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Refining moment

Jakarta Post Editorial - January 6, 2023

Jakarta – In another push to develop downstream mineral industries, President Joko "Jokowi" Widodo has announced an export ban on washed bauxite to come into effect in June of this year.

The ban was supposed to have been put in place years ago but did not materialize because of the country's inability to build smelters to process the ore, from which aluminum is extracted. Local businesses and investors had been reluctant to build the pricey facilities and were content with the profit from washing the silicates from the raw ore.

This is a classic problem for the country when it comes to commodities. A lack of investment and skilled human resources has trapped Indonesia in the role of a provider of raw materials for the global supply chain. And for decades, this has been quite convenient for industrialized and developed countries, which possess the technology, investment and human resources to produce high-value goods.

When Jokowi announced a nickel ore export ban three years ago, followed by export prohibitions on tin ore and other minerals, resistance from other countries mounted. The European Union brought the case to the World Trade Organization, which found Indonesia guilty of breaching global trade rules.

With the President's insistence on processing minerals at home, it is likely that Indonesia will face more lawsuits in the future. But Indonesia's policies are no great departure from common international practice; the United States and China also engage in protectionism to develop local industries.

The EU's anti-deforestation law, too, which seeks to stop the import of beef, palm oil and other products linked to deforestation, may be construed as a means of protecting the bloc's production of rapeseed, a vegetable oil crop that is less competitive than palm oil, at least before environmental externalities are considered.

But it is important that Indonesia makes its export bans worthwhile. For every commodity that the country wants to protect, it should plan carefully what it will do with it. More often than not, export bans have not been followed by detailed plans on what to do with the locked down commodities.

Take nickel, for example. While the country has benefited by exporting processed nickel, it is lost on the path to developing a domestic EV industry. The government's ambition to build an EV industry seems precarious with the recent announcement that it will provide subsidies for electric car and motorcycle purchases. While eliminating fuel subsidies is a noble idea, the EV subsidy plan shows that the subsidy money is only transferred into different pockets, and more likely those who belong to the upper-middle class.

In the case of washed bauxite, there have been concerns that the nation's deposits will be abandoned after the ban, since there are not enough smelters to process the washed bauxite into aluminum. China, the major importer of Indonesia's bauxite, and other countries will not worry so much about the lack of washed bauxite from Indonesia, as bigger producers like Australia and Guinea can easily fulfill the demand.

There should be a clear strategy for every commodity that will be refined at home. This may include deploying state funds or convening foreign and local investors to build the necessary infrastructure at home and even finding the markets for the refined products.

The government should also consider less confrontational measures like incentives, tariffs and quotas to protect its key commodities, since too many bans will only invite retaliations.

As the country aims to sell products with high added value, it should consider better, more polished and well thought out policies that encourage more cooperation instead of collisions at home and overseas.

Source: https://www.thejakartapost.com/opinion/2023/01/05/refining-moment.htm