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Slow growth in East Indonesia

Written by Lian Jye

Implemented in 12 January this year, the mineral export ban has resulted in a massive drop in the GDP of eastern regions in Indonesia, specifically in the province of Sulawesi, Maluku, Nusa Tenggara and Papua.

According to the Central Bank of Indonesia (Bank Indonesia), this region of Sulawesi, Maluku and Papua, collectively known as Sulampua is facing a slower than usual growth in the first quarter of 2014. The combined annual GDP growth of Sulawesi, Maluku, Papua and Nusa Tenggara fell to 4.6%, 2% lesser compared to the same period last year. The trend, which deviates from the robust GDP growth in the other regions of Indonesia.

Nickel is the main export of Sulawesi and Maluku, while copper is the key commodity of Papua and Nusa Tenggara. These commodities constitute of 54% of the entire eastern region’s international export. In contrast, the central region of Java is more industrialized, and the western and northern regions of Sumatra and Kalimantan, respectively, are more focused on agriculture and Oil and gas products.

This is exactly the effect that World Bank has warned against. The country is essentially taking risk in abandoning short term revenue in favour of the long term growth. At this moment, Indonesia lacks domestic reprocessing capability to satisfy its current mining output. During this transition period, mining workers will definitely face uncertainty in their job prospect. Structural unemployment will increase and it remains to see how long will it take the situation to turn around.

The Central Bank of Indonesia made two recommendations with regards to this situation. First, the country must hold onto its commitment in smelter construction. Much is hinged on the success in reprocessing capability. As the majority of the economic income is derived from mining sector, the smelters must have the capacity to absorb the output from the mine. Second, the government should encourage allocation of more plantation areas. Cash crop like cacao, coconut and rubber trees have been the staple of agriculture sector in Sulampau area. Allocation of new plantation areas will improve the productivity of this dominant industry, while keeping the supply of raw materials flowing for other manufacturing sectors.

Currently, the Indonesian presidential election is looming. There will be lobby groups from the mining sector trying to lobby for relaxation of the export ban. However so far, major parties remain committed to the ban, viewing it as a long term strategy to improve the Indonesian economy. Since the ban, capital investment in smelter, civil infrastructure and healthcare facilities in Sulampau region have increased by 12.2%, generating a massive number of employment opportunities.

–Edited by Mohamed P.Hassan

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