Jokowi sees export ban on tin, gold, copper as invitation to foreign investors
JAKARTA — Indonesia is set to essentially ban exports of unprocessed minerals — including tin, bauxite, gold and copper, crucial materials for global industries — in the middle of 2023. Should the policy take force, its impact will be immeasurable: Some of the minerals are critical to electric vehicles, advanced semiconductors and other leading industries of the 21st century.
Indonesia rocked the world in January when it suddenly announced a monthlong ban on thermal coal exports. But the consequences from that stoppage will look infinitesimal compared to those caused by the mineral embargoes, which are to be permanent.
And if President Joko Widodo has his way, the bans on some minerals could be moved up to this year.
It is a policy that cannot escape being labeled, in the eyes of many, as protectionist or as resource nationalism. But it is also a policy that Indonesia considers to be crucial as it strives to accelerate its industrialization, and lift the so-called resource curse, where an abundance of natural resources can be a factor leading to underdevelopment.
The thinking is that banning raw material exports will spur investment in downstream sectors, creating jobs and leading to an increase in exports of more valuable products, instead of just selling what it digs up from the ground. It is a pressing need for a country whose mining sector makes up only 6.4% of the economy despite the abundant resources.
The competing perspectives also reared up when Indonesia banned nickel ore exports in January 2020, two years ahead of schedule. The European Union requested a consultation with the World Trade Organization over the ban in 2019, and in January 2021 requested a panel to be set up to, as it said in a statement, “seek the elimination of unlawful export restrictions imposed by Indonesia.”
The EU's position contrasts to online comments made by Finance Minister Sri Mulyani Indrawati on Jan. 21 during this year's World Economic Forum.
“It is not nationalism,” the former managing director of the World Bank said when confronted with that term. “We are the biggest economy in ASEAN, and you cannot allow this economy to just depend on commodities without value added.”
It's a message that Widodo has repeated on many occasions, including in late December, when he gave a rousing speech at an event to commemorate the anniversary of PSI, a Widodo-supporting political party for millennials.
“Our country will jump [economically] … if we dare to do what is called industrialization and down-streaming of our natural resources,” he said. “We have been exporting raw materials for decades. … [We need to] stop this.”
The president went on to call developed countries “the enemy” and say “it is OK to lose” the WTO nickel dispute.
“If we do not dare to try down-streaming, when will we stop exporting raw materials?” he asked. “Until then, we will only be an exporting country of raw materials, even though if we turn them into finished goods, the added value can be tenfold.”
Widodo added in the speech that he is eying a scheduled ban on bauxite, the world's primary source of aluminum, to be moved up to this year. He has made the same comment on a number of occasions, signaling his level of commitment.
“There is a tendency for countries with large natural resources to promote natural resource nationalism, including encouraging domestic down-streaming,” like Indonesia, said Rizal Kasli, chairman of the Indonesian Mining Professionals Association.
“What the global community needs to understand is that this export ban is in the form of raw materials,” the chairman said. “They can still get derivative products, and if [foreign countries] want to have a direct contribution, they can jump in with investments that have been opened and facilitated by the government.”
Indonesia, with its abundance of crucial minerals, is in a strong negotiating position. The archipelago was the world's fifth largest producer of bauxite in 2020 and had the sixth-most reserves, according to the U.S. Geological Survey. As for tin, another oft-mentioned mineral when Widodo is on the subject of export bans, Indonesia is the second largest producer and sits on the second biggest reserves.
But Indonesia's strongest position is with nickel, used in stainless steel and gaining traction as a key material in powerful EV batteries. The price of nickel recently hit a 10-year high, with stocks of the metal falling as major car companies increased their EV production.
Indonesia was by far the largest nickel producer in 2020, accounting for a third of the global total. It also holds the world's biggest nickel reserves. With big multinationals having to toe Jakarta's line, the export ban has led to a slew of “wins” — investment pledges — for the country.
Germany-based BASF and French nickel processor Eramet are considering building a nickel- and cobalt-refining complex in Indonesia; operations would begin in the mid-2020s. Japan's Sumitomo Metal Mining, meanwhile, has expressed strong interest in bringing an Indonesian refinery online mid-decade, an investment possibly worth billions of dollars.
Tesla, China's Contemporary Amperex Technology, or CATL, and other big companies pushing the boundaries of tech have expressed interest in helping to create an Indonesian EV battery supply chain, according to the Indonesia Investment Coordinating Board. The board in May announced Indonesia Battery Corp., a venture between four state-owned enterprises, and a consortium led by South Korea's LG Group are to soon begin building a $1.2 billion EV battery plant.
Indonesia's export statistics demonstrate the power of the ban. The country had exported $1 billion worth of nickel ore and concentrates in 2019, but only a trickle in 2020 and 2021. The export value of ferronickel, used for making stainless steel, meanwhile, almost doubled in 2020. In the first 10 months of 2021, the value of these exports was up 116% compared to the whole of 2019. The export value of iron and steel has also jumped, likely as a result of Indonesia's increasing production of higher-value stainless steel.
The impending raw mineral export ban has been “effective in encouraging [the fostering of] added value [industry] in raw material commodities,” said Kasli of the Indonesian Mining Professionals Association, adding that it has led 33 miners to either build new smelters or make construction plans.
The ban is part of a wider trend by Indonesia to reflect what is laid out in its constitution, that natural resources available in Indonesia should be fully utilized for the prosperity of the nation's people.
Earlier moves in this direction included Indonesia Asahan Aluminum, now Mind Id, a state-owned mining holding company, in 2018 taking a 51% stake in a local unit of U.S. miner Freeport-McMoRan. Freeport Indonesia operates the Grasberg mine, one of the world's largest gold and copper pits, in Papua Province. In 2020, Mind Id took a 20% stake in a local unit of Brazilian mining giant Vale that operates the world's largest nickel mine, on the island of Sulawesi.
Continuing operations at both mines were contingent upon the Indonesian company increasing its stake.
The de facto export ban on raw minerals came into motion during former President Susilo Bambang Yudhoyono's time in office, from 2004 to 2014, when the House of Representatives passed a law obliging all miners to process raw materials domestically.
The ban was slated to come into effect in 2014. After going through several tweaks and delays, it is now scheduled to take effect in June 2023. Further delays appear unlikely considering Widodo's unflinching support for the law.
There is a political element in the president's willingness to follow through on the ban, said Siwage Dharma Negara, a senior fellow at Singapore's ISEAS Yusof-Ishak Institute. This is because Widodo had said during his presidential campaign that he wants to transform Indonesia into an exporter of higher value-added products and not just ship out its natural resources.
“Widodo has only about two years left to showcase his political promises,” Negara said. “It is his legacy. He is the president that managed to convince investors, exporters to increase the value addition for Indonesia. He wants to be remembered not only as the infrastructure president but also as the one that transformed the economy.”
While Indonesia has been able to gain from its nickel ban, it should be wary of the risks that loom next year when the broader ban is to take effect, experts say. One cause for concern is the rule of law, or perceived lack thereof, which could deter investors from pouring funds into the archipelago.
Indonesia had an aggregate score of 0.52 in the 2021 Rule of Law Index compiled by the World Justice Project, ranking 68th, two places down from the previous year. While it scored higher than regional rivals Thailand, Vietnam and the Philippines, it came in below Malaysia, and its score paled in comparison to that of regional leader Singapore, at 0.78.
“There are lingering concerns about the rule of law,” said a lawyer who has spent years dealing with businesses in Indonesia, adding that there can be contradictions within the legal system and some question marks over enforceability. Despite the export ban on minerals forcing some international resource producers to move into Indonesia, “new international players are still somewhat cautious in investing in Indonesia,” the lawyer said.
Widodo is confident the ban will keep investment money flowing into Indonesia, helping the archipelago to flourish.
“If later we stop bauxite, we stop copper, we stop tin, we stop gold, everything stops, stops, stops, we no longer have such a thing as raw material export,” the president said in his December speech. “I believe that if we do this … our gross domestic product in 2030 will triple.”
Additional reporting by Ismi Damayanti and Bobby Nugroho in Jakarta