5 - Upgrading and Diversifying Downstream Industries

Summary

Transformation of exploitative land-based economies to sustainable bio-economies entails boosting upstream productivity and production volume and, more importantly, driving structural changes. This implies the reallocation of economic activity across the broad sectors of primary agriculture and forestry, manufacturing, and services. Historically, countries would pull out of low-cost, unsustainable land exploitation when they were able to diversify away from primary production. As incomes from downstream expand, land-based economies may enter a transitional period towards a more advanced, and possibly more sustainable form of development, gradually increasing the efficiency of resource exploitation. Peninsular Malaysia is a remarkable example of a region that has experienced such a transition (Vincent and Ali 1997).

A dominant feature of Borneo's export profile is the extent to which a primary land-based product, i.e., palm oil, still looms large. Due to the growing pressures over land-use sustainability, Borneo is gradually losing its previous “comparative advantage”, i.e., large tracts of cheap land, in furthering oil palm expansion. This mode of development has also suppressed other forms of land use and economic activities, as well as increased the risk of social conflicts. It is unlikely that Borneo will continue to see similar economic growth through low-cost expansion as in the past.

Therefore, creating and keeping added value in the territories is deemed essential to secure long-term economic interests. This has been regarded as a key step to transforming the Bornean territories from primary sector models to advanced bio-economies. It can be a turning point in moving the island away from rampant timber extraction and agricultural expansion while at the same time improving the welfare of the local population (Sadhukhan et al. 2018; Novindra et al. 2019). Shifting the local industries up in the commodity value chain requires advancement in manufacturing technologies, with products spanning from base oleo such as fatty acids to end products such as polymers and cosmetics (Salimon, Salih, and Yousif 2012). This chapter first elaborates on the downstream development in Borneo, particularly oleochemical industries and advanced biorefineries. Then the issues of infrastructure and investment are discussed.