Southeast Asia’s Cement Industrial Complex

Dr. Alvin Camba, assistant professor on the Josef Korbel School of International Studies, lately revealed a journal article highlighting a fancy nexus between infrastructure-led growth, local weather coverage, and constructing supplies like cement. When international locations like Indonesia and the Philippines construct bodily infrastructure similar to roads, dams, and airports, they use massive quantities of cement. And the method of creating cement requires kiln temperatures of as much as 2,700 levels Fahrenheit, that means huge quantities of vitality are concerned. The economics of cement manufacturing, notably in rising markets, are thus extremely intertwined with each politics and local weather coverage.

For Indonesia, cement has lengthy been linked with the nation’s financial growth. Semen Indonesia (semen is the Indonesian phrase for cement) was the primary state-owned firm to go public on the Jakarta Stock Exchange in 1991, a part of authorities efforts to deepen home capital markets and entice extra funding through the market-reform period of the Nineties. Its trendy iteration, Semen Indonesia Group (SIG), continues to be publicly listed however the state retains a 51 p.c majority possession stake. It can be one of many extra worthwhile Indonesian SOEs, with a few 50 p.c share of the home market and billions of {dollars} in annual income.

As infrastructure-led growth below President Joko “Jokowi” Widodo accelerated from 2015 onward, so did SIG’s function in Indonesia’s political financial system. The group paid $1.75 billion to accumulate LafargeHolcim’s Indonesian cement belongings in 2018, which elevated its annual manufacturing capability from 37.8 million tons to 52.6 million. This transfer was most likely made in anticipation of ballooning demand for cement as main infrastructure initiatives, just like the Trans-Java Toll Road, gathered steam. Although the group has investments in Vietnam, nearly all of SIG’s manufacturing is consumed by the Indonesian market.

Cement seems fairly totally different in Thailand, the place the trade big is the Siam Cement Group. It is among the largest firms in Thailand, and the King is the most important shareholder with a 33.6 p.c stake. Siam Cement is just not even primarily a cement firm – it has diversified into chemical substances and different merchandise, and has a a lot larger regional footprint than Indonesia’s SIG. According to the corporate’s 2021 Annual Report, 45 p.c of Siam Cement’s complete belongings, valued at billions of {dollars}, are in Vietnam, Indonesia, the Philippines, Laos, Cambodia, and Singapore.

Moreover, solely 54 p.c of Siam Cement’s income was generated by the home market. The relaxation got here from exports and regional gross sales. The group’s chemical subsidiary is planning to elevate billions in a significant IPO this yr which additional exhibits that whereas Siam Cement began life as a cement firm, it has turn out to be a diversified regional conglomerate and a essential cog within the Thai financial system.

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In the Philippines, reflecting the nation’s extra pro-market institutional structure on the whole, main cement gamers are sometimes owned by massive conglomerates or personal buyers, similar to Ramon Ang and San Miguel Corp, which controls almost the entire shares in Eagle Cement, one of many largest cement firms within the nation. According to Professor Camba’s analysis, President Rodrigo Duterte’s push for capital-intensive infrastructure growth precipitated the demand for cement to balloon and required stepped-up overseas funding and imports to cowl the hole. This has all types of complicated implications for local weather coverage, financial growth, home political coalitions, and the function of overseas capital in infrastructure initiatives.

Just like metal, cement is just not merely a impartial constructing materials the use and value of that are decided by provide and demand in a aggressive market. Its manufacturing and use are intensely political and displays totally different constellations of political and financial energy in particular person international locations. We see this in the best way massive infrastructure drives in rising markets may serve to stimulate demand and enhance earnings for politically highly effective firms.

There are likewise necessary ramifications in the case of carbon emissions, since producing cement requires a lot vitality. A market-based coverage device designed to have widespread influence (similar to carbon pricing) is probably going going to battle to attain its objectives whenever you’re coping with such a various set of stakeholders. Looking on the possession construction throughout simply three international locations in Southeast Asia, main stakeholders within the cement trade embody the King of Thailand, the federal government of Indonesia, and one of many largest conglomerates within the Philippines. Who goes to tax the King of Thailand’s cement earnings with a purpose to scale back carbon emissions?

We consider cement, if we consider it in any respect, as a easy constructing materials. But pull again the curtain a little bit bit, and it seems the coverage challenges associated to its manufacturing and distribution are literally fairly complicated. When you drill down a little bit bit you additionally notice that addressing these challenges will doubtless require troublesome political options, fairly than purely market-based approaches.

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