Playbook for Critical Mineral Prosperity: Indonesia’s Rise to Global Prominence

Global Economic (dis)Order

The global economic order, which has barely evolved since the colonial era, has it that the owner of the processing phase shall reap the lion’s share of the profits. This has propagated uneven international development. In this system, owning the rules of engagement (processing capability) is more important than being talented (abundance of natural resources). The post-colonial era has seen the nations of the Global South continue to serve as sources of cheap feedstock for the processing plants of the Global North. Nevermind that it is more efficient and cheaper to co-locate extraction and processing. The transportation of raw materials from the Global South to the Global North at the peril of the former is an extractive practice that was developed with the intention of exploitation and that extractive nature has not kept up with changing times. Indonesia is successfully challenging this economic order through its nickel industry. Nickel is a critical component to a number of lithium-ion battery chemistries (see: https://rechargeable.beehiiv.com/p/battery-knowwhatwhy?_gl=1*wbb3xu*_gcl_au*MzUyMzI3NzI1LjE2OTQyNzgxNzY.).

Nickel Mining History

Indonesia is an island country of around 278 million people located in SouthEast Asia. Nickel deposits were discovered in Indonesia by the Dutch colonizers and mining began in 1901. After independence, Indonesia attracted foreign direct investment in its mining industry and had become a leading global producer of nickel by the end of the 20th century. Indonesia has 127 out of the 186 nickel mines in the world with Sulawesi and Maluku as the country’s main nickel producing regions. Concerned that the country was not benefiting fully from the extraction of its nickel and that its nickel reserves were getting depleted fast, the Indonesian government imposed an export ban on unprocessed nickel in 2010¹. This policy marked a major transformation of Indonesia’s nickel industry and has consequently propelled Indonesia to its rightful position of influence in the nickel supply chain. The export ban led to a significant expansion of Indonesia’s nickel processing sector and a thirty-fold increase in the value of Indonesia’s nickel products exports between 2015 ($1 billion USD) and 2022 ($30 billion USD).

The Playbook¹

Have you recently discovered a great fortune (critical mineral deposits) in your backyard? (I am looking at you the DRC, Zimbabwe, Chile, Argentina and Bolivia). You probably have grand plans for your mineral reserves. Guess what? Others have even bigger plans and deeper pockets (China, the US and the EU). Completely justified are your fears that you are not going to claim your rightful position and profits in these treacherous supply chains! Fear not! In fact, you are in great luck! There’s a perfect play book just for you (Indonesia’s nickel industry)! Yes, Indonesia is your new best friend.

1. Create an ambitious goal: a noble national industrial agenda is a good start. It does not get better than pursuing value-added production (all for the national good)!

2. Ban the exportation of unprocessed minerals: this will send a simple and clear message that will get foreign investment listening with both ears (and complaining bitterly).

3. Create a domestic processing requirement: this is your master stroke! Execute to perfection! Only processed minerals can leave the country. Foreign investment has to … invest in processing or risk missing out on the profits to be gained!

4. Create incentives: provide incentives such as grace period for the export ban, preferential licensing and tax cuts for the earliest processing investors. You know the drill - stick quickly followed by carrot!

5. Cultivate contestation and local governance: media, environmental and civil rights groups are the friends who will push you to ensure profits trickle down to the ordinary citizen. Remember that your economy is just as good as the condition of the working class. The civil society and media will also do a fine job of keeping foreign investors on their toes for any violations.

6. Worried that your mineral reserves are getting depleted at a frustratingly high rate? Worry not! Tighten regulations - move the export ban even farther downstream, that is, closer to finished products.

7. Diversify participants: this will create a wide market for you thus preventing the monopolization of your products by any one investor. Admittedly, Indonesia has not done a very good job at this given China’s current dominance in Indonesia’s nickel industry. However, this knowledge will make you better prepared to jump the hoop when you get there.

8. Scheming enemies: your enemies will come after you with their most potent tool - the World Trade Organization (WTO). You will be accused of protectionism and so forth. No problem though! By the time the WTO gets round to your case, your position in the industry will be irreversible!

Shortfalls of the Economic Boom^2,3,4

Expanding downstream activities, thus revenue, has not come without cost.

1. Water pollution: insufficient regulations for toxic waste management have enabled dumping of processing waste into waterways thereby harming aquatic life and the fishing industry.

2. Increasing greenhouse gas emissions: nickel processing plants rely on coal-fired power plants that emit about 58.6 tons of CO2-equivalent per ton of nickel equivalent. The Indonesia Morowali Industrial Park, a top nickel producer, has announced plans to install 500 MW of Solar PV generation to reduce its carbon footprint. The elimination from the transportation system of vehicles powered by fossil fuels has also been discussed.

3. Deforestation: expanding mines are claiming rainforests with about 700,000 hectares of rainforests already allocated to mining companies.

Not to downplay the shortfalls listed above, similar outcomes could have been expected regardless of the actor in the driving seat. Despite the gravity of the concerns, Indonesians have reason to be optimistic because:

1. Indonesia has real pull in shaping the future of its nickel industry

2. The Indonesian government is expressing political will in addressing environmental pollution

3. Environmental groups and civil societies are piling pressure on the government to address concerns

Parting Shot

References:

1. https://carnegieendowment.org/2023/04/11/how-indonesia-used-chinese-industrial-investments-to-turn-nickel-into-new-gold-pub-89500

2. https://www.rainforest-rescue.org/updates/10856/open-letter-to-elon-musk-from-indonesia-no-to-nickel-mining-for-evs#:~:text=%22We%20are%20deeply%20concerned%20as,the%20production%20chain%2C%22%20they%20write

3. https://www.japantimes.co.jp/news/2023/07/24/asia-pacific/indonesia-nickel-mine-green-steps/

4. https://www.reuters.com/business/sustainable-business/indonesian-president-pledges-nickel-mining-clean-up-amid-ev-led-boom-2023-03-30/