Summary: This paper examines Indonesia’s downstreaming (Hilirisasi) policy as a strategic national effort to shift from a raw-material export economy toward a high-value industrial producer. Downstreaming is defined as the domestic processing of natural resources, such as minerals, oil and gas, plantation products, and marine commodities, into semi-finished or finished goods with significantly higher economic value. Indonesia has identified 21 priority commodities across eight sectors, requiring an estimated US$545.3 billion in investment through 2040, with US$40 billion allocated to the initial phase. Using quantitative data from recent investment realizations, the study highlights the potential benefits of downstreaming, including greater value addition, increased government revenue, expanded employment (over 1.36 million jobs created in 2023), enhanced economic diversification, and more balanced regional development, particularly outside Java. However, the paper also identifies key challenges such as high capital intensity, technological and human-resource constraints, incomplete industrial ecosystems, regulatory uncertainty, and social–environmental risks. A case study of copper downstreaming demonstrates the gap between resource potential and actual industrial development, emphasizing the need for clearer roadmaps, targeted incentives, and stronger supply-chain ecosystems. The study concludes that downstreaming is a long-term national transformation agenda requiring coordinated policy execution, regulatory consistency, and strategic collaboration across government, industry, and local communities. Successful implementation could position Indonesia as a competitive industrial economy rather than a mere exporter of raw materials.
Introduction
Indonesia is currently at a pivotal juncture in its economic development. For decades, the country has been known primarily as an exporter of raw materials, coal, nickel, copper, palm oil, timber, seaweed, and many others. However, the economic value derived from exporting unprocessed commodities is significantly lower compared to the value obtained when these resources are processed domestically into high-value products. For this reason, the government has introduced an ambitious downstreaming strategy, shifting the economic model from “extract raw materials → export” toward “process raw materials first → export or supply as finished products domestically.” This policy aims…
