Indonesia Resource Nationalism: Opportunities and Challenges
Disclaimer: The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of the organization or its members where the author is currently working.
Background
President Joko Widodo, since the end of 2019, has established several policies that ban the export of mineral resources i.e., nickel, bauxite, copper, etc. The ban is introduced as part of the master plan to increase the economic value of the mineral resources, accelerate industrialization, and increase the state revenue.
These sets of policies may be recognized and known as Resource Nationalism (“RN”), a set of policies designed to restrict the international supply of natural resources. In addition to the export ban, RN policies may also encompass a number of fiscal and non-fiscal policies such as an increase in export taxes and levies, tax facilities for local industry, and an easier licensing process.
One of the most notable policies that kick-started Indonesia’s journey to RN is the Ministry of Energy and Mineral Resources (“MEMR”) Regulation 11 of 2019. In a nutshell, MEMR Regulation 11 of 2019 prohibits the export of ore with 1.7 percent (%) or less nickel, in order to conserve its limited reserve and increase its economic value by redistributing it to more valuable economic activities, such as nickel processing as raw material for electric vehicles (“EV”) battery.
Indonesia’s RN policy has had a positive impact on the economy. This is evidenced by the 19-fold increase in nickel export value from Rp 17 trillion prior to the ban in 2014 to Rp 326 trillion after the ban in 2021.
Furthermore, effective June 2023 Indonesia will ban the export of washed bauxite with 42 percent (%) or more Aluminium Oxide (A12O3) content, as contemplated in MEMR Regulation 17 of 2020. Similar to nickel, the prohibition of the export of bauxite is also motivated by the goal to increase its economic value and industrialization.
As the introduction and implementation of the RN policy have shown a positive and promising outcome for Indonesia, the government aims to implement RN on other mineral resources. However, reflecting on the present implementation of RN on nickel, there may be some opportunities and challenges relevant to Indonesia’s RN policy in the future:
Opportunities
- Development of Local Economy and Industry.
The RN policy will contribute to the development of the local economy and industry, as the government and the businesses collaborate to establish the industry for absorbing and processing the mineral resource commodity from raw material to processed products.
The government needs to supplement the RN policy with other measures, such as providing fiscal and non-fiscal investment facilities, streamlining of licensing procedures, debottlenecking, and implementing regulatory and institutional reforms. These measures are taken in order to attract foreign and domestic investors who have the proper financial capacity, technology, and human resources to invest and collaborate in the processing industry in Indonesia.
Consequently, these measures will hopefully encourage investors, both foreign and domestic, to invest and collaborate in the industry in Indonesia. Investors with all their resources are required to invest in and establish the facilities required for the processing industry, such as smelters and factories. Such investment and collaboration are necessary for the development of the economy of Indonesia as they provide job opportunities, education and training, and income for the people and the state.
- Increase of Economic Value of The Mineral Resource Commodity.
Mineral resource commodity that has been processed into processed products will have higher economic value due to the amount of technology, investment, and labor involved. This has been proven with nickel, whose value has increased after the export ban and due to its processing into products and goods with higher value such as stainless steel, EV battery, anti-corrosion coating, etc.
An increase in economic value is a mutually beneficial situation for both businesses and the government. For businesses, a higher economic value of a product will translate into higher earnings. As Indonesia has only recently just begun to industrialize, a product with higher economic value also opens up opportunities for Indonesian businesses to enter and capture the market of high-value and/or processed products.
For the government, higher economic value for a product will contribute to the betterment of the quality of living of the people, the resiliency of the economy from the fluctuating prices of raw materials, and additional revenue for the state in the forms of taxes, levies, and charges, which will be elaborated further below.
- Increase of State Revenue.
States that implement RN by retaining control over and processing raw materials of mineral resources commodity domestically will be rewarded with an increase in state revenue in the forms of taxes, levies, and charges. As business and industry become more developed and profitable due to the wider opportunities high-value and/or processed products present, and employees earn more, it is only natural for states to earn more from tax, levies, and charges.
One of the most prominent and concrete evidence is the increase of non-tax state revenue (Penerimaan Negara Bukan Pajak or “PNBP”) from the mineral resources industry. As of November 2022, the state has reported PNBP earnings of Rp 146.85 trillion or 145.78 percent (%) of the 2022 target, as contemplated in the Presidential Regulation No. 98 of 2022, according to the MEMR. The following PNBP earnings have come from the nickel, bauxite, lead, and copper processing industries.
Evidently, it is safe to say that RN along with the policy to establish and develop the processing industry, is a remarkable accomplishment that successfully generates additional revenue for the state.
Challenges
In spite of the plentiful opportunities it presents, RN and the supplementing policies will have their own respective challenges that require attention and anticipation such as domestic industry readiness and potential challenges from the international stakeholders.
- Domestic Industry Readiness.
As Indonesia has only just begun to implement RN by industrializing and processing raw materials of mineral resources domestically, there are several major challenges that require attention and anticipation, including the required capital to establish the industry, accommodative and well-architected regulatory framework, sufficiency of technology, and also the availability and competency of the human resources.
The MEMR has laid out the amount of capital required to establish and construct seven mineral resources processing and refinery facilities and smelters by the end of 2023, which is at the staggering amount of Rp 435 trillion or USD 30 billion (1 USD = 14.500 IDR, May 2022).
Indonesia currently already has 21 operational smelters, a number which certainly will increase following the completion of an additional seven smelters in 2023. Additionally, the MEMR also eyes having 53 operational smelters by 2024, costing the government up to an additional Rp 312.25 trillion or USD 21.5 billion. Without the support of investors, both domestic and international, the realization of such projects will be difficult to accomplish, due to the immense amount of investment cost.
Aside from the immense amount of investment cost, the technology required to process mineral resources from raw materials to processed products may also present a challenge to the industry itself. For example, according to the Indonesian Nickel Miner Association (Asosiasi Penambang Nikel Indonesia or “APNI”), Indonesia currently lacks the smelter that utilizes “hydro-metallurgy”, the technology required and necessary to facilitate the processing of nickel into EV battery.
Moreover, the Ministry of Industry (“MOI”) has also expressed its concern that in order for the RN policy and Indonesia’s raw material processing activities of mineral resources to succeed, more than 16.000 competent human resources are required.
- International Challenges.
Following Indonesia’s RN policy to ban nickel export in 2020, the European Union (“EU”) expressed its objection and challenged it due to the possible harm the policy could bring to the stainless steel industry, to the World Trade Organization (“WTO”). The WTO then ruled in favor of the EU and stated that said the policy is not in line with global trade rules.
Having already submitted its appeal, Indonesia is currently awaiting the outcome of the ongoing proceedings at the WTO. Several possible consequences that may happen, shall Indonesia loses its appeal at the WTO include the obligation to revoke its export ban policies and pay a prescribed amount of compensation to the wronged party.
The EU's challenge to Indonesia’s RN policy to ban nickel export provides a good example of one out of numerous possibilities of reception from the international community following Indonesia’s RN Policies. Although RN is proven to be beneficial for the host state, it may present a problem to other nations who rely on the export of said commodities.
Additionally, RN policy, which lead to the development of the domestic processing industry that produces high-value and/or processed products, may be perceived as a threat by nations that are currently key players in the high-value and/or processed product market.
References
Indonesia. Government Regulation in Lieu of Law No. 2 of 2022. https://peraturan.bpk.go.id/Home/Details/234926/perpu-no-2-tahun-2022. Diakses pada Maret 2023.
Indonesia. Law No. 4 of 2009. https://peraturan.bpk.go.id/Home/Details/38578/uu-no-4-tahun-2009. Diakses pada Maret 2023.
Indonesia. Government Regulation No. 5 of 2021. https://peraturan.bpk.go.id/Home/Details/161835/pp-no-5-tahun-2021. Diakses pada Maret 2023.
Indonesia. Presidential Regulation No. 55 of 2019. https://peraturan.bpk.go.id/Home/Details/116973/perpres-no-55-tahun-2019. Diakses pada Maret 2023.
Indonesia. Ministry of Energy and Mineral Resources Regulation No. 11 of 2019. https://peraturan.bpk.go.id/Home/Details/142232/permen-esdm-no-11-tahun-2019. Diakses pada Maret 2023.
Indonesia. Ministry of Energy and Mineral Resources Regulation No. 17 of 2020. https://peraturan.bpk.go.id/Home/Details/163126/permen-esdm-no-17-tahun-2020. Diakses pada Maret 2023.
Kementerian ESDM. Bijih Nikel Tidak Boleh Diekspor Lagi per Januari 2020 https://www.esdm.go.id/id/media-center/arsip-berita/bijih-nikel-tidak-boleh-diekspor-lagi-per-januari-2020. Diakses pada Maret 2023.
Sekretariat Kabinet RI. Pemerintah Putuskan Larang Ekspor Bijih Bauksit Mulai Juni 2023. https://setkab.go.id/pemerintah-putuskan-larang-ekspor-bijih-bauksit-mulai-juni-2023/. https://setkab.go.id/pemerintah-putuskan-larang-ekspor-bijih-bauksit-mulai-juni-2023/. Diakses pada Maret 2023.
Gov.uk. Resource Nationalism. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/389085/Horizon_Scanning_-_Resource_Nationalism_report.pdf. Diakses pada Maret 2023.
HukumOnline. Larangan Ekspor Nikel Berisiko Timbul Ketidakpastian Hukum. https://www.hukumonline.com/berita/a/larangan-ekspor-nikel-berisiko-timbul-ketidakpastian-hukum-lt5d952d7986e38/?page=all. Diakses pada Maret 2023.
Dunia Energi. Dirjen Minerba Tegaskan Larangan Ekspor Bauksit Tetap Diberlakukan pada 2023. https://www.dunia-energi.com/dirjen-minerba-tegaskan-larangan-ekspor-bauksit-diberlakukan-tetap-tahun-2023/. Diakses pada Maret 2023.
CNBC. Larangan Ekspor Bauksit Tak Mendadak, Harusnya Pengusaha Siap. https://www.cnbcindonesia.com/news/20230127171119-4-408851/larangan-ekspor-bauksit-tak-mendadak-harusnya-pengusaha-siap#:~:text=Jakarta%2C%20CNBC%20Indonesia%20%2D%20Indonesia%20akan,Batu%20Bara%20(UU%20Minerba). Diakses pada Maret 2023.
The Jakarta Post. Indonesia to Ban Nickel Exports from January 2020. https://www.thejakartapost.com/news/2019/09/02/indonesia-to-ban-nickel-exports-from-january-2020.html. Diakses pada Maret 2023
CNBC Indonesia. Menteri ESDM Ungkap Alasan Jokowi Setop Ekspor Bauksit. https://www.cnbcindonesia.com/news/20230103115926-4-402373/menteri-esdm-ungkap-alasan-jokowi-setop-ekspor-bauksit#:~:text=Pelarangan%20ekspor%20bauksit%20keluar%20negeri,domestik%20bisa%20mengembangkan%20hilirisasi%20bauksit. Diakses pada Maret 2023.
CNBC Indonesia. Kalah Gugatan Nikel di WTO, RI Dipastikan Tak Keluar Duit!. https://www.cnbcindonesia.com/news/20221123130529-4-390485/kalah-gugatan-nikel-di-wto-ri-dipastikan-tak-keluar-duit. Diakses pada Maret 2023.
CNBC Indonesia. Gawat, Ini yang Terjadi Jika RI Kalah Gugatan Nikel di WTO. https://www.cnbcindonesia.com/news/20220912094524-4-371203/gawat-ini-yang-terjadi-jika-ri-kalah-gugatan-nikel-di-wto. Diakses pada Maret 2023.
Bisnis.com. IMA: Penyerapan Produk Logam Setengah Jadi di Indonesia Masih Rendah. https://ekonomi.bisnis.com/read/20190708/44/1121338/ima-penyerapan-produk-logam-setengah-jadi-di-indonesia-masih-rendah. Diakses pada Maret 2023.
BRIN. Potensi Hilirisasi Nikel di Indonesia dan Pemanfaatannya. https://www.brin.go.id/news/111085/potensi-hilirisasi-nikel-di-indonesia-dan-pemanfaatannya. Diakses pada Maret 2023.
Kontan. Setoran PNBP dari Hilirisasi Mineral Capai Rp 146,85 Triliun. https://nasional.kontan.co.id/news/setoran-pnbp-dari-hilirisasi-mineral-capai-rp-14685-triliun. Diakses pada Maret 2023.
Bisnis.com. Jokowi: Berkat Hilirisasi, Pendapatan Ekspor Nikel Naik Jadi Rp360 Triliun. https://ekonomi.bisnis.com/read/20221011/44/1586285/jokowi-berkat-hilirisasi-pendapatan-ekspor-nikel-naik-jadi-rp360-triliun. Diakses pada Maret 2023.
CNBC Indonesia. Butuh Duit Rp435 T Demi Tuntaskan Hilirisasi Tambang di 2023. https://www.cnbcindonesia.com/news/20220531172936-4-343324/butuh-duit-rp435-t-demi-tuntaskan-hilirisasi-tambang-di-2023. Diakses pada Maret 2023.
Kompas.com. Menperin Ungkap 4 Tantangan Hilirisasi Industri. https://money.kompas.com/read/2022/12/21/143413226/menperin-ungkap-4-tantangan-hilirisasi-industri. Diakses pada Maret 2023.
Akurat.co. Tantangan Besar Hilirisasi Nikel, Penopang Mimpi Jadi Produsen Baterai Kelas Dunia. https://akurat.co/tantangan-besar-hilirisasi-nikel-penopang-mimpi-jadi-produsen-baterai-kelas-dunia. Diakses ada Maret 2023.
Kementerian Komunikasi dan Informatika. Pemerintah akan Berlakukan Larangan Ekspor Bijih Bauksit Mulai Juni 2023. https://www.kominfo.go.id/content/detail/46457/pemerintah-akan-berlakukan-larangan-ekspor-bijih-bauksit-mulai-juni-2023/0/berita. Diakses pada Maret 2023.
