tin, palm oil and timber—in their raw form, while the higher-value refining, manufacturing and branding happened overseas. Today, that is changing.
Since introducing the nickel ore export ban in 2014, Indonesia’s hilirisasi (downstreaming) policy has become one of the country’s most significant economic strategies. By requiring minerals to be processed domestically before export, the government aims to create more jobs, attract investment and capture a greater share of the value chain.
The results have been particularly impressive for nickel. Exports of nickel-based products have reportedly grown from around USD 3 billion to more than USD 30 billion over the past decade, making Indonesia a key player in the global electric vehicle battery supply chain.
A Success Story—with Important Caveats
While downstreaming has delivered undeniable gains, a new policy paper from the Arthashastra Institute Indonesia argues that processing raw materials alone will not be enough to achieve Indonesia’s vision of becoming a high-income nation by 2045 (Indonesia Emas).
The paper highlights several challenges:
- Value doesn’t always stay in Indonesia. Many smelters are foreign-owned, meaning a significant share of profits ultimately flows overseas rather than remaining in the local economy.
- Technology transfer remains limited. Indonesia has invested heavily in factories and smelters but still spends relatively little on research and development. Without stronger local innovation and engineering capabilities, long-term competitiveness may remain dependent on foreign expertise.
- Economic growth needs to accelerate. Indonesia requires annual growth of around 6–7% to achieve developed nation status by 2045, while recent growth has averaged closer to 5%. Downstreaming alone is unlikely to bridge this gap.
- Carbon intensity is becoming a concern. Much of Indonesia’s nickel processing still relies on coal-fired power, potentially making exports less competitive as major markets introduce carbon-related trade measures.
Looking Beyond Natural Resources
The paper concludes that downstreaming should be viewed as a powerful tool—not the final destination. To fully benefit from its natural resources, Indonesia will also need to strengthen education, invest in research and innovation, improve tax collection, develop skilled local talent and transition towards cleaner energy.
As global competition for critical minerals intensifies, Indonesia has secured an important position in international supply chains. The next challenge is ensuring that this opportunity translates into sustainable and broadly shared prosperity for future generations.
Read the original opinion piece here >>
*Source: “Beyond the Ore: Indonesia’s Downstream Bet” by Satish Chandra Mishra, Founder & Executive Director, Arthashastra Institute Indonesia (July 2026).
About the Author
Dr. Satish Chandra Mishra is the Founder and Executive Director of the Arthashastra Institute Indonesia, an independent think tank based in Bali focusing on India–Indonesia relations, political economy, and Indo-Pacific strategic affairs. An economist educated at the University of Oxford and the University of Cambridge, he has held senior positions with the OECD, USAID, and the United Nations Development Program (UNDP), where he played a significant role in Indonesia’s reform-era policy discourse. A prolific writer and political analyst, Dr. Mishra has spent over two decades studying Indonesia’s political and economic transformation and is a strong advocate of strengthening India–Indonesia ties through strategic cooperation, economic engagement, and civilizational diplomacy.
