2. Beneficiation policy tools
Countries striving to add value to their resources can choose from different types of policy instruments, each with their own mechanisms and potential consequences. These policies range from tax reductions for producers to stricter, sanction-based instruments. It is not uncommon for countries to use more than one of these policies at a time.
Governments can support downstream industry development by decreasing input costs. In particular, investors might react to tax reductions, subsidies or improved access to inputs such as energy or water. This is not true of downstream industries alone. Some companies are active in both extraction and in the downstream sectors. In this case, the government can support operation expansion through tax incentives. However, governments might find it difficult to assess at which point incentives are no longer needed. For this, governments need to set a level of ‘take’ that is acceptable to them over time. In the case of domestic producers, this might also include protection from global competition through import restrictions. In a world that is moving towards the lifting of hurdles to global trade, however, such policy interventions might lead global competitors to retaliate with similar measures.
This policy tool works at all stages of beneficiation, from tax reductions or subsidies for semi-refined goods or alloys to export promotion of manufactured goods. Malaysia's petroleum industry, for example, grants tax incentives for reinvestments in resource-based industries.
Prescriptive measures are meant to either deter producers of unprocessed commodities by introducing an export tax, or even prevent them from exporting them via an export ban on unprocessed commodities. Prescriptive measures might require companies to either expand their operations to downstream segments, by investing heavily, or by forging partnerships with downstream producers. If these downstream producers already exist, they might not automatically prefer buying locally, and are more focused on acquiring cheap input commodities, possibly by importing them. As a result, costs might increase for primary commodities producers, leading to the delay or suspension of less profitable projects.
Prescriptive measures can be tied to the later stages of processing, depending on the value of the commodity concerned. Export bans for unrefined commodities have been widely used, with some countries requiring a minimum grade to be allowed for export. Export taxes are less severe. However, they are comparable to incentives as they attempt to move producers towards investing in beneficiation facilities. Example for prescriptive measures are the bans on unprocessed raw commodities introduced in Indonesia and Tanzania. In 2014, Indonesia introduced regulations requiring mining license holders to commit to building or contributing to the development of processing facilities. Similarly, Tanzania introduced legislation in 2017, tying export permissions of minerals to "commitments to establish beneficiation facilities", such as refineries and smelters.
In some contexts, governments might be in a position to directly close beneficiation deals with companies on a case-by-case basis. This type of leverage for governments depends on the importance of the resource to the company and the country’s endowment of that resource. Sometimes, a government can negotiate these deals when a company needs to renew its license. One such example includes Botswana’s renegotiations with De Beers, which sourced diamonds responsible for 60 to 70% of its revenues from the country. Since De Beers started operations in Botswana in 1967, the government managed to negotiate with the company to move more and more of its downstream activity into the country. Whereas the history of negotiations has been complex and changed over time, they were often tied to license renewal. Hence negotiations are often a matter of windows of opportunity. This approach depends much on timing and is thus less reliable. On the other hand, it can save government resources as with negotiation-centred approaches, there might be no need to go through lengthy reform process to adjust a policy and fiscal landscape. However, it will need capacity and skills to analyse what opportunities lie ahead and what the best outcome scenario could be, e.g. using project-level analyses.
Negotiations are an opportunity for governments to support beneficiation. The case of Botswana is an example of a beneficiation process at the stage of processing. The government has successfully established diamond cutting factories together with the most important company, creating employment and value addition in-country.
Depending on the competitiveness of a certain resource, governments might anchor the beneficiation requirements to the bidding process. But this is only possible with commodities and projects that have a strong bidding interest. Tendering licenses makes sure that the government pre-screens the technical and financial capacities of potential developers. They can also create an opportunity to frame the conversation around linkages and longer-term plans to expand, including infrastructure options. Developers agree to a package before entering into production. Afghanistan is an example of a country that has tied in value addition policies to tendering processes.
Like negotiations and prescriptive measures, bidding allows governments not only to develop beneficiation in the production phase, but also at later stages, such as in the processing and/or production of intermediary goods. Companies might see fit to bid for processing and/or production of intermediary goods if infrastructure and capacity are available.