Highlights

• Indonesia's nickel export ban dramatically increased economic value from $1.4 billion in 2020 to $34.8 billion in 2023.
• The strategy aims to generate economic benefits, attract foreign investments, and secure industrial growth in critical minerals.
• Challenges include environmental concerns, WTO disputes, and balancing economic ambitions with sustainability and international collaboration.

In Indonesia’s Pivotal Moment for Critical Minerals, Prashanth Parameswaran (opens in a new tab) examines the ambitious "downstreaming" policy spearheaded during Joko Widodo’s presidency and now extended under Prabowo Subianto. The strategy, centered on banning raw nickel exports to prioritize domestic processing, has propelled Indonesia into the global spotlight as a leader in critical minerals processing. This policy aims to generate economic benefits, attract foreign investments, and secure industrial growth. While these efforts have solidified Indonesia’s dominance as the top global nickel supplier, they come with notable challenges.

The recent piece was published in GIS (opens in a new tab), founded in 2011 by H.S.H. Prince Michael of Liechtenstein. The primary mission of GIS is to provide business leaders, senior managers, and policymakers with genuine and relevant geopolitical forecasts based on scenarios.

The economic impact of Indonesia’s downstream policy has been significant. By banning raw nickel exports, the country has dramatically increased the added value of its nickel production, surging from $1.4 billion in 2020 to $34.8 billion in 2023. Nickel mining now constitutes nearly 10% of Indonesia’s GDP, with downstream industrial activities occasionally accounting for over a quarter of total investments. This policy has also attracted substantial foreign investments, particularly from Chinese firms operating through major projects such as the Morowali Industrial Park, a flagship of Beijing’s Belt and Road Initiative.

Despite these successes, the downstream approach has faced considerable challenges. Environmental concerns, including deforestation and water pollution, have drawn international criticism. The depletion of high-grade nickel deposits further complicates Indonesia’s ability to meet climate commitments, forcing reliance on lower-grade ores with higher environmental costs. Geopolitical and regulatory challenges persist as well. The World Trade Organization ruled against Indonesia’s export ban, siding with the European Union, while strained relationships with Western nations, including the United States, hinder efforts to diversify international partnerships.

Looking ahead, Indonesia’s downstream efforts present several scenarios. The most likely outcome is an expansion of downstream into other commodities and sectors, supported by increased partnerships with China and Global South nations. This could involve new initiatives in battery technology and critical minerals alongside collaborations in emerging areas such as maritime and digital industries. However, challenges in infrastructure development and fragmented regulatory policies may lead to mixed results, with success in nickel processing but difficulties scaling downstream for other resources like bauxite and copper. A full-scale rollback of downstream policies remains unlikely, given its deep ties to economic nationalism and significant foreign investments, though domestic and international pressures could prompt policy reassessments.

Parameswaran assumes that downstream will remain central to Indonesia’s economic strategy, supported by continued Chinese investment and resilient geopolitical dynamics. However, his focus on Indonesia’s economic gains may understate the severity of environmental and human rights issues tied to the policy. The article’s emphasis on partnerships with China also risks oversimplifying Indonesia’s broader efforts to engage Western nations and multilateral frameworks.

Indonesia’s abundant nickel reserves and strategic location position it as a potential powerhouse in the critical minerals supply chain, particularly for electric vehicle batteries and renewable energy technologies. However, realizing this potential requires addressing environmental criticisms, ensuring robust regulatory frameworks, and diversifying partnerships beyond China to include Western economies and emerging technologies.

Indonesia stands at a pivotal juncture. Balancing its economic ambitions with environmental sustainability and international collaboration will be crucial. With careful policy refinements and strategic adjustments, the nation could secure its role as a critical player in the global energy transition.