How will Indonesia’s Nickel Policy Shape its Economic Future and Global Position as a BRICS Nation?
20/01/2025 - Written by Amriza B. Batubara
Introduction
Indonesia is in a bid to protect its raw nickel refineries at a time of considerable regime change, both internationally and domestically. As we ring into the new year of 2025, Indonesia was formally admitted into the BRICS bloc under Brazil’s chairmanship - joining a ring of other Western-skeptic nations hoping to strengthen multilateral cooperation amongst the developing world. With massive reserves of natural assets, among Indonesia’s top-performing exports were consistently nickel, a metal fundamental in creating stainless steel, batteries, alloys, corrosion resistance among other electrical functions, and a largely contested asset to the nation’s brittle yet rising economy.
The novel initiative was spearheaded by Prabowo Subianto, the new president who succeeded Joko Widodo, has imposed a line of controversial policies that have put the dignity of Indonesia’s nickel reserves in line. Aside from a closer partnership with China that worries Western markets, despite its waterway disputes with the nation in the South China Sea at its northern frontier, Subianto’s foreign policy has simultaneously shown protectionist values with his “import-substitute industrialising” incentives.
With Chinese assistance—a foreign policy phenomenon increasingly welcomed by Indonesian public authorities—the nickel market is increasing in demand for embellishment and has seen budget expenditures that have since called for an upscaling of not only the extraction process but also its manufacturing and exporting processes. Micro-smelters have already begun springing adjacent to mining hotspots thanks to joint transnational ventures, though there are fears of this nickel endeavour ballooning into a bargaining token and chip for Indonesia’s nascent economy.
Bargaining on deaf ears?
These attempts, however, did not fall short of controversy - since 2014, Indonesia has staunchly faced controversy from especially European states for uncompromising consultations and failure to open dialogue. As contentious as the policy is by design, Indonesia has steadfastly stood by its act to keep its ores domestically to refine them, albeit at the expense of the environment. While drawing upset from the OECD and adjacent circles, this interpretation could project Indonesia as a nation slowly drifting away from Western dependence toward a stronger South-South solidarity for its closest economic ties.
Contextual Analysis
Indonesia is one of the world’s largest producers of nickel. The Southeast Asian nation accounts for 42% of the global nickel reserves and 51% of global mine production; a figure backed by over 1.8 million metric tonnes of ore extraction in its reserves in 2023. With lax policies, approved quota rates for nickel extraction have also been considerably generous, with a capacity of 240 million tonnes annually as of 2024 - a large excess from absolute terms, the raw extractions in actual percentages.
Since 2020, Indonesia has banned the export of ore export in hopes of pushing investment in the nickel industry. However, the G20 nation has since drawn out plans to revisit their nickel policy to adjust with global demand, by reviewing the idea of regulating an ore mining quota to steady prices and allow the delivery of substantial refined nickel to the global market.
Indonesia’s staunchness against exporting raw nickel comes at a time of heightened regional security tensions. Since COVID, China has launched a two-pronged foreign policy campaign worldwide, with Southeast Asia bearing the brunt given its proximity; to the Belt and Road Initiative and South China Sea claims. In Indonesia, many infrastructural projects such as its inaugural high-speed rail has been supported by China in exchange of developmental support - a move that along with joining BRICS, has been described as a compromise from alliance-making for Indonesia’s government despite historically adhering to “non-interference” principles.
While the South China Sea claims and the Nine-Dash Line does not directly affect Indonesian land apart from a slight brush with its marginal Natuna Islands, it has brought about questions of freedom of navigation - albeit to a slightly muted note given its amicability with the CCP. In 2023, Indonesia hosted a joint naval reconnaissant drill with other ASEAN navies - a historic first. During said drill, it was implied that the drill was to be done more recurrently in the name of security and sovereignty. Although China was never explicitly mentioned, it was implicated given its neighbouring countries Vietnam, Malaysia, Brunei and the Philippines’ strong rhetoric against the power.
Indonesia’s relatively nonchalant attitude to Chinese encroachments is part of Prabowo’s broader ambition to be more hands-on with like-minded partners - a complete opposite from Jokowi’s inward-looking, domestically focused agendas. Profusely reiterating the Asian Way occasionally to stress his push for more assertion, his commitment to a “free and active” foreign policy paradoxes with Indonesia’s Non-Aligned Movement rationale, but is expected to be a move to rouse a sense of solidarity and unity in ASEAN while stopping short from a full embrace of integration - a move that could bring major predicament and devaluing to its precious nickel market. With Indonesia however, narratives are obscure and targets vague to prevent misunderstandings and alliance-making rhetorics - leading to a blanket ban of ore reserves to all foreign states.
Key players & Stakeholders
Prabowo Subianto - A prominent general-turned-president whose public career stretches back from 1976 as commander, the charismatic man is known for his long-standing political career and foreign ties, which in the past have brought him accusations of foreign intervention in his electoral campaigns and success.
Mining industry - A backbone to Indonesia’s economy, the mining industry relied on coal and copper until recently and is mainly centred around Sumatra and Sulawesi, which are coincidentally mining hubs for nickel. However, with the recent shapeshift, the Indonesian mining industry is becoming increasingly fenced-off, enclosed for domestic favour. Today, it is a flashpoint for nationalistic interests and a tightly regulated sector, with cases of nationalisation over control of mining stakes and the dignity of Indigenous rights becoming discussing points for policymakers this past decade.
Natural resource investors - One of Indonesia’s main exports is natural resources - a significant portion of which relies on nickel production, which due to its scarce availability paradoxically beset against a skyrocketing global demand has become a lucrative trade. Companies as big as Rio Tinto have become primary investors in this trade for most foreign shareholders held in Indonesian resources, though the previous Joko Widodo cabinet has since purged much.
Opportunities & Risks
Opportunities
Investors invest in a reliable cycle of Indonesian industrialisation.
Indonesia is already a rapidly developing economy, on track for an average growth rate of 4.89% per annum since 2000 to 2024. This period of uninterrupted growth is the envy of many, and those in especially stalling nations could expand their investments on the §ry, manufacturing and other secondary sectors as well as it grows. In today’s day and age, focus has been geared toward green manufacturing, green tech and electronics. The latter has had growth rates consistently over 7.62% between Q3 2022 and Q3 2023 - contributing to 8.3% of the manufacturing industry, itself indirectly reflected on its nationwide 9% year-on-year expenditure rate dedicated to this sector alone. With a refined nickel export, the national export quality will enhance itself as the Indonesian market will give more abundance to a world in demand for more electronics.
New facilities can recycle used junk metal as well.
As Indonesia’s economy expands, consumerism will follow. Already observed in the ballooning middle-class income and households (World Bank, ), there is already anticipation of waste to pile up and cause environmental troubles. Already in big cities like Jakarta are qualms such as water, soil and air pollution - all induced by excessive industrialisation. With a wave of new technologies, Indonesia can upgrade its waste management systems and introduce upscaled incinerators or waste plants - concepts that until recently are scarce in this middle-income country. This way, metals from the hundreds of millions of phones in the country can be processed and bundled jointly with the newly extracted and processed nickel, creating a new cycle of embellished goods.
Risks
Volatile quotas on extraction may fluctuate, leading to less trade security.
With national reluctance on liberalising raw nickel trade, investors might want to apprehend and hold back a little from fully investing in case the quotas fall through, as policymakers have considered drawing the figures to 150 million tonnes for the quota, a large slash from the previous 240 million figures. As cheap and raw natural resources exploits are soon to phase out, the next big step is to start keeping a close eye on quotas. Likewise, fluctuating figures on extraction leads to fluctuating production, which can drive increased consumer spending not on par with demand and therefore driving up inflation. On Indonesia’s side, they risk over-relying on high-end markets and overlooking the instilled potential nickel ores still have.
Higher quality of export leads to higher manpower value.
Wages may rise as a result of constant polishing and refinement. As the upcycling of manufacturing conditions may bring better facilitation of labour rights and standards of living, one must account for the fact that Indonesia is one of the few democracies in Southeast Asia, giving ample room for trade unions to deliberate. Given its relatively progressive democratic environment, increased production costs and subsequent distribution of goods can become highly contested, and higher labour costs may tarnish interest in refined nickel in the long run as the nickel run will come in tandem with Indonesia’s rapid industrialisation. On the contrary, however, this risk comes with its own set of opportunities, and that is how higher wages can empower SMEs and provide subsidies or tax incentives to help smaller firms and livelihoods that revolve around other Indonesian natural resource reserves, such as fishermen, miners, and farmers.
Conclusion
The absence of ideology in guiding Indonesia’s apprehensive and seemingly xenophobic ‘nickel ore ban’ policy makes this policy line essentially not only a deterrent but also a catalyst to import-substitute industrialisation that brings protectionist guidelines as residual effect - putting itself on the financial map for the long run with the gatekeeping of its prized ores. Prabowo’s cabinet does not intend to scare investors away or banish Indonesia into a hermit state, but rather to bring better quality produce from batteries to metal parts as well as innovation, into the global market.
The current affairs of regional geopolitics today have also influenced Indonesia’s wary stance. With increased flare-ups in the South China Sea, Indonesia is aware that to fully export its nickel would mean placing one of its most prized exports in loose tatters, especially fearing the thought of having it handled by non-Indonesian refineries and therefore losing value and profit.
That said, Indonesia and investors must start looking beyond expanding industrial development into developing its R&D sector as well, encouraging innovation beyond factory batteries to maintain a competitive edge despite incoming higher wages - itself a given to Indonesia’s growth. Economists must monitor inflation and utilise monetary policies to leverage the liberties of Prabowo’s open-door and more laissez-faire (hands-off) policy - given how precious the metal is, nickel could become the key to helping Indonesia gain trade agreements and ultimately conduct much-needed liberalisations of visa and trade policies.
As Prabowo still has five years ahead of him before 2029, there is ample room for growth in regulating nickel. With R&D, nickel in Indonesia cannot simply just be a front to reform and refine the smelting industry or refineries, it also has to be shown that it too, could be used to make its brand and quality of stainless steel, develop its line of corrosion resistance - perhaps one that is more malleable and applicable to everyday use. Through such restorative and empowering work, out-of-region investors can have more faith and invest in Indonesia’s economy beyond the natural resources sector, and be taken seriously as a manufacturing power in the same ranks of regional contenders India, China and Vietnam - a key to escaping the middle-income trap and get into upward mobility away from being a “peripheral” state.