4. Country case studies
Indonesia has been increasingly striving towards supporting its mining sector. Beneficiation, or mineral added value, is governed by the Law on mineral and coal mining 04/2009 and the Ministerial Regulation 5/2017 on the "Domestic Mineral Beneficiation through Processing and Refining". The laws require certain producers to process certain minerals, while at the same time only allowing a minimum percentage of ores of a certain, high grade, to be exported. This comes into effect via special licenses for the producing entities. Furthermore, the law proposes a cooperation between similar licence holders, encouraging beneficiation through the possibility to buy and sell ores in-country, or by proposing ways to implement processing activities. These plans need to be approved by a governing authority as the activities are carried out in-country.
The beneficiation law faces some challenges, relating to general policy questions regarding the implication of beneficiation. Financially, the implementation needs more capital in an industry that already is capital intensive. Given the unpredictable price developments of minerals, any capital to be invested will be classified as high risk and therefore make the task of finding investors difficult. Furthermore, in terms of energy and infrastructure, production and export can only keep pre-law levels if roads, access to land and energy supplies stay stable. Suppliers will need to be able to connect with producers. Finally, beneficiation will require access to a highly skilled workforce to keep the operations running.
South Africa is one of the main mining producers worldwide, especially when it comes to gold, coal and iron ore. In iron ore and steel production, South Africa has had a long history of policy intervention in beneficiation, with the start of its steel industry dating back to 1916. During the 1930s, private steel companies emerged, and the government introduced an import-substitution policy to protect its industry. The country also installed a parastatal company that would provide manufacturers with cheap steel. This strategy was met with success, as a local market started emerging, showing increasing demand for steel. Other mining industries, such as gold, relied on intermediate steel products such as piping, rails, wire, or fencing, and domestically produced machinery.
By the 1960s, the country was able to export more than it imported. In 1985, major trading partners sanctioned South Africa due to its Apartheid system, leading to a loss of access to loans and Foreign Direct Investment. Consequently, the parastatal company ISCOR was privatised in 1989. In the 1990s, the privatised company increased production capacity, while at the same time reducing employees. In the 2000s, the former parastatal had broken up into several smaller companies, and private investment increased. Import substitution was replaced by the import price parity (IPP) in the period from 2002 to 2010, setting the price of a commodity at the opportunity cost of importing that same, intermediate good. Downstream industries especially criticised this policy, as it would be to their detriment if buying input products from local suppliers was more expensive. Fearing that regulating price might discourage local producers, the government replaced its beneficiation policy with a new policy called the 'new growth pact'. Under the comprehensive “New Growth Path” introduced in 2011, new questions of beneficiation were reintroduced in South African policy. In this strategy, the government intended to intensify in-country beneficiation going beyond refining and smelting, targeting the fabrication of manufactured goods. A main tenet of this strategy was to remove blockages to increased downstream steel consumption, which started with subsidising inputs so that production costs would fall. Data shows, however, that South Africa iron ore exports and steel imports have increased simultaneously, leading to stagnating, even decreasing, steel production. This is in part due to the saturation of global markets with competitive steel from China, explaining why iron ore demand increased and steel prices fell.
In the gold sector, beneficiation mainly reaches the refining stage, due to the presence of one of the world’s largest gold refineries in Johannesburg. Doré is sent by the mines to this refinery, where it is refined to 99.9% purity. At this point, most South African gold is exported for further processing or for sale as investment bars/coins. These have a relatively low margin (often only 1-2% above the gold price). However, attempts to increase local production of jewellery, a higher value-add product, have not generally been successful as they would require the country to develop the relevant skills and for local companies to access markets that are not familiar to them.
South Africa had relative success with its industries, especially with regards to iron ore and steel, until the crisis of 2008. This success was mainly based on factors such as the availability of input commodities such as coal, and the existence of a domestic market for iron and steel. The most important factor remains the targeted government policies, in which the protection of its industry created the said market. On the other side, value addition policies at times lead to delays, and policy is still being refined to create more certainty. As global dynamics changed, global transportation costs fell, and steel trade globalised, it showed that South Africa's industries need to address the issue of global competitiveness.