Why Indonesia Plans to Ban Bauxite Exports in 2023 – The Diplomat

Pacific Cash | Economic system | Southeast Asia

As reported by Reuters, Indonesian President Joko “Jokowi” Widodo lately introduced that in June of this 12 months his nation will ban exports of bauxite. Bauxite is a vital enter in lots of industrial merchandise together with aluminum, cement, and numerous chemical substances. The objective of the ban is to make sure that bauxite mined in Indonesia is used as an enter in home industrial actions, reasonably than being exported and having the worth added in different nations.

This transfer is in keeping with Indonesia’s more and more aggressive use of export bans to realize home financial objectives. Final 12 months we noticed the federal government quickly ban coal and palm oil exports to stave off home shortages amid excessive international commodity costs. And the state has been comparatively profitable in utilizing export bans on unprocessed nickel ore to speed up funding in greater worth added downstream actions equivalent to smelting.

The bauxite export ban is clearly being modeled on the nickel ore export ban. Indonesia has massive state-owned corporations which can be main gamers within the home aluminum and cement industries. Little doubt the objective of banning bauxite exports is to power extra funding into greater worth added industrial actions that may be carried out by these and different home corporations.

However there’s motive to query whether or not Indonesia can deal with bauxite in the identical means it has handled nickel and count on related outcomes. Indonesia has a lot much less market energy on the subject of bauxite. In response to the US Geological Survey (USGS), as of 2021 Indonesia holds solely 3.75 p.c of world bauxite reserves, and accounted for under 4.6 p.c of world manufacturing. In 2020, by comparability, Indonesia accounted for about 30 p.c of world nickel manufacturing. The USGS additionally notes that “the US and most different main aluminum-producing nations have primarily inexhaustible subeconomic sources of aluminum in supplies aside from bauxite.”

This would appear to restrict Indonesia’s capability to make use of bauxite export bans as a way of inducing funding in home industrial actions like aluminum smelting. For one factor, no less than in line with the USGS, bauxite is extra simply substitutable. Extra importantly, on condition that nations like Australia and China are accountable for a bigger share of world manufacturing, Indonesia’s capability to seize funding by unilaterally banning bauxite exports is circumscribed. Consumers of Indonesian bauxite can merely flip to Australia, or different massive international suppliers, reasonably than be compelled to put money into Indonesian processing amenities.

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The federal government has been telegraphing that they need to use export bans extra aggressively in coming years, so as to flip their management over uncooked commodities into greater worth added financial actions. It’s an comprehensible impulse, and such a financial nationalism has been on the rise all through the area and the world typically. However an export ban must be primarily based on some sort of bigger financial logic or strategic considering.

There was a reasonably clear logic concerned when Indonesia banned the export of coal, palm oil, and nickel ore. As a result of it controls a big share of the worldwide manufacturing of those commodities, the federal government can demand sure issues, like funding in greater worth added home manufacturing or industrial actions. In different phrases, the state has leverage to intervene in markets and attempt to power them to serve the nationwide curiosity. However with lower than 5 p.c of world bauxite manufacturing, it’s much less clear that the state has the identical sort of leverage and can have the ability to bend markets to its will in the identical means.