Indonesia’s economy is losing out on commodity gains after lawmakers wrapped protectionist policies around the nation’s resources. Their next problem: finding a lucrative replacement.
Commodities now account for about 40 percent of all exports, down from almost 60 percent five years ago, according to Morgan Stanley. They make up just 6 percent of gross domestic product, half as much as in 2012, as trade restrictions worsened the impact of a price rout over much of that period. Crude oil and gas output has declined to levels last seen in the early 1970s.
While Indonesia’s coal output will be higher next year than in 2013, production of key mineral exports including bauxite, tin and nickel will still be well behind the commodity cycle’s peak, BMI Research estimates. The drag on activity may complicate President Joko Widodo’s plans to accelerate economic growth to 7 percent, with an investment push in manufacturing to offset lost commodity income yet to yield results.
“Indonesia is growing 5 percent — that’s pretty good — but it used to grow 6 percent because of commodities. To go back to 6 percent you need to have another sector that would replace it,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “The problem is that there is no support from manufacturing.”
While global commodities slumped for five years following their 2011 peak, last year saw a rebound in prices. But investment in Indonesia’s sector has been sapped by tighter environmental rules and nationalist policies, including import tariffs and tighter visa requirements for foreign workers.
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