ICRA Indonesia: Analysis of Economic Impact of Raw Minerals Export Ban
ICRA Indonesia released an analysis of the economic impact of the ban on export of raw minerals. The ban - stipulated by the new 2009 Mining Law - became effective per 12 January 2014 (although in a milder form as some mineral ore exports are allowed under specific terms) and aims at boosting domestic processing. However, it led to great concern among domestic and foreign stakeholders as its implications on the economy of Indonesia - a global leader in exports of mineral resources - were unknown.
The analysis of ICRA Indonesia attempts to assess the impact of the ban, keeping in perspective the objective of indigenous growth, which was the reason behind the introduction of the ban.
The ban regulation itself has the following key provisions:
• The ban would be fully applicable for bauxite, nickel, tin, chromium, gold and silver. These minerals would be required to be fully processed or refined before export.
• Few minerals, viz, copper, iron, lead, manganese and zinc in semi-pure form have been granted a leeway as for some time these can be exported in semiprocessed/ore form.
• The temporarily exempted mineral ores can be exported in unprocessed form only until 2017, after which there will be a complete ban to any export of unprocessed mineral ores.
• The exports of the temporarily exempted mineral ores will be subject to progressive export tax until 2017. Higher export taxes will be imposed on minerals having lower levels of purification or processing. The tax would begin minimum at 20 percent in 2014 depending on the individual mineral and will be gradually increased so that by end 2016 it would reach 60 percent.
• It is expected that the smelters would be in place latest by 2017 when the full ban would come into effect for the exempted minerals. Apart from the above mentioned metal minerals, the ban is also applicable for eight non-metals including zircon, feldspar, diamond, etc and non-minerals such as marbles, granite, onyx, etc. However the scope of this analysis is limited only to the metallic minerals.
The full analysis of ICRA Indonesian can be accessed here. Conclusions of the analysis are the following:
1. The raw mineral ban will lead to gradual appreciation of all the banned minerals as global demand recovers. In the short run, the minerals currently in deficit supply such as tin and nickel would continue to appreciate.
2. Over the short run, the trade balance is likely to be affected untill the economy is able to counter the impact of lower raw mineral exports by increasing other exports/reducing imports. On average, such an impact is likely to range between USD $375-400 million per month.
3. The ban is likely to adversely impact foreign direct investment (FDI) in mining over the long term considering several disincentives. However, on a net basis, the FDI is not likely to be significantly affected, given the fact that the investors are routing investments into Indonesia on account of present adverse economic conditions elsewhere.
4. The raw mineral ban will have a limited impact on the overall economy given the limited contribution of non-fuel minerals to the overall GDP.
5. There are some variables need further clarity from the government, including the operational implementation of various provisions of the new law, directives with respect to possible layoffs (if any), directives for smaller and marginal miners who may not have the resources to set up smelting facilities as well as environmental norms for the new smelters. These variables could change the quantum of the total impact of the ban in the overall economy.