Fraser Institute Survey: Indonesia's Mining Sector Needs Legal Certainty
In a new survey, conducted by the Fraser Institute, that assesses the state of the investment climate in the mining sector in 2012-2013 in countries around the globe, Indonesia is ranked at number 96. Both tax and regulatory uncertainties in Indonesia's mining sector are cited as reasons for the low ranking of the country. As investments in the mining sector are capital intensive and long-term in nature, investors thus need a clear legal framework that is not susceptible to sudden changes due to political issues.
In order to develop Indonesia's downstream industries, the country is planning to introduce various restrictions in its mining sector from 2014 onwards (as stipulated in the 2009 Mining Law). These restrictions - having nationalist tendencies - include the ban of raw mineral ores exports and the limitation of foreign ownership in Indonesian mining companies. The latter, particularly, is not well received by foreign investors as it reduces profit margins, while investments in the developing stages are high.
Indonesia's decentralization policy, which started after Suharto's authoritarian New Order regime collapsed in 1998, had a severe negative impact on Indonesia's mining sector as regional governments lacked the quality and skills to structure their mining administration properly. Mining permits were granted on a large scale and without much oversight, resulting in chaotic conditions. Moreover, the country's current regulatory framework lacks cohesion between various government departments.
The Fraser Institute is a Canadian-based public policy research and educational organization.