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Mission possible: Climbing up the value chain
The International Energy Agency predicts that to meet the Paris Agreement goals, battery nickel supply must increase 19 times by 2040.
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Nickel ore is smelted at a PT Vale Indonesia smelter in this file photo. (JP/Ruslan Sangadji)
“Indonesia does its best to scare off investment”, that was the title of a 2019 op-ed in one of the most prominent global media outlets. The author contended that the impending nickel ore export ban that our government planned to impose in early 2020 was tantamount to “insanity”. In a manner reminiscent of the old colonial world, he concluded that “relatively remote commodity exporters are better off just digging up rocks and sending them overseas”.
As brazen as the author was, he was not alone. Skepticism abounded when the Indonesian government decided to compel investors to add value to our mineral resources through the ore export ban. Many zealously defended the sanctity of the free market and its comparative advantage mantra. They argued that exporting raw materials was the most efficient way for Indonesia to participate in the global value chain.
In other words, it is who we are as a nation. No matter how well intentioned, any policy that seeks to alter our comparative advantage is misguided at best and catastrophic at worst. The foolhardy policy will unleash a devastating backlash as foreign investors will turn their back on such a protectionist inward-looking country.
Imagine the detractors’ consternation when they look at where we are today. The policy contributed to Indonesia’s outstanding successes in attracting critical investors and moving up its resources value chain. Now, in addition to coal and palm oil, Indonesia has emerged as one of the main producers and exporters of stainless steel, one of nickel’s intermediate products.
In 2021, Indonesia was slated to be the second-largest stainless-steel producer in the world with production totaling 4.5 million tons. Last year, its steel exports soared to almost US$21 billion, which marked a 10-fold increase in just five years.
This massive increase in steel production is inexorably linked to the government policy of banning nickel ore exports. Indonesia has a quarter of the global nickel reserves, the largest in the world. Instead of pushing investors away, the policy succeeded in encouraging major investors to rethink the merit of establishing production facilities in Indonesia and eventually nudged them to do so.
Major investors have flocked into the country. For instance, Chinese companies have invested around $30 billion along Indonesia’s nickel value chain. In 2014 there were only two nickel smelters in Indonesia, in 2020 there were 13.
