Downstreaming | Krisna 'imed' Gupta

Oil Boom vs Commodity Boom: Can Raw Materials Export Ban Save the State Budget?

Mon, 31 Jan 2022 11:37:13 +0700

A couple of days ago, I was forwarded a news from Asia Nikkei by my colleague, Deasy Pane. The news is about Indonesia’s plan to ban exports of raw minerals (the likes of bauxite, tin, gold and copper) in the middle of 2023. This is not very surprising, knowing that nickel ore exports was banned in the start of 2020, with Indonesian President is willing to “fight in any way” of possible WTO complaint. Based on the strong export performance of nickel’s downstream industries, it is safe to say that the Indonesian President surely will expand the export ban.

What surprised me with the Asia Nikkei news, however, is the quote from Sri Mulyani Indrawati, the Indonesian Finance Minister.

It is not nationalism. We are the biggest economy in ASEAN, and you cannot allow this economy to just depend on commodities without value added

As a former World Bank managing director as well as highly regarded economist in Indonesia, it is quite shocking that she believed an export ban on mineral is the most efficient way to improve value added.

Tax Ratio?

This talk about increasing value added from commodities is interesting. Deasy suspect that the frustration comes from the fact that the Indonesian Government gets very little benefit from the exported minerals. This is unlike the oil boom in the 70s where Indonesia were able to finance its many programmes (like education, health, and Import Substitution Strategy (ISS)) mainly from exporting oil. Obviously that gets me thinking, as a person who also oversee Indonesia’s taxation office, could it be the case that the Finance Minister feel that the same? That today’s commodity boom doesn’t improve Government revenue? It is true that the Finance Minister has been stating the needs to increase revenue for some time. Prolly her overseer asked too many super important program while she needs to keep the fiscal rule in check. Make sense.

I use World Development Indicators (WDI) to check this out. Thankfully it has option to embed the graph so readers can consult to the graph below.

As you can see, unfortunately, the WDI’s data has holes and I am too lazy to look at MoF’s website to complete it. Sorry lol.

Anyway, to emphasize my point about the oil boom and the commodity boom, I downloaded the data and adds some shades which show the two booms.

import wbdata as wb
import datetime

## Downloading data from World Development Indicators
tanggal=(datetime.datetime(1960,1,1), datetime.datetime(2020,1,1))
a=wb.get_dataframe({"GC.TAX.TOTL.GD.ZS" : "TAX"}, country=["IDN"], data_date=tanggal, convert_date=True, keep_levels=True)
a=a.reset_index()

## Plotting
plt.figure(figsize=(10,6),dpi=80)
sns.lineplot(data=a,x='date',y='TAX',marker="o")
plt.axvspan(datetime.datetime(1972,1,1), datetime.datetime(1981,1,1),alpha=.5,color='green')
plt.axvspan(datetime.datetime(2003,1,1), datetime.datetime(2008,1,1),alpha=.5,color='green')
plt.annotate('Commodity\nBoom', xy=(datetime.datetime(2003,1,1),11), xytext=(datetime.datetime(2003,1,1),11),color='white')
plt.annotate('Oil Boom', xy=(datetime.datetime(1974,1,1),11), xytext=(datetime.datetime(1974,1,1),11),color='white')
plt.title("Indonesia's tax-to-GDP ratio, 1972-2019, World Development Indicators")
plt.xlabel('Year')
plt.ylabel('%')

Text(0, 0.5, '%')

The oil boom shade range from 1972 to 1981, while the commodity boom shade is 2003-2008. Obviously, Indonesia’s tax ratio since the Asian Financial Crisis is significantly lower. However, as you can see that the tax ratio keeps declining since the Global Financial Crisis in 2008 and the taper tantrum episode in 2013.

But the picture is clear. When the oil boom started, Indonesia’s tax-to-GDP ratio climbed significantly. The same cannot be said on the Commodity Boom. If you are the person overseeing the taxation office, I think it kinda makes sense to think that the raw material exports contribute very little to Indonesia’s welfare.

Caveats and conclusion

This graph, of course, simplify a lot of things. Indonesia’s oil company was (still is) a monoply, unlike mining and palm oil where private players are abundant (by private of course including individuals with strong political connection). SOEs revenue might also not included in the World Bank’s tax ratio calculation, but that emphasize an even stronger point on raw materials contribution to the general government revenue.

Surely there are more things to consider if one wants to take a deeper look in this issue (ie., raw material exports to the country’s welfare). But at least one thing is clear. Indonesia is ridden with many problems within its ease of doing business from red tapes, corruption, inconsistent rule of law, etc. In fact, nickel mining is ridden with this problem as well. Fixing these stuff will surely help Indonesia’s investment climate much more efficiently than any kind of restrictive trade policy. The fact that Sri Mulyani agrees with export ban as a tool to attract foreign investment and improve value added suggests that even her does not know how to fix those other problems.

If the best finance minister in the world can’t save us all, then who can? Certainly not me and you. Lol.

Nickel ore export ban and the export performance of the downstream industries

Wed, 12 Jan 2022 23:50:30 +0700

This post is inspired by this tweet (in Indonesian).

Baru nyadar dampak pelarangan bijih nikel ternyata *sebesar* itu. Indonesia sekarang jadi eksportir stainless steel terbesar dunia, salah satu produk turunan feronikel.https://t.co/qonkL4o33d
— Faris Abdurrachman (@faris_sina) January 11, 2022

That tweet’s quoting artikel dari investor.id basically sez that Indonesia has now become the top global export of stainless steel. The export value is 1,6 billion USD. Amazing stuff!

Moreover, that article mentioned the cause. It is the nickel ore export ban. Indeed, nickel is one of the most important component in the production of stainless steel. In fact, most of exported nickel is used by the steel industry.

Let’s check out the data.

Ekspor Stainless Steel

As usual, my go to trade database is the UN COMTRADE. The HS-Code is guessed. Lol

wew=pd.read_csv('stainlesssteel.csv')
wew.query('Year == 2020 & `Commodity Code`>7200')

	Year	Commodity Code	Commodity	Netweight (kg)	Trade Value (US$)	USD/ton
7	2020	720260	Ferro-alloys; ferro-nickel	2874022704	4739112331	1648.947423
11	2020	7218	Stainless steel in ingots or other primary for...	1087854208	1630911693	1499.200611
15	2020	7219	Stainless steel; flat-rolled products of width...	1801937373	2993037641	1661.010913

1.6 billion USD indeed! Let’s plot its time series.

sns.lineplot(data=wew.query('`Commodity Code` == 7218'),x="Year",y="Trade Value (US$)",color="green")
sns.lineplot(data=wew.query('`Commodity Code` == 7219'),x="Year",y="Trade Value (US$)",color="orange")
sns.lineplot(data=wew.query('`Commodity Code` == 720260'),x="Year",y="Trade Value (US$)",color="magenta")
plt.legend(labels=['7218','7219','ferro-nickel'])

<matplotlib.legend.Legend at 0x220e4898ca0>

Whoa seems so clear as day that the two goods’ export skyrocketed in 2016.

wew.query('(Year == 2016 | Year == 2020) & `Commodity Code`>7200')

	Year	Commodity Code	Commodity	Netweight (kg)	Trade Value (US$)	USD/ton
7	2020	720260	Ferro-alloys; ferro-nickel	2874022704	4739112331	1648.947423
11	2020	7218	Stainless steel in ingots or other primary for...	1087854208	1630911693	1499.200611
15	2020	7219	Stainless steel; flat-rolled products of width...	1801937373	2993037641	1661.010913
23	2016	720260	Ferro-alloys; ferro-nickel	411438077	571298623	1388.540961
28	2016	7218	Stainless steel in ingots or other primary for...	24614238	30434580	1236.462408
33	2016	7219	Stainless steel; flat-rolled products of width...	49912515	74135846	1485.315777

Berkat Ekspor Nikel?

Salah satu hal yang menjadi penunjang kenaikan ekspor stainless steel tersebut adalah, katanya, adalah pelarangan ekspor nikel. Nikel adalah barang mentah. Adalah keinginan Pemerintah Indonesia untuk menghasilkan nilai tambah di dalam negeri. Daripada ekspor nikel mentah lalu negara lain yang menikmati jualan baja, kenapa tidak kita saja yang bikin baja? Berdasarkan logika tersebut, maka dilaranglah ekspor nikel agar penghasil baja Indonesia dapat meningkatkan produksinya dan menghasilkan nilai tambah ekstra di dalam negeri. Secara natural, pertanyaan berikutnya adalah berapakah nilai ekspor nikel yang turun? Apakah sebanding dengan naiknya ekspor baja?

Lagi-lagi untuk menjawabnya, saya menggantungkan diri pada data dari UNCOMTRADE dan juga tebak-tebakan kode HS. Menurut penerawangan saya, Nikel adalah barang yang dikasih kode HS 2604 yaitu nickel ores and concentrates. Langsung saja kita coba ilustrasikan dengan grafik.

sns.lineplot(data=wew.query('`Commodity Code` == 2604'),x="Year",y="Trade Value (US$)")
plt.axhline(color='grey')

<matplotlib.lines.Line2D at 0x220e495deb0>

Trade value nikel naik secara signifikan sejak commodity boom dimulai sekitar 2005an, dan sempat berkurang saat krisis global 2008. Kemudan, nilai ekspor dari nikel mendadak mendekati nol pada tahun 2014 dan baru naik lagi menjelas 2017-an. Sebenarnya larangan ekspor ini sudah pernah diberlakukan pada tahun 2014, namun pada 2017 dibolehkan lagi. Kita bisa lihat kenaikan kapasitas ekspor yang luar biasa mendekati larangan ekspor tersebut. Sekali lagi ketika dilarang lagi di 2020, para produsen meningkatkan ekspor besar-besaran pada 2019-nya.

Kalau dilihat dari grafik nikel dan stainless steel, sepertinya emang kelihatan ya dampak dari pelarangan ekspor bijih nikel. Ekspor produk turunannya langsung meningkat pesat. Apalagi memang saat ini sebagian besar nikel dunia digunakan untuk produksi stainless steel. Apalagi, kenaikan nilai ekspor 3 produk nikel di atas jauh melebihi kehilangan nilai ekspor nikel akibat larangan ekspor. Nilai ekspor bijih nikel saat lagi di puncak paling sekitar 1,7 milyar Dolar AS. angka ini jauh lebih kecil daripada naiknya nilai ekspor tiga produk stainless steel di atas sejak 2016. Dilihat dari data ini, sepertinya memang penambahan nilai tambah di dalam negeri telah berhasil dilakukan.

Produksi yang berpindah

Larangan ekspor Indonesia tentunya membuat produsen stainless steel di negara lain kesulitan. Indonesia adalah pemasok bijih nikel terbesar dunia. Tentunya larangan ekspor nikel oleh Indonesia akan memiliki dampak yang besar terhadap pasar global nikel. Mungkin ada 2 cara mainstream menghadapi larangan ekspor nikel Indonesia. Pertama adalah protes baik secara langsung maupun lewat World Trade Organization (WTO), seperti yang dilakukan oleh Uni Eropa. Tapi cara ini kurang efektif, pertama selain karena rentan untuk dicuekin, protes ke WTO bisa makan waktu bertahun-tahun.

Cara kedua adalah dengan memindahkan pabrik ke Indonesia sekalian, beli nikelnya secara domestik, dan mengekspor stainless steelnya balik ke negara masing-masing. Inilah yang dilakukan oleh Republik Rakyat Tiongkok (RRT). Bahkan Taiwan pun memutuskan untuk mengurangi produksi stainless steel mereka dan membelinya dari Indonesia.

Hal ini membuat saya kepingin ngelihat peta ekspor stainless steel dunia, yang lagi-lagi bisa kita dapat dari UNCOMTRADE. Saya akan coba lihat beberapa negara yang katanya big player di stainless steel. Saya coba masukin Amerika Serikat, Inggris, Uni Eropa (termasuk inggris wkkw), Indonesia, China, India dan Swedia. Saya cuma pake stainless steel yang 7218 yak karena ini yang jadi pemantik di twit di atas.

waks=pd.read_csv('stainlesssteel2.csv').sort_values(by=['Year','Trade Value (US$)'])
pd.set_option('display.max_rows', None)
b=[]
ctr=('IDN','GBR','EU2','CHN','IND','SWE')
for i in ctr:
 bmii=waks.loc[(waks['Reporter ISO'] == i)]
 b.append(bmii)
b=pd.concat(b)
b.query('Year == 2020')

	Year	Reporter	Reporter ISO	Commodity Code	Commodity	Netweight (kg)	Trade Value (US$)
642	2020	Indonesia	IDN	7218	Stainless steel in ingots or other primary for...	1.087854e+09	1630911693
897	2020	United Kingdom	GBR	7218	Stainless steel in ingots or other primary for...	1.408406e+08	326187431
3	2020	EU-28	EU2	7218	Stainless steel in ingots or other primary for...	4.993958e+07	179001341
550	2020	China	CHN	7218	Stainless steel in ingots or other primary for...	2.600670e+05	1247579
819	2020	India	IND	7218	Stainless steel in ingots or other primary for...	6.883925e+06	14563591
683	2020	Rep. of Korea	KOR	7218	Stainless steel in ingots or other primary for...	2.022914e+06	2851620

fig, ax =plt.subplots(1,2,figsize=(15,7))
sns.lineplot(data=b,x="Year",y="Trade Value (US$)",hue="Reporter", ax=ax[0])
sns.lineplot(data=b,x="Year",y="Netweight (kg)",hue="Reporter", ax=ax[1])

<AxesSubplot:xlabel='Year', ylabel='Netweight (kg)'>

Gambar di atas, sebelah kiri adalah dalam Dolar Amerika sementara sebelah kanan dalam kilogram. Nilai ekspor ngedrop pada 2016 kayaknya gara-gara Presiden AS memberlakukan tariff terhadap baja. Tapi sekotar 2017 Uni Eropa berhasil nego dikit. Tapi jelas kelihatan bahwa seiring kenaikan ekspor Indonesia, ekspor negara lain menurun, terutama negara-negara barat. India dan RRT merupakan produsen, namun mereka menggunakan sebagian besar produknya untuk kepentingan domestik sehingga ekspornya kurang banyak.

Kalo RRT wajar sih, karena memang perusahaan China lah yang pindah ke Indonesia. Jadi sebenernya produsennya dia lagi dia lagi tapi pindah lokasi aja ke Indonesia. India dan Uni Eropa sama-sama lagi mengatur strategi bagaimana mengurangi impor dari Indonesia, sementara Taiwan memilih untuk mengikuti arus dan beli aja dari Indonesia daripada proteksi. Sementara itu, Produsen di Korea Selatan memilih untuk mengubah jenis baja yang mereka produksi, mengurangi stainless steel grade rendah dan meningkatkan produksi stainless steel yang lebih tinggi.

Kalau lihat strateginya korsel, berarti sepertinya stainless steel sendiri memiliki banyak grade meski ada di HS-Code yang sama. Berhubung saya sendiri bukan pemerhati nikel dan stainless steel yang berdedikasi, saya ga punya cukup info untuk menggali hal ini. Tapi kita dapat kira-kira kualitas stainless steelnya dari harga. Kita asumsikan aja kalo harganya mahal berarti stainless steelnya lebih bagus. BTW Korsel ga saya masukin karena produksi mereka juga kebanyakan dipakai sendiri jadi ekspornya dikit.

Harga juga kayaknya macem-macem ya, tapi kita proksi aja pakai $\frac{\text{Nilai Ekspor}}{\text{Berat}}$

b['price']=b['Trade Value (US$)']/b['Netweight (kg)']
sns.lineplot(data=b,x="Year",y="price",hue="Reporter")
plt.legend(bbox_to_anchor=(1,0.5))

<matplotlib.legend.Legend at 0x220e47ede50>

Daaan memang Stainless Steel Indonesia bisa dibilang yang paling murah diantara negara-negara di atas. Tentunya kita harus berhati-hati menggunakan harga ini ya. Kalau produknya sama, berarti Indonesia justru hebat karena bisa produksi dengan harga miring. Tapi wajar sih ya yang lain kan harus akses Nikel yang harga internasionalnya mahal, sementara produsen di Indonesia pakai produk sendiri yang ekspornya dilarang, jadi harga bahan baku bisa ditekan. Di samping itu, bisa saja di negara yang lebih maju, concern tentang emisi mengakibatkan biaya produksi yang lebih tinggi daripada negara yang tidak terlalu mengutamakan isu lingkungan.

Yaudah sih sekian dulu postingan hari ini. Masih banyak info yang perlu digali, tapi bisa jadi ini adalah contoh sukses penggunaan larangan ekspor untuk menarik investasi asing dan tenaga kerja untuk meningkatkan nilai tambah di dalam negeri. Gimana menurut anda? Apakah ini adalah hal yang baik? Mensen saya di @twitter ya buat berdiskusi!

Electric vehicle production hub: investment driven by export bans?

Sat, 16 Jan 2021 14:53:17 +1100

Recently, Indonesia has been buzzing about the MoU between Indonesia and LG Energy Solution, a South Korean battery cell manufacturer. The deal roughly entails LG Energy Solution making a massive upstream-to-downstream investment in battery cell production in Indonesia. My colleague Wishnu Mahraddika and I wrote about this at The Conversation Indonesia. We were fairly optimistic about this development and hoped it would become a momentum for the automotive industry in Indonesia, particularly in electric vehicles.

Investment Driven by Trade Restrictions

What I did not discuss there in depth is the critical role of the nickel export ban. In recent years, the Indonesian government has been tightening nickel ore trade in order to increase domestic value-added. This has made it difficult for manufacturers outside Indonesia to source nickel. Investors who need nickel are effectively forced to invest in Indonesia.

But an export ban on minerals is not without problems. In the short run, the restriction has led to reduced investment and employment in the downstream sector. Nickel selling prices are regulated by the Ministry of Energy and Mineral Resources to maintain smelter economies of scale, resulting in selling prices below international levels. This price regulation and oversight process is considered ineffective due to lax enforcement.

Below are LME nickel prices, which I pulled from IMF Cross Country Macroeconomic Statistics via Quandl.

import quandl
import datetime
quandl.ApiConfig.api_key = 'vDm7zkSvztuywGuZuuvY'
mydata = quandl.get('ODA/PNICK_USD', start_date="2010-01-31", paginate=True)
mydata = mydata.reset_index()
sns.lineplot(data=mydata,x='Date',y='Value')
plt.axvline(x=pd.to_datetime("2013-12-31"),color='grey')
plt.axvline(x=pd.to_datetime("2016-12-31"),color='grey')
plt.axvline(x=pd.to_datetime("2019-12-31"),color='grey')
plt.text(pd.to_datetime("2014-02-28"),25000,'ban',fontsize=14)
plt.text(pd.to_datetime("2017-02-28"),22500,'relaxation',fontsize=14)
plt.text(pd.to_datetime("2020-02-28"),25000,'ban',fontsize=14)
plt.title('Nickel; melting grade; LME spot price;\nCIF European ports; US$ per metric ton\nIMF Cross Country Macroeconomic Statistics via Nasdaq data link')
plt.ylabel('US$')

Text(0, 0.5, 'US$')

As China’s performance improves and several countries see declining COVID-19 cases, combined with Joe Biden’s plans to boost U.S. domestic demand, demand for Indonesia’s export commodities is likely to rise. Some observers even predict another commodity price boom. We have already felt the impact of rising soybean prices, which has angered tempeh producers.

This restriction somewhat reduces the potential for post-COVID-19 export-led recovery. As long as downstream nickel industries lack export capacity, the restriction will put pressure on the balance of payments. This short-term sacrifice may pay off if battery cell and electric vehicle exports can significantly boost the trade surplus in the future.

Retaliation

Of course, the main problem with relying on exports is retaliation. This morning, the Twitter account of the Ministry of Trade (@Kemendag) tweeted that the European Union has filed a protest through the World Trade Organization (WTO). This is because Indonesia’s nickel export ban disrupts supply chains in Europe.

RI's new Trade Minister M Lutfi said he welcomes EU's appeal for @wto to rule in its favour on the EU-Indonesia nickel dispute (DS592).
— Kemendag (@Kemendag) January 15, 2021

This is just the initial filing. Other countries may join in supporting the EU in this case. If Indonesia loses, it will have to revise the nickel ban. This would impact investors who have already built smelters and other nickel processing facilities, since reopening nickel exports would push domestic nickel prices up, disrupting their return-on-investment calculations.

We also must not forget that nickel, while very important, is only part of what electric vehicles need. EV production still requires several products that Indonesia does not currently have. One can imagine how damaging retaliation would be to the entire supply chain.

China tried a similar export ban. In 2010, China blocked exports of rare-earth metals. A 2014 WTO ruling found that China had violated WTO rules and the ban had to be revised.

The WTO is currently weakened and it is unclear how long the EU-Indonesia case will take to resolve. But this could lead to retaliation. The EU could potentially ban or tax battery cell or EV exports from Indonesia. This could somewhat limit Indonesia’s ability to explore global markets.

Relying on trade restrictions is generally not the best way to attract investment. Primarily because trade restrictions are highly distortive and can make the economy inefficient. We would naturally prefer investment driven by efficient bureaucracy, legal certainty, productive workers, and so on. But unfortunately, using trade restrictions seems to be a much easier and faster option.

Staying Optimistic

But let us stay optimistic. This investment may generate trickle-down effects for other industries and the SME sector, as the government hopes. We also need to see whether the Omnibus Law (UU CK) succeeds in reforming Indonesia’s business environment to be more efficient and legally certain. The impact on supply chains has certainly been carefully considered by the government before issuing this policy.

Of course, we must be optimistic that the Ministry of Trade will successfully resolve this issue. Indonesia now has RCEP too, which may have its own mechanisms eventually. Even though we are forgoing some export-led recovery potential, hopefully it will all pay off with a thriving EV industry in the future. A healthy level of skepticism should be maintained, but of course we must all remain optimistic!

Update

Tesla is reportedly more sensitive to ESG considerations, while Indonesia’s ESG practices appear to be poor.
Although nickel investment dipped temporarily, it appears to be climbing again. This coincides with a sharpening rise in foreign investment in the base metals industry. Batteries (classified under KBLI 27 “electrical equipment”) have not yet shown a significant increase.

# sns.set_theme(style="white", palette="bright")
dat=pd.read_csv('investasi_nikel.csv',parse_dates=['tahun'])
sns.lineplot(data=dat,x="tahun",y="jutaUSD",hue="industri",style="industri",linewidth=2)
plt.title('Figure 1. Investment realization in mining,\nbase metals, and electrical equipment (BKPM)\n',fontsize=16)
plt.ylabel('Million USD',fontsize=14)
plt.xlabel('Year',fontsize=14)
plt.xlim(pd.to_datetime("2009"),)
plt.legend(labels=['Mining', 'Base metals', 'Electrical equipment'],title='Industry type (2-digit KBLI)',
 bbox_to_anchor=(0.95,-0.1),ncol=3,fontsize=14)
plt.ticklabel_format(style='plain', axis='y')
plt.axvline(x=pd.to_datetime("2014"),color='grey')
plt.axvline(x=pd.to_datetime("2017"),color='grey')
plt.axvline(x=pd.to_datetime("2020"),color='grey')
plt.text(pd.to_datetime("2012"),4e6,'ban',fontsize=14)
plt.text(pd.to_datetime("2015"),5e6,'relaxation',fontsize=14)
plt.text(pd.to_datetime("2018"),6.5e6,'ban',fontsize=14)

Text(2018-01-01 00:00:00, 6500000.0, 'ban')