Indonesia’s uncertain climb up the nickel value chain

Indonesia’s uncertain climb up the nickel value chain

Indonesia has historically had limited success with industrial policy. That may now be changing, with recent interventionist policies targeting the nickel sector suggesting initial success in developing downstream segments of the value chain. So successful have these industrial policies been that the government is planning to target other minerals in a similar fashion, despite the objections of major trading partners.

After a period of liberalisation following the Asian financial crisis, Indonesia saw strong economic nationalism emerge again in the late 2000s. Nationalistic policies have been particularly strong in the natural resource sector.

When Joko Widodo started his first presidential term in 2014, policymakers were still struggling to implement a new law on mineral and coal mining that was adopted in 2009. The law aimed at expanding domestic benefits from mining by requiring mining companies to domestically add value through processing and refining minerals before exporting and forcing foreign investors to reduce shareholdings in mining companies operating in Indonesia.

This culminated in 2020 with the implementation of a complete export ban on nickel ore. The government was confident in implementing policies in the nickel sector because Indonesia was estimated to account for 37 per cent of global nickel production and 22 per cent of global reserves. Moreover, the government shifted its shares in mining companies into a state-owned holding company, MIND ID, which then spearheaded the nationalisation plan by becoming a major shareholder in some of the largest mining companies in Indonesia, namely Freeport Indonesia and Vale Indonesia.

The timing of nickel sector policies was good. Global demand for nickel had been increasing steadily for more than a decade. Then came the electric vehicle (EV) boom. Policies combating climate change in the late 2010s signalled the beginning of the EV era around the world. The ongoing EV boom means that global nickel demand will continue increasing even if the Chinese economy slows down.

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