The Republic of Indonesia is located between the Pacific Ocean and the Indian Ocean in Southeast Asia. Indonesia is bordered by Papua New Guinea, Malaysia, East Timor, Vietnam, the Philippines, Singapore, and Australia. The nation occupies 735,358 square miles spread out in over 13,000 islands and is home to an estimated 261 million people. The majority of the population is Muslim and resides mostly on the Island of Java. Indonesia is the third largest democratic nation and has by far the largest Muslim population in the world. Indonesia is endowed with rich natural resources. The nation also has fertile soils that support a variety of cash crops. Indonesia is a major supplier of commodities such as coffee, rubber, timber, palm oil, and cocoa to the world market and to a lesser extent tea, sugar, copra, spices, and tobacco.
The Mining Industry
The mining sector is one of the largest industries in the country as vast exploited and un-prospected mineral deposits support it. The nation’s mineral resource exports are dominated by natural gas and crude petroleum. Other major mineral exports include coal, nickel, bauxite, gold, tin, and copper. In 1989, oil and natural gas accounted for over 90% of the US$10 billion in exports. The country’s industrial development is also to a large extent based on the domestic processing of mineral wealth. However, most of the minerals are exported in a raw or semi-processed state to industrialized nations such as Japan.
The nation’s oil production by OPEC quota allocation was set at 1.445 million bpd in the OPEC ministerial meeting held in March 1991. The quota represents about 6% of OPEC’s global production. Commercially exploitable oil deposits were discovered in 1883 in the northern part of Sumatra and therefore the oil industry in the country is among the oldest globally. The Royal Dutch Company was among the first to explore oil in the country in 1890. The company later merged with the British Shell Transport and Trading Company in 1907 to form the Royal Dutch Shell. The Royal Dutch Shell Company dominated Oil exploration in the early years but was soon joined by competition by companies such as Caltex after the discovery of the Duri and Minas oil fields. After independence, the government stiffened terms of the contract and established Pertamina as the National Oil and Gas Company to increase the benefits of the industry to the nation. By the 1990s the nation had 5.14 billion barrels of proven oil reserves.
Indonesia is among the leading producers of in Liquefied natural gas in the world. The nation boasts of 67.5 trillion cubic feet of established natural gas reserves within its borders and probable reserves estimated to be about 12 trillion standard cubic feet. The export of the liquefied natural gas is facilitated by P.T. Badak and P.T. Arun plants which condense natural gas through refrigeration to enable shipment through tankers. By 1990, gas exports earned the country around $3.7 billion in export revenue. Demand for the resource also led to the exploration of the Natuna Gas field which is located in the South China Sea, and is the nation’s largest gas field having high carbon dioxide content.
Indonesia has an estimated 4.2 billion tons of proven coal reserves, and an additional 12.9 billion tons in inferred reserves. Most of the reserves are found in eastern and southern Kalimantan and southern Sumatra. The production of coal experienced a decline in the 1970’s due to the promotion of subsidized petroleum. The drop in production lead to efforts to encourage its use in local cement and electric plants, and by 1990 total production had risen to 11 million tons.
The nations copper reserves are found around the Grasberg and Ersberg areas which are home to 15 billion tons of proven and probable reserves of copper. The Grasberg deposit was discovered after the Erstberg Mountain mine was depleted by Freeport Indonesia mining company. The country is currently the 5th largest producer of copper globally.
Gold production was initially reported as a byproduct of copper mining by the Freeport Indonesia mining company. The total production of gold was about 13,227 pounds in 1989 and 8,818 pounds of which were produced by Freeport Indonesia Company. An estimated 39,683 pounds were also produced that year illegally through small-scale operations around Kalimantan. Currently, the nation is the 8th largest producer of gold in the world with an annual output of about 100 tons as of 2013.
The nation has an estimated 740 million tons of proven tin reserves and is a major exporter of the mineral. The nation also is a member of the Association of Tin Producing Countries which restricted its tin exports to 31,500 tons for the year 1989 which was put in place to manage supply.
Indonesia has a total of 396 million tons of bauxite reserves that were discovered on the island of Bintan in the Kalimantan Barat province. Japan consumes most of the country’s exports.
Indonesia is among the world’s largest producers of nickel and is home to an estimated 12% of the world’s nickel reserves which is about 367 million tons in proven reserves. The nation is currently the 5th largest producer of nickel in the world.
The nation also has the region’s largest exploitable tropical forests namely in Papua and Kalimantan which support a healthy timber industry. The rainforests, which are the world’s third largest, are home to 29,000 species of plants and 3,000 species of animals. The timber industry has witnessed steady growth since the 1960’s with legitimate and illegal loggers targeting specific tree species such as Teak and Meranti which is in high demand due to its reddish easily workable wood that is also considerably lightweight. Vennes and plywood that is produced locally is either consumed locally or exported. The excessive exploitation of forests has led to massive deforestation and substantial environmental degradation. The rate of environmental degradation is further accelerated by government-sanctioned conversion of tracts of forest into agricultural fields.
The Natural Resource Curse
Despite being blessed with abundant amounts of natural resources, about 11.2% of Indonesia’s population lives below the poverty line. The nation’s level of development also lags behind compared to that of resource-poor Singapore, Taiwan, and South Korea. Academics around the world studying similar phenomenon across the world in resource-rich countries call this the “natural resource phenomenon.” The phenomenon describes the contradictory relationship between a nation’s economic performances compared to natural resource wealth. One of the primary contributors to this unique phenomenon is what economists refer to as the “Dutch disease,” a phenomenon where the development of a specific sector leads to the decline of other sectors.