Bauxite exports from Indonesia will be prohibited starting in June of this year, according to a recent announcement by President Joko "Jokowi" Widodo. Aluminum, cement, and different chemicals are just a few of the industrial items that bauxite is a crucial component of. The ban's objective is to prevent Indonesian bauxite from being exported and having its value added abroad, and instead to uze it as a raw material in domestic industrial processes.
This action is consistent with Indonesia's aggressive use of export restrictions to advance its local economy. In order to prevent internal shortages in the midst of rising global commodity prices, the government temporarily banned the exports of palm oil and coal the previous year. Additionally, the state has had some success utilizing export restrictions on raw nickel ore to spur investment in downstream businesses with greater value additions, such smelting.
The export restriction on bauxite is obviously based on the restriction on nickel ore. Large state-owned businesses in Indonesia play a significant role in the country's cement and aluminum sectors. Undoubtedly, the purpose of the bauxite export prohibition is to encourage additional investment in industries with better added values that may be served by these and other domestic businesses.
However, there are reasons to doubt Indonesia's ability to handle bauxite the same way it has nickel and anticipate comparable outcomes. Regarding bauxite, Indonesia has substantially less market influence. Indonesia only had 3.75 percent of the world's bauxite deposits as of 2021, and it contributed just 4.6 percent to worldwide output, according to the United States Geological Survey (USGS). Comparatively, Indonesia was responsible for roughly 30% of the world's nickel output in 2020. The USGS adds that "aluminum subeconomic resources in materials other than bauxite are practically limitless in the United States and most other major aluminum-producing countries."
This would seem to limit Indonesia's capacity to encourage investment in domestic industrial operations like aluminum smelting through the use of bauxite export prohibitions. For one thing, bauxite is more readily replaceable, at least according to the USGS. More crucially, Indonesia's capacity to attract investment by unilaterally forbidding bauxite exports is constrained given that nations like Australia and China account for a bigger portion of world output. Instead of being required to make investments in Indonesian processing facilities, buyers of Indonesian bauxite can simply shift to Australia or other sizable international suppliers.
In order to convert its control over raw materials into higher value-added economic activity, the government has been hinting that it plans to employ export prohibitions more aggressively in the years to come. This kind of economic nationalism has been on the increase in the area and the globe at large, so it is an instinct that is comprehensible. However, a limitation on exports should be supported by broader economic reasoning or strategic considerations.
Indonesia's decision to forbid the export of coal, palm oil, and nickel ore was logical. The government has the power to demand certain things, including investment in greater value-added local manufacturing or industrial operations, because it controls a significant portion of the worldwide output of certain goods. In other words, the government has the power to interfere in the market and attempt to compel it to act in the benefit of the country. But it is less certain that the state has the same type of influence and will be able to sway markets to its agenda in the same way given that it produces less than 5% of the world's bauxite.
