Indonesia Expands Industrial Base Through Nickel Strategy
Indonesia’s industrialisation push accelerates as the government deepens nickel downstreaming, attracting EV and battery investments from China and Korea. The policy strengthens exports and jobs but raises questions about environmental costs and long-term diversification capacity.
Indonesia is turning its mineral wealth into industrial leverage. The government’s aggressive downstreaming policy for nickel—the cornerstone of global electric-vehicle supply chains—has triggered a second investment wave worth more than US$20 billion, dominated by Chinese, Korean, and domestic joint ventures. By mandating local processing and restricting raw-ore exports since 2020, Jakarta has transformed what was once a volatile commodity sector into a manufacturing magnet anchoring the country’s growth model.
Nickel-based stainless-steel output has surged nearly 30 % year-on-year, while battery-precursor production capacity more than doubled, feeding the fast-expanding EV markets of China and the West. The industrial parks of Morowali and Weda Bay now function as full-chain ecosystems—refining, smelting, and cathode production—linking directly to regional ports and logistics corridors. Officials project manufacturing to contribute 21 % of GDP by 2026, up from 19 % in 2024, underscoring the shift from resource exporter to value-added producer.
Yet the boom brings macro-trade-offs. Energy intensity and environmental degradation are rising: smelters consume vast coal-based power, offsetting part of Indonesia’s net-zero commitments. Analysts warn that unless renewable integration accelerates, the carbon footprint of “green” metals could undermine export credibility. Additionally, over-reliance on one commodity exposes fiscal and external accounts to price swings; nickel prices on the London Metal Exchange have fallen 12 % this year, squeezing margins and royalties.
Financially, the inflow wave supports the rupiah (USDIDR) and stabilises sovereign spreads, even as imported capital goods widen the trade deficit temporarily. The Jakarta Composite Index (JKSE) has gained about 4 % year-to-date, led by mining and industrial conglomerates. Bank Indonesia remains cautious, balancing currency stability with liquidity support to prevent overheating in construction and energy demand.
Looking forward, Jakarta aims to replicate the nickel model in copper, bauxite, and rare-earth processing to diversify industrial risk. If successful, Indonesia could cement its status as Southeast Asia’s production hub for green-transition materials. But the sustainability equation—energy mix, labour standards, and environmental oversight—will determine whether the strategy endures or merely cycles with commodity tides.
