Tag Archives: resource nationalism

After the Oil Shock, the Metals Shock: fueling the green economy

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Indonesia banned exports of nickel ore in 2020 in a bid to capture more of the metal’s value. As a result, exports of Indonesian nickel products were worth $30bn in 2022, more than ten times what they were in 2013. Nickel smelters have sprouted around the country, and makers of batteries, in which the metal is a key component, are building factories. On January 17, 2023 a cabinet official said the government was close to sealing deals with the world’s two largest makers of electric vehicles (EVS), Tesla and BYD, to build cars in Indonesia. Flushed with progress, the government is now thinking beyond nickel.

“This success will be continued for other commodities,” said Joko Widodo, Indonesia’s president, in December 2022. He confirmed that an export ban on bauxite, the ore used to make aluminum, was coming in June 2023. The bauxite industry is scrambling to prepare itself for the shock….The government has suggested that a ban on copper exports could be implemented next, with bans on tin and gold exports to follow.

The country’s pulling power in the global nickel market will be hard to replicate, though. Indonesia produces 37% of the world’s nickel. But its bauxite, gold and copper production is less than 5% of the global total…Bauxite smelters are also expensive and harder to build than nickel smelters. Local firms are struggling to raise the capital needed for them, often around 18trn rupiah ($1.2bn)…All the eight bauxite smelters are under construction are Chinese investments. . 

Indonesia’s resource nationalism also risks falling foul of global trade rules but Jokowi, Indonesia’s president  remains  undeterred. “This is what we want to do: be independent, independent, independent,” he said.

Excerpts from Indonesia’s Industrial Policy: Full Metal Jacket, Economist,  Jan. 28, 2023

The Mining Curse

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Two poor, fragile, post-Soviet democracies, two spectacular holes in the ground. Mongolia’s Oyu Tolgoi, or “Turquoise Hill”, is a vast mine in the southern Gobi desert, just 80km from the Chinese border. Kumtor in the Tian Shan mountains of Kyrgyzstan, operating since 1997, is if anything even more remote. Located beside a series of glaciers at 13,000 feet above sea level, it is the world’s second-highest gold mine.

It is hard to exaggerate the importance of these two mines to their respective economies. Once completed, Oyu Tolgoi will be the world’s fourth-biggest copper mine. When the contract with Rio Tinto, an Anglo-Australian mining giant, was first signed in 2009, Oyu Tolgoi was predicted to add five percentage points to Mongolia’s annual economic growth, which, for a while, it did. The mine has created 15,000 jobs directly and another 45,000 indirectly, for a Mongolian population of 3.3m. As for Kumtor, its owner, Centerra, a Canadian exploration company, is the country’s largest private investor. In a good year the mine generates a tenth of Kyrgyzstan’s GDP and is the biggest contributor to the state budget.

Both mines loom large in national life. Both foreign operators won sweet, initial deals when naïve young states opened their doors to foreign investment. Controversy surrounding the mines was thus inevitable. Oyu Tolgoi has long been controversial. Politicians often accuse Rio Tinto of fleecing the country…In Kyrgyzstan the goverment accuses Centerra of corruption, enriching politicians instead of the national budget. 

Accusations of being cheated are common in poor, resource-rich countries. With Oyu Tolgoi, the stand-off is more easily resolved….A recent independent review makes it hard for Rio to deny it bears some blame for delays and cost overruns in developing the mine…. In Kyrgyzstan the situation is bleaker. There, bribery and corruption are not incidental to business but central to it….Foreign investors too often blame “resource nationalism” for their woes in host countries. That is self-serving. After all, the resources usually belong to the state. It is reasonable for citizens to ask how best to benefit from them…. 

Excerpts from Banyan: Mine for the Taking, Economist, Nov. 6, 2021