Looking at just from the perspective of Indonesia being a major world producer and exporter of bauxite, copper, nickel, tin and other natural resources, including agricultural products, it is easy to understand and see the rationale for the government’s resource nationalist policies.  

In isolation, it seems to make perfect economic sense for the government to have as its objective maximizing the export revenue that Indonesia earns from the exploitation of its natural resources.

The investment minister has been quoted as saying that the value of Indonesia’s processed and refined nickel exports has already reached or, at the very least will soon reach, US$27 billion to $30 billion, being a tenfold increase over the value of Indonesia’s nickel ore exports in 2017.  Accordingly, how can restrictions on the export of less than fully processed and refined metal minerals not be a good idea and entirely in keeping with Indonesia’s stridently claimed sovereign right to do what it wants with its natural resources and otherwise ensure that Indonesia and all Indonesians derive the maximum economic benefit possible from the exploitation of the country’s natural resources?

The reality, however, is that Indonesia is not merely a major producer and exporter of metal minerals and other natural resources. Indonesia is also a major importer and consumer of natural resources produced in other countries. Accordingly, in assessing whether or not Indonesia’s restrictions, on the export of less than fully processed and refined metal minerals, are really a good idea, it is important to have regard to the totality of Indonesia’s trade position.

A look at Indonesia’s trade flows is revealing. One example only, of where Indonesia is a major importer and consumer of other countries’ natural resources, will serve to highlight my point. Readers may be surprised to learn that Indonesia is one of the world’s three largest importers of wheat, a wholly unrefined agricultural product.

In 2022-2023, Indonesia imported some 9,000,000 metric tonnes of wheat or about 5.3 percent of global wheat exports. Approximately 46.7 percent of Indonesia’s wheat imports are sourced from Australia and the rest from Canada, the United States, Argentina and (at least in previous years) Ukraine.

Indonesia’s huge wheat imports provide the essential input for some 28 domestic flour mills which, together, give Indonesia a leading position in world flour milling capacity. The Bogasari flour mill in Jakarta is, in fact, supposedly the largest flour mill in the world. This domestic flour milling industry is, however, entirely reliant on wheat produced in other countries as Indonesia grows no wheat itself.  

If, as Indonesia claims, it is its sovereign right to do what it wants with its natural resources, then surely it must also be the sovereign right of every other country to do what it wants with its natural resources. More particularly, how could Indonesia reasonably object if Australia, Canada, the US, Argentina and Ukraine were to subsequently follow the lead of Indonesia and decide that, henceforth, all the wheat they produce has to be processed and refined, domestically, into flour before it can be exported?

After all, flour is a much higher value product than wheat. As such, these major wheat producing countries would merely be exercising their sovereign right to do what they want with their natural resources and otherwise ensure that their countries and their people derive the maximum economic benefit possible from the exploitation of their natural resources.

In insisting upon only exporting flour to Indonesia going forward, these countries would, of course, immediately put out of business the Bogasari flour mill and Indonesia’s numerous other flour mills unless these mills can quickly find alternative international suppliers of wheat at competitive prices. The economic consequences for Indonesian companies owning/operating flour mills, their employees and other stakeholders, including households and local communities, would of course be very serious indeed.

These unfortunate economic consequences would, however, be no different to the unfortunate economic consequences suffered by companies (and their various stakeholders) in other countries that have traditionally relied upon imports of unprocessed and unrefined metal minerals from Indonesia to provide essential inputs for their metal processing and refining businesses. Stainless steel makers in Japan, which traditionally relied upon nickel ore imports from Indonesia, are a case in point.

Various government ministers have previously insisted that they cannot reasonably be expected to worry about the impact on other countries and their domestic industries of Indonesia’s restrictions on the export of less than fully refined metal minerals as they are merely doing what is best for Indonesia and all Indonesians. Why, therefore, should governments in major wheat producing countries worry about the impact of possible future changes in their industrial policies on Indonesia and Indonesian companies or their stakeholders?

There are good economic reasons why Australia, Canada, the US, Argentina and Ukraine are unlikely to, any time soon, rush to develop domestic flour milling industries and, in order to encourage such industrial development, ban exports of wheat to Indonesia and the rest of the world.  However, the example of Indonesia’s total reliance upon wheat imports from other countries serves to neatly illustrate the basic point of this opinion piece.

Any country, both a large-scale producer of its own natural resources and a large-scale importer of other countries’ natural resources, needs to very carefully consider whether it is likely to be a prudent, long-term industrial policy to only focus on the export side of the country’s trade flows and the economic benefits to be derived from increasing the value of those exports while completely ignoring the import side of the country’s trade flows and the risk that other countries, which are the source of those imports, may be encouraged to do likewise.

 ***

The writer is senior foreign counsel with Christian Teo & Partners and senior adviser to Stephenson Harwood. The views expressed are his own.

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