Editorial

A technician at a PT Krakatau Steel plant in Cilegon, Banten, cleaning up steel mill emissions by converting carbon dioxide into liquid form, which reduces the amount of the greenhouse gas released. (Photo: Yudhi Sukma Wijaya, JG)

Steel Production Key To Country’s Future

After much hand-wringing, South Korea’s Pohang Iron and Steel (Posco) and Indonesia’s state-owned PT Krakatau Steel have signed a preliminary agreement to build an integrated steel mill in Banten with an annual capacity of six million tons. More important, the long-negotiated joint venture, estimated to be worth at least $6 billion, will bring much-needed direct foreign investment into Indonesia.

Steel is crucial to economic growth and Indonesia is currently dismally short of supply. We produce just five million to six million tons a year compared to China’s 500 million tons. That is a huge gap and illustrates the distance between Indonesia and China.

The new joint venture will increase Krakatau Steel’s production capacity by one million tons, to 3.5 million tons. This is an improvement but still far from what the country requires.

Construction of the new steel mill is scheduled to begin in August 2010, after a final agreement is signed next April. It cannot start soon enough. The country needs to increase its steel capacity significantly. We will never be able to drive industrial growth without sufficient steel, which is vital to sectors such as manufacturing and property. The simple truth is we cannot build the country, let alone boost GDP, without steel.

And the country needs to act fast, especially in the face of the imminent start of the Free Trade Area agreement between the Association of Southeast Asian Nations, to which Indonesia belongs, and Asia’s economic giant, China, next year.

The FTA, to start on Jan. 1, will see parties gradually scrap import duties on a wide number of products by 2012. It will allow thousands of products from China, including steel, to enter Indonesia with no import duties.

The government should therefore fully support the joint venture and welcome more such investments. It should actively seek more foreign investments to boost steel production given the crucial role the material plays in the economy. An increase in steel capacity will also attract other manufacturing investment, which in turn will create jobs and raise living standards.

But investors are unlikely to be attracted to Indonesia if they perceive continued political instability. The euphoria of July’s peaceful presidential election has long since evaporated. The ongoing investigation into the Bank Century bailout is creating new concerns and should therefore be concluded as soon as possible. Already numerous business ventures and investments have been halted as investors await the outcome of the House of Representatives’ investigation into the case.

Indonesia has a golden opportunity to expand its economy. With a stronger economy, it can play a more meaningful and constructive role on the global stage.

Only economic growth, fueled by private investment, can lift millions out of poverty. The country can ill afford to be distracted by political posturing at this crucial juncture.

Your View

See Result