Contribution of Palm Oil Industry on Generating Greater Indonesia’s Net Trade Surplus in Q3-2020
The Central Statistics Agency (BPS) was released data on Indonesia’s economic growth (GDP) in the Q3-2020 period. When compared against the third quarter of the previous year, GDP in Q3-2020 contracted by -3.49 percent (YoY). Indonesia’s economic growth in the previous quarter also contracted by -5.32 percent (YoY). This shows that the Indonesian economy has officially entered recession, because of its minus economic growth for two consecutive quarters.
The economic recession experienced by Indonesia is not a new thing. History records that Indonesia entered into a recession in 1963 and 1998. As a result of the Covid-19 pandemic, Indonesia has entered economic recession after 22 years since the monetary crisis that occurred in 1998. The impact of the pandemic which caused negative economic growth in Q3-2020 and recession was not only felt by Indonesia but also other countries such as the United States, Singapore, South Korea, Hong Kong, and the European Union.
Although annually (YoY) has negative growth, Indonesia’s GDP in this quarter has positive growth compared to the previous quarter of 5.05 percent (q-to-q), or successfully improved from the minus of quarter GDP (q-to-q) in the previous quarter which amounted to -4.19 percent. GDP growth (q-to-q) in the third quarter was due to an increase in almost all components of GDP, especially from the expenditure approach.
Export is one of the components of GDP (expenditure approach) which has the second-largest growth after government expenditure, where Indonesia’s export growth in this quarter was 12.14 percent. Compared to the previous quarter, Indonesia’s export performance has negative growth of -12.83 percent, however, export performance has again improved and resulting in positive growth in this quarter. The increase in the export performance of palm oil products as a strategic commodity and a leading export commodity, also be one of the factors driving Indonesia’s export growth this quarter.
Based on PASPI calculations using BPS data, the volume of exports of palm oil products (palm oil, biodiesel, and oleochemicals) increased from 7.85 million tons (Q2-2020) to 8.58 million tons (Q3-2020). Not only the volume, the export value of palm oil products also increased from USD 4.74 billion to USD 5.44 billion in that period. This is due to an increase in China’s demand for palm oil products, as a result of fast economic recovery due to the pandemic. In addition, the increase in the export performance of palm oil products was also due to the price (CIF) of CPO in this quarter showed has increasing from USD 656 per ton to USD 738 per ton during the July-September 2020 period.
The increase in the export performance of palm oil products also had an impact to increasing on net trade surplus in the non-oil and gas sector which more than doubled from USD 3.39 billion in Q2-2020 to USD 9.13 billion in Q3-2020. If the net trade calculation of the non-oil and gas sector eliminates the contribution of exports of palm oil products, then this sector will experience a deficit of USD 1.35 billion in Q2-2020 and the trade surplus in Q3-2020 will be lower by only USD 3.69 billion.
Not only contributing to the creation of a net trade surplus in the non-oil and gas sector, but palm biodiesel with implementation of mandatory B30 policy also contributes to saving foreign exchange. Even though there was a decrease in domestic absorption as a result of the Large-Scale Social Restrictions (PSBB) policy that was implemented in the second quarter, along with the re-opening of economic activity by implementing the New Normal protocol by the Indonesian Government, it caused an increase in the absorption of biodiesel to 2.12 million kiloliters.
This causes that the oil and gas net trade deficit in Q3-2020 was successfully reduced to USD 1.1 billion, as a result of the implementation of B30 which was able to saving foreign exchange of USD 792 million. If the B30 policy is wasn’t implemented, Indonesia will import imported diesel to meet its needs, which has implications for the large deficit in the oil and gas sector, amounting to USD 1.89 billion in Q3-2020.
Palm oil products export foreign exchange and the implementation of the mandatory B30 policy were able to increase Indonesia’s total net trade surplus from USD 2.89 billion (Q2-2020) to USD 8.03 billion (Q3-2020). Without the it’s contribution, Indonesia would has deficit total net trade in the second quarter of USD 3.9 billion and the trade surplus enjoyed in the third quarter was also very small, only USD 1.8 billion. This shows that the palm oil industry through exports foreign exchange of palm oil products and the implementation of B30 mandatory policy has a large contribution to Indonesia’s total trade balance (net trade) in the period 2020.
Even accumulatively during Januari-September 2020, the contribution of palm oil industry was able to create a total trade balance surplus of USD 13.51 billion which is equivalent to IDR 198 trillion or more than three times the Covid Pandemic handling fund from the State Budget which is only around IDR 75 trillion. This further confirms that palm oil products are a strategic product that have contribute greatly to Indonesia’s trade balance and the economy amid the pandemic and economic recession.
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