It seems that the Indonesians have tumbled to the fact that demanding foreign miners build smelters and other processing plants in the country, rather than export the ore, is not quite the immediate winner they thought it may be.
Jakarta recently announced it would lift, until January 1, the export quota on unprocessed metal and mineral ore. Now there’s talk that it might apply export tariffs instead.
Actually, as early as last April the Energy and Mineral Resources Minister, Jero Wacik, hinted there was wriggle room in the government’s policy. He said he acknowledged “that making a smelter takes time, needs money, technology and electricity supply”
The decision two weeks ago, however, was a demonstration of that old adage, “Mr Market rules, OK?” It was not that the Indonesians were walking away from their desire to see value-adding happen in their country rather than in China. Who can blame them? At least they tried, unlike the mob in Canberra.
No, it was a case of needing the money from minerals. The country had to issue an emergency fiscal package because of the fast deteriorating current account situation.
As it stands, the ban is set to come back on January 1. But the Indonesians may have learned a lesson. The Commonwealth Bank commodities team led by Lachlan Shaw notes the “on again, off again” approach; also, he points out that bauxite exports collapsed last May when the earlier export ban took effect, but recovered in subsequent months after Indonesia’s Supreme Court in September overturned the ban.
The Indonesians would be advised to think this through. Why kill the goose that is laying what passes there for the golden egg?
This is not to say that Indonesia is wrong in going down the path of value-adding. No, it is in its national interest to do just that. Only by industrialisation can a developing country hope to improve the living standards of its people. No point in handing over the mineral wealth for someone else to take all the cream.
But clearly it is going to require a more subtle approach. Certainly a more gradual one. And it can work. The threat of the export ban spurred the Chinese (the main customers for Indonesia’s laterite nickel ore) to move smelter capacity south, most notably the $US1 billion nickel pig iron smelter in Central Sulawesi province built as a joint venture between PT Bintang Delapan Group and China’s Tsingshan Group.
Perhaps this is the time to remind ourselves of what the Indonesians are sitting on.
In a government presentation to a conference in Australia earlier this year, the Indonesians gave some figures. In 2013, they expect to mine 545,000 tonnes of copper, 88t of gold, 100,000t of tin, 37 million tonnes of nickel ore, 30Mt of bauxite and 11Mt of iron ore.
The country is the world’s top exporter of nickel ore, coal and refined tin. Mining contributes about 12% of the country’s GDP.
And it is — provided Jakarta doesn’t stuff it up — rising fast. According to Reuters, the mining industry’s net revenue was 25 trillion rupiah (about $2.45 billion in our money) in 2012. This year it is projected to be 33.1 trillion. That’s a 32% rise in one year, if Reuters figures are right.
The 2011 estimates by the country’s geological agency were that, in resources terms, it has huge resources of copper, bauxite, nickel, iron sands, manganese, silver, gold, lead, tin and zinc.
Their coal resources are put at 161 billion tonnes, their reserves at 28.17 billion. In 2000, the country exported just over 50Mt of coal; in 2011 this was approaching 350Mt. It overtook South Africa in 2002, Australia in 2010.
Export tariffs may just be the go instead of the ban, as an interim measure — then signal that the ban will come into effect at a forward date that gives foreign interests time to build the processing equipment.
It can be done. Even those boofheads in La Paz have cottoned on to that. The Bolivians have just got the Dutch to agree to build a battery plant in their country and take all the necessary technicians back to the Netherlands for training, in return for the Dutch getting access to a large lithium brine resource.
Yes to resource nationalism. But also, yes to a bit of cunning and patience.