Adding Value to Mineral Commodities

Sometimes the government thinks too hard on how to spur economy, but seems to forget picking up the low hanging fruit. And one of the ripe fruits is: to add value to the mineral commodities.

From time immemorial, Indonesia’s rampant natural resources extraction becomes conspicuously the fuel of other countries development. Somehow since the day of independence until now, the government hasn’t done its homework to make the most benefit from available value chains. For instance, Indonesia exports its iron ores to China and then imports irons and steels from China. Indonesia foolishly let China grabbing the values for the things that actually can be processed in Indonesia. In other commodities such as palm oil, cocoa, rubber, the same thing occurs.

Fortunately, the Mining Law No 4/2009 came out with the new paradigm. It has obligated the mining companies to add value to commodities before exporting. I think the law – if well implemented – gives the huge leverage to other aspects of development.

The first, it’s good for job creation. If the iron ores is domestically processed – instead of exported it to China, then smelters must be constructed and workers be hired. I imagine at that time the government utters the agriculture and fishery mechanization program, so the demand of machinery equipment made of iron and steel will rise. All value chain located in Indonesia, therefore all added-value will be enjoyed by Indonesians. It’s possible on grounds that Indonesia which its relatively huge budget can create its own feasible domestic market.

The second, it’s good for development equity. Since most of natural resources situated outer Java island and the following value chain development took place there, then it will push the development of very area. Naturally, the Java island’s population will decline due to voluntarily migration. It’s not only good for economy but environment as well.

The third, it’s good for national education. Extraction of natural resources needs limited span of technology. Only few scientists and engineers are needed. It might be the explanation for the fate of Indonesia’s experts who either flee this country or become bankers, or journalists. So the national education which spends much portion in state budget becomes futile. The law will encourage more research and development activities – as one indicator of nation progress – along with job creation of higher wage workers.

Finally, to some extent Mining Law is a very good law. In that law, the mineral producers should comply with the obligation of adding value to commodities by 2014 and coal producers by 2016. However, nowadays, after a year in effect, the mining producers begin to complain. They said that the policy would undermine Indonesia’s export and building smelters wouldn’t be economically feasible. It’s merely nonsense. The government should ignore these voices. And the people should watch the implementation starting in 2014. Hopefully, the policy bears fruit and the dawn of mass commodities-processing industrialization breaks.

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