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Issue To Watch: Nickel, Coal, and Vaccines

Commentary by Wayne Forrest

As COVID retreats in Indonesia, hopefully permanently, Indonesia has signaled that it intends to “build back better” but with more leverage in global vaccine debates and more control of its own marketplace. Indonesia’s and other SEA leaders believe they have economic and not just moral leverage in debates over vaccine distribution. One way to express this is: factories in SEA that supply LL Bean, closed because workers haven’t been vaccinated, will disappoint Xmas shoppers with high prices or unavailability of product. I worry that this leverage will lead to more protection rather than cooperation.

President Jokowi expressed his opinion about vaccines artfully but bluntly at the UN General Assembly: “Politicization and discrimination towards vaccines continue to take place. We must solve these issues with concrete steps”. Among his steps is more localization of production: “Indonesia is committed and has the ability to be part of the global supply chain”.

I saw this up close in early August when I spoke with several US pharmaceutical companies about supplying Indonesia with more therapeutics such as remdesivir. I had been asked to arrange conversations for senior officials who traveled to the US looking for help to contain the Delta variant that was then raging across the country. One company told me that they had already offered very low prices for one of its products but Indonesia demanded they license a state-owned company to make it instead. The company already had several licensees in India and also said it would take several months to work out the arrangements given the complexity of the manufacturing process and sourcing the necessary component substances. They were met with resistance until the head of one of Indonesia’s state-owned pharmaceutical companies admitted that they could not produce the product at a price below what the company had offered out of India.

Import substitution remains that important component of leverage that lurks behind the debate over the future of vaccine distribution. Beyond that is intellectual property. Through much of its history Indonesia, like many developing countries, concentrated on generics and frankly looked the other way when local companies copied expensive patented drugs. With this track record does Indonesia expect patented formulas to be just turned over. Is that is what is meant by ending vaccine discrimination?

I trust President Jokowi’s heart is in the right place when he calls for cooperative, global solutions but I still remember when Indonesia backed out of a global network of medical laboratories (NAMRU) in 2010 sponsored by the US Navy to share bird flu samples. At the time of the lab’s closing US Health and Human Services Secretary Michael Leavitt said: “Experts fear the H5NI virus will mutate enough to pass easily from one human being to another. If it did, it could cause a pandemic that could kill tens of millions of people globally.” Indonesia closed NAMRU because the Health Minister suspected US drug companies were profiting from the samples. This discrepancy over capitalism’s “profit motive” continues and Indonesia’s goal of vaccine security will only be as successful as its ability to understand market forces, intellectual property, and the risk/reward ratio of pharmaceutical research. Indonesia could send a strong signal by asking the US to reopen the NAMRU lab.

Its very possible that Indonesia’s effort to be part of the global supply chain for vaccines and other drugs stems from strategic thinking that has been applied to other products such as natural resources, in particular nickel. Here Indonesia has forced local manufacturing by banning exports of raw nickel. Now, according to recent news,it may be moving to banning processed nickel as well (see story on page 2), placing a big bet on electric batteries. Planners expect electric vehicles will spark a resurgence of industrial manufacturing in Indonesia that has steadily ebbed since the Asian Financial Crisis of 1998. The government has calculated that its strong market in nickel (#1 in reserves) justifies its protective policy, notwithstanding its commitment to international conventions such as the WTO where the EU filed a protest in 2020.

What if some other type of battery comes along that doesn’t need nickel? Something similar just happened with coal. Xi Jinping surprised the world at this year’s UNGA by saying that China would no longer support coal-fired power plants. Confidence in low cost solar and wind energy no doubt drove his decision, not just concern over climate change. The shock waves will hit Indonesia hard. Some of the nation’s largest and most politically-connected businesses are dependent on supplying China’s appetite for thermal coal. These same groups have coal-fired power plants in the works in Indonesia backed by Chinese finance that are now suddenly in jeopardy. Downstream manufacturing of some of the products using nickel could end up being a more expensive proposition than importing due to logistics costs and other issues. If so, Indonesia could end up with a lot of surplus nickel with no market. The Indonesian government may be taking a big risk with a policy of “if we ban its export they will come”.

Indonesia would be better off applying the model of its rubber industry. Since the 1920’s Indonesia’s rubber (exported in semi-processed form) has supplied thousands of tire and other manufacturers all over the world. But a local rubber manufacturing industry (including tires) has also taken hold. None of this occurred with export bans or local content regulations. It occurred organically.

I hope Indonesia applies this lesson to its new ambition in vaccines. Complete self-sufficiency in vaccines is unnecessary. Indonesia can achieve a much higher level of vaccine and pharmaceutical security through a combination of incentives, investment in biomedical research, better protection of intellectual property, and strategic trade policy.

(The opinions expressed here are the writer’s and do not necessarily represent those of AICC or its members.)