Danger of forcing prosperity
For the Philippines, the lesson is simple: let us move up the value chain — but let us not climb it by kicking away the ladder on which our exporters, investors and industries presently stand.
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For the Philippines, the lesson is simple: let us move up the value chain — but let us not climb it by kicking away the ladder on which our exporters, investors and industries presently stand.
A podcast I recently listened to, “Something Weird Is Happening to Indonesia,” raised a question that we as Filipinos should not dismiss as someone else’s problem: Are we beginning to see similar economic instincts in the Philippines?
The answer may be yes — though not yet on the same scale. And that is precisely why we should pay attention now, before an instinct becomes policy and policy becomes difficult to reverse.
Indonesia remains one of Southeast Asia’s economic success stories. Its economy has been growing at about five percent annually, and S&P Global Ratings expects growth to remain near that level in the coming years.
Yet Moody’s has taken a more cautious view, retaining Indonesia’s investment-grade rating but revising its outlook to negative, citing the risk that declining policy predictability could eventually damage economic performance.
That divergence is revealing. Indonesia’s challenge is not simply whether it can grow. It is whether its growth is becoming too dependent on the state’s ability to direct resources, investment and markets without eventually undermining confidence.
At the center of the debate is Indonesia’s celebrated policy of downstreaming. Jakarta banned the export of raw nickel ore and pushed investors to process minerals domestically. On one level, the policy worked spectacularly. Indonesia attracted major investment in smelters, moved rapidly up the nickel value chain, and became the world’s dominant nickel producer.
There is nothing inherently foolish about downstreaming. No country should be permanently content exporting raw resources while others capture the higher value in processing, manufacturing and technology.
But a sound objective can become unsound economics when the state becomes too rigid about how that objective must be achieved.
Indonesia’s nickel success has also produced vulnerabilities: oversupply, dependence on foreign capital and technology, environmental pressures, and exposure to falling global prices.
More recent production controls and export arrangements have added another layer of state management. Even policy adjustments and exemptions suggest that Jakarta itself is discovering the practical limits of directing every part of a complex export economy.
The danger is when downstreaming ceases to be an industrial strategy and becomes economic compulsion.
That is the warning for the Philippines.
We, too, are increasingly attracted to the idea of restricting or banning raw mineral exports, particularly nickel, to force domestic processing. The aspiration is understandable. The Philippines is one of the world’s important nickel producers. Why should we merely dig, ship, and watch others create the batteries, alloys, and advanced products?
But there is a critical distinction between creating the conditions for industry and coercing industry into existence.
The Philippines must not simply copy Indonesia. We do not have Indonesia’s enormous domestic market, scale of reserves, fiscal capacity, or bargaining power. We also face high electricity costs, infrastructure constraints, slow permitting, and an investment environment that many investors consider unpredictable. If we ban exports before domestic processing becomes genuinely competitive, we may not create a new industry. We may simply be suffocating an existing one.
An exporter cannot be ordered into prosperity. The better approach is sequenced downstreaming. First, make processing economically viable. Secure competitively priced and reliable power. Build ports, logistics networks and industrial zones. Offer transparent and time-bound incentives. Require technology transfer where reasonable. Develop skills, strengthen environmental safeguards and create a regulatory environment investors can trust.
Only when domestic processing capacity genuinely exists should government consider carefully designed export restrictions.
The sequence matters. Indonesia’s possible mistake is not that it wanted greater value from its resources. The danger lies in believing that economic value can always be commanded into existence by administrative control. S&P’s relative optimism and Moody’s concern can coexist because Indonesia possesses genuine strengths while simultaneously facing growing questions about policy credibility and predictability.
The Philippines should learn from both sides of Indonesia’s experience. We should pursue industrial policy — but not economic micromanagement. We should encourage domestic value addition — but not destroy viable exporters while waiting for factories that may never come. We should use our natural resources strategically — but remain open to competition, technology, investment, and global markets.
Most importantly, government must provide something no export ban can replace: predictability.
Investors can live with taxes. They can adjust to regulation. They can even accept difficult conditions when the rules are clear and stable. What destroys confidence is the belief that the rules can suddenly change because government has decided that a new economic theory must be imposed overnight.
Indonesia may yet prove that its downstreaming strategy was a historic success. It is too early to pronounce it a mistake. But its experience already offers an important warning.
Growth managed by policy can look impressive. The real test comes when markets begin to question not the country’s resources, but the judgment of those managing them.
For the Philippines, the lesson is simple: let us move up the value chain — but let us not climb it by kicking away the ladder on which our exporters, investors, and industries presently stand.
The Philippines should not remain merely a supplier of raw materials. But neither should it become a country that mistakes restriction for strategy, control for development, and coercion for industrial policy.
The government can build the road, provide the power, and set the rules. But it cannot command prosperity into existence.
The Philippines must learn from Indonesia: move up the value chain, by all means — but never confuse a closed door with an open road to development.
