11 September 2013 | Vol. 4, № 33. From the Editor’s Desk Dear FDI supporters, Welcome to the Strategic Weekly Analysis. This week, we begin in Indonesia, with an analysis of plans to relax a number of mining restrictions that have made the country one of the world’s least attractive destinations for foreign miners. Heading to Africa, we report on the moves in Nairobi to withdraw from the International Criminal Court, just ahead of the trial of Deputy President William Ruto. We continue our look at the Mozambique resources boom with a follow-up article, after a call from President Armando Guebuza for increased foreign investment in his country’s resources sector to generate higher living standards. This week we have part three of our five- part series of case studies on the role of subsidies in the global food system and their impact on food security. This article looks at the implications of the food subsidies used in the states of the Gulf Co-operation Council. Next, in India, we analyse the effects of the arrest of a key terrorist, Yasin Bhatkal, the chief and co-founder of the Indian Mujahedeen movement. We also investigate the implications of a successful India-Bangladesh Land Boundary Agreement. Our final report for this region is on the difficulties being encountered in striking a balance between efforts to tackle corruption and maintaining an adequate supply of Barak-I missiles for the Indian Navy. This week’s edition concludes with an examination of the complications involved in restarting construction of the Myitsone dam in Burma/Myanmar. I trust that you will enjoy this edition of the Strategic Weekly Analysis. Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International *****
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11 September 2013 | Vol. 4, № 33.
From the Editor’s Desk
Dear FDI supporters, Welcome to the Strategic Weekly
Analysis. This week, we begin in
Indonesia, with an analysis of plans to
relax a number of mining restrictions that
have made the country one of the world’s
least attractive destinations for foreign
miners.
Heading to Africa, we report on the
moves in Nairobi to withdraw from the
International Criminal Court, just ahead of
the trial of Deputy President William Ruto.
We continue our look at the Mozambique
resources boom with a follow-up article,
after a call from President Armando
Guebuza for increased foreign investment
in his country’s resources sector to
generate higher living standards.
This week we have part three of our five-
part series of case studies on the role of
subsidies in the global food system and
their impact on food security. This article
looks at the implications of the food
subsidies used in the states of the Gulf
Co-operation Council.
Next, in India, we analyse the effects of
the arrest of a key terrorist, Yasin Bhatkal,
the chief and co-founder of the Indian
Mujahedeen movement. We also
investigate the implications of a successful
India-Bangladesh Land Boundary
Agreement. Our final report for this
region is on the difficulties being
encountered in striking a balance
between efforts to tackle corruption and
maintaining an adequate supply of Barak-I
missiles for the Indian Navy.
This week’s edition concludes with an
examination of the complications involved
in restarting construction of the Myitsone
dam in Burma/Myanmar.
I trust that you will enjoy this edition of
the Strategic Weekly Analysis.
Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International
*****
Page 2 of 16
Indonesia Relaxes Mining Restrictions in Bid to Ease Investor
Concerns
Indonesia has said it plans to relax a number of mining restrictions that have scared off
foreign investors and hampered the mining industry. Though details so far are vague, a
relaxation of these rules could ease investor concerns and boost the country’s mining
sector.
Background
Indonesia says that it plans to relax a number of mining restrictions, which have made it one
of the world’s least attractive destinations for foreign miners. Nationalist policies, including a
rule forcing foreign companies to divest the majority of their shares to local entities, have
scared off investors and hampered the mining industry. Indonesia has rich oil and mineral
reserves, but multinationals are wary of discriminatory laws and endemic corruption. The
decision to ease mining restrictions, therefore, should come as welcome news to many
foreign companies and may help to ease investor concerns.
Comment
On 5 September, a spokesman at the Energy and Mineral Resources Ministry told Reuters
that Indonesia plans to relax a rule forcing foreign miners to divest most of their stake in
Indonesian projects. The rule, enacted in February 2012, requires that foreign-owned mining
companies in Indonesia sell a majority share of the company to an “Indonesian participant”
after ten years of production. Jakarta said it was part of a push to increase local government
profits and expand its influence in commodity markets, but the rule drew strong criticism
from investors and economists, many of whom said it was just one example of Indonesia’s
rising economic nationalism.
Details of the proposed changes are unknown for now, though Jakarta indicated that there
would soon be a revision to the current government regulation. Notably, there was no
timeframe given for change. New rules and regulations can often get delayed, especially in
Indonesia’s straggling legislature system. But the announcement should still come as
welcome news to foreign mining companies, even if the details remain hazy.
A significant relaxation of the divestment rule, were it to happen, could well lead to greater
profits for many firms. Mining leaders have long argued that ten years is simply not enough
time to make an adequate return on their investment, especially given the time and effort
required to start a mining venture. Consequently, many new companies have overlooked
Indonesia in favour of other emerging markets. A relaxation of the rule, however, may make
Indonesia a more attractive option in the future. It may also generate greater profits for
foreign companies already mining there, especially if they can maintain a majority holding.
There has also been talk about a relaxation of a controversial ban on the exportation of
unprocessed ore. The ban, which is due to come into force in 2014, forces companies to
process minerals in Indonesia. The problem, though, is that to process raw commodities,
they must build a smelter. Constructing a smelter is costly and time consuming; some
Page 3 of 16
sources say it can take as long as eight years and cost upwards of US$1 billion. Many
multinationals have been unwilling to expend that sort of capital only to divest their holdings
a few years later. According to Norton Rose and Fullbright, a global legal practice, market
commentators have said that Indonesia will face a significant lack of processing capacity
once the ban comes into force next year.
Perhaps unsurprisingly then, the country’s Industry Minister, Muhammad Sulaeman Hiday,
recently said that Indonesia proposes to make several amendments to the controversial ban.
Under the proposed revision, mining companies with smelters under construction will be
allowed to export unprocessed minerals, although they will be charged a progressive tariff
on the shipments, depending on how close to completion the projects are. Those companies
that have not begun building a smelter, will not be allowed to export raw ore.
More broadly, it remains to be seen what the relaxation of mining policies will have on
Indonesia’s mining sector, which accounts for 12 per cent of the country’s GDP. Indonesia
has enormous potential, but mining restrictions, endemic corruption and poor infrastructure
have led foreign miners to consider it a poor destination. A recent survey of mining
executives by Canadian think-tank, the Fraser Institute, found that they rated Indonesia as
the worst country in the world in which to expand a mining business.
Since 2012, economic nationalism has been in vogue, especially as Indonesia grows in
confidence. Recent slumps in the rupiah and investor confidence, however, may force the
government to amend its mining policies, especially after the election next year. The
proposed revisions would be a start, but the country will also need to address widespread
corruption and improve its infrastructure. Should this happen, Indonesia may be able to live
up to its mining potential.
Andrew Manners Research Analyst Indian Ocean Research Programme [email protected]
*****
Kenya Plans to Withdraw from ICC
Kenya’s proposed legislation to withdraw from the International Criminal Court sends a
signal that the Court’s authority may be about to weaken across Africa.
Background
On 5 September, the Kenyan Parliament passed a motion urging Kenya to withdraw from the
International Criminal Court (ICC). The motion was passed less than a week before the
country’s deputy president, William Ruto, was scheduled to go to trial. Ruto and Kenyan
President Uhuru Kenyatta, who is scheduled for trial in November, are accused of organising
the violent attacks following the disputed 2007 elections. More than 1,000 people were
Any opinions or views expressed in this paper are those of the individual authors, unless stated to be those of Future Directions International. Published by Future Directions International Pty Ltd. 80 Birdwood Parade, Dalkeith, WA 6009 Tel: +61 8 9389 9831 Fax: +61 8 9389 8803 E-mail: [email protected] Web: www.futuredirections.org.au
What’s Next?
On 12 September, miners at the Marikana plant in South Africa will demonstrate to demand pay for those killed during protests at the mine in August and October last year.
Indian External Affairs Minister Salman Khurshid and Pakistani Foreign Minister Sartaj Aziz will meet in Kyrgyzstan on 13 September to plan a possible meeting between Indian Prime Minister Manmohan Singh and Pakistani Prime Minister Nawaz Sharif in New York on 29 September.
US Assistant Secretary of State for East Asian and Pacific Affairs, Daniel Russel, will visit China from 13-14 September.
The thirteenth Shanghai Co-operation Organisation summit will be held in Bishkek, Kyrgyzstan, on 13-14 September. Attending will be SCO members China, Russia, Kazakhstan, Tajikistan, Kyrgyzstan and Uzbekistan. An observer from Iran will also be present.
The third meeting of the India-Qatar Joint Committee on Defence Co-operation (JCDC) will be held in the Qatari capital, Doha, on 15-16 September. Two ships from the Indian Navy’s Western Fleet, INS Tabar and INS Aditya, arrived in Doha on 10 September for a four-day goodwill visit ahead of the JCDC.