In Joko Widodo’s final state of the nation address last week, he reflected on his major achievements of the past decade as Indonesia’s president. Resource nationalism featured prominently.
Jokowi, as the president is widely known, described how, under his leadership, “we took back our assets that for decades had been exploited by foreigners … and only benefitted foreigners”. He spoke about his government’s commitment to the downstream development of minerals, even when other countries “sued, opposed and tried to thwart” Indonesia’s efforts.
When Jokowi took office in 2014, he inherited a range of nationalist laws and regulations. His predecessor, Susilo Bambang Yudhoyono, had introduced new rules requiring foreign miners to divest 51 per cent of their assets to local firms after ten years of production, and a controversial ban on the export of raw nickel ores came into effect in early 2014. Jokowi was quick to see both political and economic benefits to embracing the nationalist position.
During his first term, Jokowi focused on localising the mining sector. Most of Indonesia’s coal mines were already in the hands of big domestic firms as Jokowi began his first term. But he helped arrange the acquisition of Newmont’s Batu Hijau mine by Medco, owned by the late Indonesian tycoon and Jokowi ally, Arifin Panigoro. Jokowi was equally determined to put Freeport’s infamous Grasberg mine into Indonesian hands before his 2019 re-election bid. At the time, the president mulled another private-sector takeover like Newmont, but ultimately decided to establish a new state-owned holding company, MIND ID, which could leverage enough capital to take a 51 per cent share in the world’s largest gold and copper mine. Meanwhile, a range of foreign oil and gas contracts expired during Jokowi’s tenure too, and he transferred most (including strategic blocks such as Rokan) to state-owned oil and gas company, Pertamina.
This program of nationalisation has not had the dire economic consequences that many foreign experts predicted. For example, the volume of Indonesia’s copper exports reached record highs in 2022, and while oil production is in decline, the sector has been on this downward trajectory for decades. Instead, Jokowi’s commitment to resource nationalism enjoyed broad popular approval, and won favour with sections of the country’s powerful mining lobby, too.
Much to Jokowi’s frustration, there is growing international attention on the industry’s devastating impact upon waterways and forests.
Jokowi’s final term has focused on industrialising mineral resources. After years of policy flipflops and patchy downstream investment, Jokowi’s government reinstated a Yudhoyono-era ban on nickel exports in 2020. From this point, the sector grew at an eye-watering pace. The ban forced nickel importers, primarily from China, to invest in a downstream smelting sector in Indonesia. Within just a few years, sleepy rural towns in Maluku and Sulawesi were transformed into sprawling industrial hubs. The value of Indonesia’s nickel exports increased more than ten-fold in the decade from 2013, reaching US$30 billion in 2022.
Processed nickel exports improved the country’s balance of trade and helped move Indonesia from lower to upper middle-income status in 2023 – a major achievement for Jokowi as his term finishes. While still primarily feeding Asia’s steel industries, the government hopes Indonesia can take advantage of growing and long-term demand for nickel products in EV battery production, and become a centre for EV manufacturing in Southeast Asia.
On many measures, downstreaming has been a success for Jokowi. Unlike Yudhoyono, Jokowi does not prevaricate or delay; instead, his approach (across a range of sectors) has been to bypass or override regulatory constraints in pursuit of fast results. But this method generates problems. Policymakers inside the Indonesian government are now grappling to manage the “externalities” of the country’s nickel smelting industry.
Much to Jokowi’s frustration, there is growing international attention on the industry’s devastating impact upon waterways and forests. The nickel industry’s dependence on coal-fired power plants is driving up carbon emissions. And while new smelters have created tens of thousands of jobs in Sulawesi and North Maluku, stories continue to emerge of dangerous working conditions, and high wages are undermined by inflated living costs inside the industrial parks.
The industry is also highly dependent on Chinese firms and banks. While a small number of Indonesian tycoons are investing in nickel industrial parks, the speed at which the sector has grown since 2014 is almost entirely the work of a small number of Chinese companies (led by Tsingshan) seeking to lock-in supply for stainless steel production back home. Indonesia’s leaders are now worried about over-reliance on China and are developing ways to diversify sources of investment and reduce Chinese ownership.
Finally, the sector is characterised by narrow corridors of development. Much private investment has flowed into just a few districts in Sulawesi and North Maluku, and within these districts development has been largely isolated to industrial parks that are fenced-in both geographically and economically. They appear to exist as isolated pockets of growth. For example, in 2023, Morowali district in Central Sulawesi, home to the massive Morowali Industrial Park (owned mostly by Tsingshan), boasted a regional growth rate of 20 per cent, four times the national GDP. But growth across other parts of the province has stagnated over the last five years, suggesting extractive-led industrialisation at nickel sites may be pulling economic activity away from other districts.
To be sure, the government’s plan is for nickel smelters to connect to a new domestic battery manufacturing industry, which would expand the industry’s economic footprint much further. But – ironically – for now the sector is developing in ways that look a lot like the sort of foreign-dominated enclaves that resource nationalist efforts strive to overcome.
Jokowi will leave office in October having put most of the country’s legacy mines and expiring oil and gas blocks into the hands of domestic tycoons and state-owned firms. His government has also built a downstream industry that makes Indonesia the world’s largest producer, not of raw nickel, but nickel products. The president kept his promise to both localise and industrialise the country’s mining resources. But the broader developmental benefits of Jokowi’s resource nationalist legacy are mixed, and the incoming government inherits the complex task of building a cleaner and more equitable resource sector.
