The green energy transition will be the single biggest transition in the following decades.
resident Prabowo Subianto’s administration has set an 8 percent economic growth target for the next five years, but the path to such growth remains blurry. On the other hand, Indonesia has achieved sustained, high economic growth in the past – specifically during the New Order term in the 1980s and 1990s – achieving annual growth of 6 percent and even up to 8.2 percent before the Asian Financial Crisis. What lessons can the current government learn from that period?
The 1980s and 1990s growth periods were driven by massive industrialization and investment in critical infrastructure, fueled by a booming export commodities market during rapid global development post-World War II. Oil, palm by-products and specifically gas were among the commodities with rising international demand. Among others, playing on its competitive advantage, Indonesia capitalized on a then-revolutionary liquified natural gas (LNG) technology to reap benefits from gas exports.
Major LNG projects such as the Arun and Bontang LNG plants were among the catalysts. By the mid-1980s, Indonesia emerged as one of the world’s largest gas exporters, dominating nearly 40 percent of the global LNG trade. Fast-growing countries without abundant energy resources, such as Japan, South Korea and Taiwan, were among those who paid premium prices for the LNG when Indonesia’s domestic energy market lacked the capacity to absorb the then-advanced energy sources.
The substantial revenues from the LNG exports, combined with other export revenues, were strategically recycled into key national priorities, including the trans-Java and Sumatra highways, which significantly improved connectivity; the continuation of the infamous primary school Inpres program, which drove a 90 percent school enrollment ratio by the mid-1980s; and import substitution of relatively simple products such as textiles, garments and footwear, which created millions of jobs, attracted new foreign direct investment (FDI) money and catalyzed the birth and growth of many now-successful Indonesian companies.
The LNG anecdote showcases the power of strategically positioning the three factors of leveraging comparative advantage resources, premium export markets and local industrial development. But what is Indonesia's next big thing?
Look no further than the green energy transition – the single biggest transition the world will see in the following decades. Although fossil fuels are still vital for global energy security, demand will be and is currently being overtaken by green alternatives amid worldwide efforts to reach net-zero emissions to fight climate change. Energy transition commodities include green electrons (renewable energy), green hydrogen and ammonia (produced using green electrons), key sustainable fuels such as Sustainable Aviation Fuels (SAF).
The first principle of searching for “the next big thing” is still the same – searching for a massive commodities market that can and will pay substantially higher prices than the local market. For market size, no one will argue about how big the green commodities market is. In Asia alone, the addressable market for green commodities will reach US$4-$5 trillion by 2030.
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