The Other Side of Downstreaming: Between Policy Ambition and Infrastructure Readiness

On 31 March, President Prabowo Subianto met with directors from 13 major Japanese companies, culminating in the signing of several partnership agreements reportedly worth USD 22.2 billion. This outcome reflects how Indonesia’s industrial policies are transforming investor interest, particularly from long-standing partners like Japan, into tangible capital commitments.

Moreover, this commitment is consistent with Japan’s position as one of the top five foreign investors in Indonesia in recent years. According to the Ministry of Investment and Downstreaming/BKPM, Japanese investment reached USD 1.6 billion in the first semester of 2023, followed by USD 1.8 billion and USD 1.6 billion in the same periods of 2024 and 2025.

Although detailed sectoral allocations of these investments are published, Japan’s sustained commitments align with the rising wave of foreign direct investment (FDI) in downstreaming, from USD 25.71 billion in 2024 to USD 35.46 billion in 2025.

It should be noted that the downstreaming sector, particularly commodities such as nickel, bauxite, copper, and tin, has been at the centre of Indonesia’s economic strategy since the government officially prioritised it in 2020.

Alongside this influx of capital, there is a broader pattern of expansion. Joint ventures backed by foreign entities have driven the proliferation of smelting plants and processing facilities across the country, accompanied by increases in investment volume and industrial capacity.

For instance, according to the Directorate General of Minerals and Coal under the Ministry of Energy and Mineral Resources, in 2025 there are at least 13 operating smelting plants in Indonesia and 15 others scheduled to commence operations. In the same period, a total of 906 mining permits have been issued in the mineral sector.

These figures include smelting plants and mining permits related to joint ventures backed by foreign companies, although the exact number is unknown. These projects mark a significant milestone in Indonesia’s ambition to become a global player in downstreaming and demonstrate alignment between policy ambitions and investor responses.

While these developments generally appear to indicate a clear direction, further analysis of company documentation and related regulations reveals several challenges in timely policy implementation.

First, there is an issue regarding the visibility of beneficial owners. Applications from companies for newly established joint venture entities, particularly those accessed through the Indonesian Ministry of Law’s database, often reflect layered ownership structures. This includes newly established parent companies or ownership chains that also involve jurisdictions with low transparency levels.

Although the formally provided data complies with submitted information, it does not always provide a complete picture of the beneficial owners behind an entity. For foreign investors, this condition indicates situations where partner identities are legally documented but not fully transparent.

Second, there are gaps in the permitting chain. While central-level investment approvals are generally well-documented, local-level permitting is not always synchronised. Environmental permits or AMDAL, spatial planning permits, and other location-specific authorisations often take a long time.

This reflects the complexity of coordinating various layers of governance in the national investment cycle. These challenges may arise from incomplete or misaligned documentation processes from initial approvals to full operational authorisations.

Third, institutional capacity. The rate of new entity formations, whether funded by domestic or foreign investment, has outpaced the capacity of Indonesia’s registration and recording systems to update data in real time.

This is a structural condition, not a procedural failure. When policy incentives generate rapid capital inflows and surges in entity formations, the administrative system inevitably faces pressure to keep up. The result is a gap between on-the-ground economic activity and its full representation in official records.

Overall, this analysis shows that while formal provisions are being met, information surrounding the investment and downstreaming landscape in Indonesia remains structurally incomplete. For foreign investors conducting due diligence on joint ventures in the downstreaming sector, searches for company registrations, sanctions screening, and checks for politically exposed persons (PEP) may yield technically accurate results but do not fully reflect operational realities.

This creates several risks, including risks where beneficial ownership is not fully visible, fragmented permitting across government levels, and potential reputational risks if due diligence cannot be clearly reported to stakeholders.

Consequently, investors relying solely on secondary reviews will be more vulnerable to these potential risks, especially if not accompanied by more in-depth field verification.

This dynamic is not unique to Indonesia. Similar patterns can be found in other jurisdictions undergoing rapid industrial transformations, where policy ambitions tend to outpace corresponding institutional adaptations.

What distinguishes Indonesia from other countries is the scale and concentration of its downstreaming efforts, thereby increasing both opportunities and challenges.