The Bank of Indonesia says mining is 11.3 percent of GDP. The nation has phenomenal reserves of nickel, gold, coal, copper and tin. The world’s major mining firms have a long and deep history in Indonesia. Equally, as Indonesia has become richer – and more confident about its economic and geopolitical place in the world – the government has looked critically about how the nation’s resources are used and who benefits. Right at the start of 2013, Edelman Indonesia published a brief white paper on the political issues affecting the mining sector. It covers the impact of the recent mining regulations which, says the foreign mining sector, makes mining investment in Indonesia economically unattractive.
The latest survey from the Canada-based Fraser Institute ranks Indonesia the world’s least attractive place to do business in the mining sector, with the mineral-rich country placed last out of 96 jurisdictions surveyed. In the same survey last year, Indonesia was ranked 85th (source: Jakarta Globe March 2, 2013). “Although 70 percent of all investment comes from foreign capital, recent policy changes have either knowingly or unwittingly resulted in the marginalization of foreign investors,” said one mining firm executive quoted in the Fraser Institute report.
Indonesian mining expert, Noke Kiroyan, last year controversially advised foreign mining companies to delay their inward investment into Indonesia until after 2014’s Parliamentary and then Presidential elections. Certainly the current government coalition lacks the political muscle, let alone the will, to drive significant change, so close to the elections. The “mood music” for the mining sector, through the election period, is going to be grim.
Getting value from new investment in the Indonesian mining sector is going to be a long-term play. Actual Indonesian gold mines, as it were, will not be the corporate gold mines that once they were. The mining sector will need to wear its protective headgear, politically speaking, over the next 18-24 months. In the meantime, mining firms need to focus on three things before they assess how they can do business with a new government:
- We know from the Indonesian results from the 2013 Edelman Trust Barometer that Indonesians say that the biggest driver of trust in a sector is how firms treat their employees (#3 trust-driver globally, but joint #1 in Indonesia).
- Indonesians care about the environment. It is #4 trust-driver in Indonesia, but doesn’t even make the top 7 globally.
- Indonesia is a community-centric society (it is all about “us” rather than the West’s “me” and self-expressionism). “Giving back to the community” is rated as the 4th most-important trust-driver in Indonesia; again it doesn’t figure in the top league globally.
Until Indonesia gets a political settlement after the 2014 elections there is little, in truth, mining firms can do to improve the political and regulatory environment they face. But in the next 18-24 months they can start to refocus and contextualize their CSR programs in these three areas – employee communications, environment and community relations – because our Indonesian Trust research tells us this resonates well with Indonesians: both key influencers and the electorate at large. Starting with actively listening to key stakeholders on these topics, giving them a voice, before acting and showcasing, Edelman Indonesia believes these three issue-areas are crucial if foreign mining firms are to succeed in successful engagement with a new government post-2014. Foreign mining firms need to show real progress in these mission-critical, “soft” engagement areas, before they will get traction with “hard” lobbying on mining regulation.
Image of Mount Kerinci courtesy of buitenzorger.