Main economic sectors of Central kalimantan

As seen from table 2, the economy is dominated by primary sector activities, with little manufacturing and a relatively low proportion of services.

Table of sectors distribution of RGDP in 2001, percent

Agriculture has a dual structure, dominated by large export plantations producing for exports and subsistence agriculture. The most important non-plantation crop is rice, which is grown on most of the agricultural land, followed by various types of vegetables. Maize, cassava and soybeans are also important. The yield for rice is the lowest in all of Indonesia at around half the national average, and the Province imports most of the rice consumed, as well as a large portion of other food products, from other parts of Indonesia. Increasing agricultural productivity and production is one of the Provincial Government's main objectives. The most important plantation crops are rubber, palm oil and coconuts, which account for 98 percent of the plantation area. Other plantation crops of smaller importance include coffee and pepper. The total cultivated plantation area was 665,000 hectares in 2001. Several of the concessions that have been granted for plantations are currently inactive, due to lack of investor interest. This is the case in particular for palm oil plantations. A processing plant for palm oil is planned, but no investor has yet been identified.

Forestry makes a very large contribution to regional GDP and has in the past been the most important sector. It still accounts for nearly all of total exports from Central Kalimantan. The number of forestry concessions increased rapidly through the 1970s and 1980s, to reach a peak in the early 1990s, when concessions covered more or less the entire non-protected forested area. A tightening -of the legislation in 1999, aimed at improving forestry management, resulted in a dramatic decrease in both the number of concessions and the area covered. Of 71 concessions in force at present, about 40 are active, although production has continued its downward trend. As a result, log production has fallen dramatically, as has production of processed wood products {plywood and sawn timber being the most important).

The central Government plans to introduce national limits on logging that would result in a dramatic fall in timber production and exports. The figure of 6.5 million cubic metres (as compared with total logging of 20 million cubic metres at present) has been mentioned. It is not yet clear how the limits for provincial production would be set and what the limits would be.

Less than 10 percent of the forested area is under various types of protection, while about two thirds are productive, although inadequate logging practices in past years have resulted in the degradation of large portions (almost 40 percent) of the exploited forest areas. Of the areas covered by former and current concessions, 24 percent is estimated to be virgin forest. Replanting has increased in recent years, but only about 5 percent of the total exploited area was replanted in 2000, the last year for which figures are available. In view of the widespread degradation, this is clearly not sufr,-ient to sustain timber yields. Moreover, illegal logging, including in protected areas, has become a major problem, and is estimated to represent at least 20 percent of the total timber harvest. The size of the territory, the low population density and the lack of infrastructure make it very difficult to stop illegal logging activities. The inadequacy of resources exacerbates the difficulties further. The provincial government is attempting to deal with the problem of illegal logging through a programme that would make forest areas available to local communities and aim to foster sustainable forestry practices. By providing the local communities with a legitimate income from logging, illegal loggers would be deprived of labour. For the time being, efforts to mobilize the financial resources needed for the programme have not been successful.

It is generally recognized that Kalimantan has a favourable geology for copper porphyry deposits, similar to established production areas such as those in Chile and the Philippines, and that deposits suitable for large-scale mining will eventually be identified and developed. It is of course not possible to estimate within what time period such development will take place. When it does, the impact on the local and regional economy is likely to be dramatic. Adapting to the resulting changes and maximizing the benefits of mining will pose challenges for mining companies, local and regional governments and affected local communities.[2]

Large-scale mining is at present of limited economic importance in Central Kalimantan. The only active Contracts of Work (CoW, the type of mining concession used for metallic mineral exploration and exploitation by foreign investors) are the one held by KGC and one for the Mt. Muro mine, which was operated by the Australian company Aurora Gold. That mine was closed in June 2002, but Aurora has sold its interest to Archipelago Resources, also from Australia, which is continuing exploration in the area. Seven CoWs are inactive. There are 18 work agreements for coal mining in the northeast part of the Province, although none of those projects has yet reached the exploitation stage. One is in construction and one is at the feasibility stage, while 14 are still in the exploration phase. There are also nine KPs (mining contracts for national companies), all of which are inactive, and a number of local mine mining authorizations for sand and gravel production and for quarries.

Artisanal small-scale mining is a major source of income. According to a survey made in 2000, there were 6,000 gold dredges operating along the rivers of the Province, employing about 50,000 people. The estimated average gold production from the dredges and a number of hard rock small scale mines was 1.5 tons per month, representing a value of about US$ 200 million per year at today's prices or 20 percent of Gross Regional Domestic Product. These operations have no license and the Provincial Government receives no revenue from them. Their effect on the river environment is clearly noticeable.

As already mentioned, Kalimantan is considered to have very large potential for mineral deposits, and a large number of companies carried out exploration in the 1990s. Four factors contributed to a dramatic fall in investor interest: First, the Bre-X scandal in 1997 made investors very cautious and exploration companies found it very difficult to raise funds. Second, the general uncertainty about political developments in Indonesia over the past several years has undermined investor confidence. Third, Forestry Law No. 41/1999 banned mining in protected forests covering about 114,000 square kilometres. However, some 150 mining companies had concessions in these areas and some of them have taken legal action to have the consequences of the law reversed, in some cases on the grounds that the forests in question were not, or should not have been, protected. In some of these cases, the Government decided in 2002 to allow mining projects to go ahead, a decision that was met with strong protests from NGOS. Nevertheless, confusion surrounding the application of the law has remained. Finally, the future direction of mining legislation has been unclear for several years and changes proposed in 2002 have drawn criticism from international mining companies, particularly over what is perceived to be lack of clarity regarding the distribution of authority between the central and provincial governments, the duration of concessions, and security of title. The proposed legislation would eliminate the distinction between foreign and domestic holders of concessions and replace Contracts of Work for foreign investors and mining authorizations for domestic ones with one instrument. As of 2003, Provincial Governments would grant concessions, although the legal framework would be adopted by the national Parliament. Monitoring of concessions would be delegated to the level of Kabupaten, unless the concession covers several Kabupatens.

Processing of timber in sawmills and plywood factories accounts for the vast majority of large and medium-scale manufacturing production and employment, with food processing industries making up the rest. As a result of the economic crisis and of the decrease in legal logging, the forest-based industry has shrunk, with both the number of establishments and employment having fallen in recent years. In the long term, the Provincial Government would like to see more high value added production, since the high quality timber that is harvested could be turned into higher value products than plywood for construction, which is the main product at present. Small-scale enterprises, including in the informal sector, have grown in importance, probably at least partly as a result of downsizing of larger size establishments.

During the past several years, major improvements in infrastructure have been undertaken, including road construction and electricity generation. Tourism has declined dramatically, reflecting a general trend in Indonesia. Statistics on commerce are difficult to interpret, since the classification of

enterprises appears to have changed. It is likely, however, that the importance of small-scale and informal commerce has grown.

[1] The data in this section are mainly from the Governor of Central Kalimantan: Quovadis Forestry in Central Kalimantan, A Special Report of the Forestry Sector Reformation, Palangka Raya, September 2001.

[2] Preparations for a regional development demonstration project in Central Kalimantan, Indonesia, Interim report, Olle Östensson, UNCTAD