How Nickel Downstream Policies Affect Indonesia
Protecting the Potential
Indonesia’s industrial policies targeting the nickel sector have shown initial success in developing downstream segments of the value chain. These policies, aimed at adding value to nickel reserves and attracting investments, have yielded positive results. However, the long-term impact and net benefit of these policies are still uncertain. While it has the opportunity to bring great benefits to the greater public, certain challenges could impede this noble cause. In this Economix Insight, we will explore Indonesia’s nickel strategy, its role in the energy transition and deglobalization, and the challenges and opportunities it presents.
Indonesia’s resource nationalism has driven its approach to industrial policy in the natural resource sector, guided by the 2009 Mineral and Coal Mining Law. The country aims to attract investments in smelters and processing plants to add value to its nickel reserves. Historically, the focus was on steel production, but the strategy has shifted towards the EV supply chain due to the growing demand for batteries. The government has implemented export bans on unprocessed nickel ore to encourage investment in nickel processing and refining.
Role on Energy Transition
Nickel plays a vital role in the energy transition, with batteries expected to represent a significant growth sector. While nickel demand for steel production dominates currently, batteries for decarbonizing transportation will drive future demand. Indonesia, as the world’s largest nickel producer with abundant reserves, recognizes the economic opportunities in the EV sector and aims to attract investments in production capacity along the EV supply chain.
Indonesia’s industrial policies have attracted significant investments, primarily from Chinese and Korean companies. For instance, both Wuling and Hyundai have invested in Indonesian car plants to make sure that Indonesian have ample access to electric vehicles. Nickel ore output is increasing, with domestic processing and refining becoming the norm. The establishment of the Indonesia Battery Corporation, a joint venture between state enterprises, further strengthens Indonesia’s position in the EV value chain.
Challenges Faced
However, challenges remain, including establishing environmental standards for mining and processing, job creation, and addressing environmental concerns associated with nickel processing. Indonesia’s export restrictions are also a part of it as they have drawn international attention, leading to a complaint filed by the European Union with the World Trade Organization. The country’s nickel strategy also faces uncertainties due to the United States Inflation Reduction Act and its provisions regarding critical minerals.
Indonesia’s industrial policies in the nickel sector have shown early signs of success, attracting investments and fostering downstream segments of the value chain. However, the long-term impact, job creation potential, and environmental implications require further assessment. As Indonesia aims to become a global hub for battery production and navigate geopolitical currents, it must address challenges, establish environmental standards, and balance international trade relations. The success of Indonesia’s nickel strategy will depend on its ability to seize economic opportunities while addressing social and environmental concerns.
References
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Liputan6. (2023, March 9). Primadona, Begini Manfaat Hilirisasi Nikel Ke Masyarakat dan Ekonomi Indonesia. https://www.liputan6.com/bisnis/read/5228235/primadona-begini-manfaat-hilirisasi-nikel-ke-masyarakat-dan-ekonomi-indonesia
Lowy Institute. (2023, February 20). Indonesia’s uncertain climb up the nickel value chain. https://www.lowyinstitute.org/the-interpreter/indonesia-s-uncertain-climb-nickel-value-chain
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Mining Technology. (2023, July 4). Nickel production in Indonesia and major projects. https://www.mining-technology.com/data-insights/nickel-in-indonesia/
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Statista. (2022, January 31). Indonesia nickel mine production 2021. https://www.statista.com/statistics/260757/indonesian-mine-production-of-nickel-since-2006/