Southeast Asia’s Cement Industrial Complex

Dr. Alvin Camba, Assistant Professor at the Josef Korbel School of International Studies, recently published a magazine article highlighting a complex nexus between infrastructure-driven development, climate policy, and building materials like cement. When countries like Indonesia and the Philippines build physical infrastructure like roads, dams, and airports, they use large amounts of cement. And the cement-making process requires kiln temperatures of up to 2,700 degrees Fahrenheit, which means enormous amounts of energy are involved. The economics of cement production, particularly in emerging markets, is highly intertwined with both politics and climate policy.

For Indonesia, cement has long been linked to the country’s economic development. Semen Indonesia (semen is the Indonesian word for cement) was the first state-owned company to go public on the Jakarta Stock Exchange in 1991, as part of government efforts to deepen domestic capital markets and attract more investment during the market reform era of the 1990s Its modern iteration, Cum Indonesian Group (SIG), is still publicly traded, but the state retains a 51 percent majority stake. It is also one of the most profitable Indonesian state-owned companies, with around a 50 percent share of the domestic market and billions of dollars in annual revenue.

As infrastructure-driven development under the presidency of Joko “Jokowi” Widodo accelerated from 2015, so did the role of GIS in Indonesia’s political economy. The group paid $1.75 billion to acquire LafargeHolcim’s cement assets in Indonesia in 2018, increasing its annual production capacity from 37.8 million tons to 52.6 million. This move was likely made in anticipation of growing demand for cement as major infrastructure projects such as the Trans-Java Toll Road gained momentum. Although the group has investments in Vietnam, most of SIG’s production is consumed by the Indonesian market.

Cement looks quite different in Thailand, where the industry giant is Siam Cement Group. It is one of the largest companies in Thailand and the King is the largest shareholder with a 33.6 percent stake. Siam Cement is not even primarily a cement company: it has diversified into chemicals and other products, and has a much larger regional presence than SIG of Indonesia. According to the company Annual Report 202145 percent of Siam Cement’s total assets, valued at billions of dollars, are located in Vietnam, Indonesia, the Philippines, Laos, Cambodia and Singapore.

Furthermore, only 54 percent of Siam Cement’s revenues were generated from the domestic market. The rest came from exports and regional sales. The group’s chemical subsidiary plans to raise billions in a major initial public offering this year that further shows that while Siam Cement started life as a cement company, it has become a diversified regional conglomerate and a critical cog in the Thai economy.

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In the Philippines, reflecting the country’s more market-friendly institutional architecture overall, major cement players are often owned by large conglomerates or private investors, such as Ramon Ang and San Miguel Corp, which controls almost all of the shares of eagle cement, one of the largest cement companies in the country. According to Professor Camba’s research, President Rodrigo Duterte’s push for capital-intensive infrastructure development caused cement demand to skyrocket, requiring increased foreign investment and imports to fill the gap. This has all sorts of complex implications for climate policy, economic development, domestic political coalitions, and the role of foreign capital in infrastructure projects.

Just like steel, cement is not simply a neutral building material whose use and price are determined by supply and demand in a competitive market. Their production and use are intensely political and reflect different constellations of political and economic power in individual countries. We see this in the way that large infrastructure in emerging markets can also serve to stimulate demand and increase profits for politically powerful companies.

There are also major ramifications when it comes to carbon emissions, as cement production requires a lot of energy. A market-based policy tool designed to have widespread impact (such as carbon pricing) is likely to struggle to achieve its goals when dealing with such a diverse set of stakeholders. Looking at the ownership structure in just three Southeast Asian countries, major stakeholders in the cement industry include the King of Thailand, the Indonesian government, and one of the largest conglomerates in the Philippines. Who is going to tax the King of Thailand’s cement profits to reduce carbon emissions?

We think of cement, if we think of it, as a simple building material. But if the curtain is pulled back a bit, it turns out that the political challenges related to its production and distribution are quite complex. When you dig a little deeper, you also realize that tackling these challenges will likely require tough policy solutions, rather than purely market-based approaches.

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