Indonesia's Nickel Gamble

Indonesia has the world’s largest nickel reserves. Nickel is used in stainless steel and, increasingly, in electric vehicle batteries. Instead of simply exporting raw ore, Indonesia decided to force processing to happen at home.

The export ban

Indonesia first banned raw nickel ore exports in 2014, relaxed the ban, and then reimposed it fully from January 2020. The policy is called downstreaming or hilirisasi: making raw materials into higher-value products domestically.

The results

• Massive investment in nickel smelters, much of it from Chinese companies.
• Indonesia became the world’s dominant producer of refined nickel, accounting for more than half of global supply.
• Exports of nickel products, such as stainless steel and nickel intermediates, soared in value.
• Industrial parks, such as the Morowali park in Sulawesi, grew rapidly.

Controversies

• Environment: smelters are powered largely by new coal plants, and mining has cleared forests and polluted waters.
• Worker safety: deadly accidents at smelters raised concerns.
• Chinese dominance: Chinese firms control much of the industry.
• Trade disputes: the EU challenged the export ban at the WTO, and a panel ruled against Indonesia in 2022. Indonesia appealed, but with the WTO’s Appellate Body not functioning, the case was left unresolved.
• Oversupply: Indonesia’s surge in output pushed global nickel prices down sharply, hurting producers elsewhere.

The bigger question

Many resource-rich countries want to capture more value from their minerals. Indonesia’s approach inspired others, and Indonesia has extended downstreaming ideas to bauxite and other minerals. Economists debate whether export bans are a good tool, compared with incentives, infrastructure and skills.