A short while ago, I published an op-ed on kompas.id titled “Export Enclaves Need Urgent Redressing.” Beyond driving export performance through diversification, we must actively pursue import substitution for raw materials that feed our manufacturing industries. Examining the macroeconomic anatomy of our foreign trade through a political economy lens reveals an industrialization illusion—one that demands immediate structural reform.
National export figures are frequently hailed as a prestigious milestone, particularly the narrative surrounding our economic transition, where non-oil and gas exports are now dominated by the manufacturing sector, accounting for 79.15% in 2024. Yet, behind these stellar statistics lies a fragile structural paradox. Our manufacturing export engine is, in fact, highly import-intensive. Data shows that Indonesia’s imports remain heavily dominated by raw materials and intermediate goods, reaching an absolute value of $170.7 billion, or 72.58% of total national imports in 2024.
This reality is a glaring manifestation of the export enclave trap. While our export-oriented factories physically stand and operate within our borders, their production lifelines are isolated from the local economy, relying heavily on foreign inputs. We risk becoming nothing more than a “glorified assembly line” (a nation of tailors), where the bulk of foreign exchange earned from exports is immediately funneled back overseas to finance raw materials. This dependency leaves us increasingly vulnerable, especially given how concentrated our industrial raw material supply is—with China overwhelmingly dominating up to 31,400% of our import supply chain.
Import Substitution and Domestic Market Integration
To dismantle this enclave isolation, our downstreaming (hilirisasi) policies cannot simply stop at processing raw commodities into semi-finished goods for immediate export. The vital strategic move that must be executed is deepening domestic supply chain integration through raw material import substitution.
This is where domestic trade plays a pivotal role. Upstream sectors in rural and remote regions (particularly the 3TP areas—outermost, frontline, and disadvantaged regions) must be strategically linked with downstream manufacturing. National logistics interventions like the Tol Laut (Sea Toll Road) program should not be evaluated solely by their success in narrowing price disparities for consumer goods entering these regions. Moving forward, the Sea Toll Road and inter-island connectivity must be re-engineered as feeders, creating a steady return-cargo flow of local commodities from across the archipelago back to export manufacturing hubs in growth centers. Only when our export factories begin absorbing inputs from the local economy, rather than importing from China, will economic value-add truly stick and be enjoyed domestically.
Market Diversification as Shock Mitigation
In tandem with restructuring the domestic supply chain, diversifying export markets and commodities is an absolute necessity to mitigate risks in the global political economy. Currently, our export destinations are heavily concentrated on a handful of traditional trading partners, most notably China. This absolute dependence creates a dangerous systemic risk. When the economies of these destination countries slow down—as seen in the sharp decline of coal and base metal exports during the 2023–2024 period—our export engine stalls.
The government must aggressively unlock market access to non-traditional regions, fast-track the completion of Comprehensive Economic Partnership Agreements (CEPAs/FTAs), and push for advanced downstreaming. Escalating downstreaming toward end-products will create a vital price stabilizer against global shocks, ensuring our export value is no longer at the mercy of raw commodity price cycles on the world market.
Our strategy to strengthen exports can no longer just be about chasing aggregate growth figures at the ports. True trade sovereignty will only be achieved when we successfully integrate our domestic upstream resources with resilient downstream manufacturing, forging a supply chain that is self-reliant, high-value, and globally competitive.