Building resilience with nickel: mining revenues and subnational spending in Indonesia

Indonesia’s downstream integration into nickel supply chains has produced significant economic and fiscal gains. Yet this has come at a social and environmental cost: nickel-producing regions face heightened exposure to climate-related and environmental risks, including flooding, ecosystem degradation and pollution. To ensure that the growth of the nickel industry contributes to long-term resilience and economic stability, Indonesia will need to address the finite nature of its nickel reserves, the volatility of commodity markets and the many challenges of adapting to climate change.

This report explores the effects of the fiscal windfall from the expansion of Indonesia’s nickel industry. The authors focus on how the growth of the industry can support climate adaptation and resilience at the subnational level.

Core recommendations

Chile, Colombia and Peru all provide valuable lessons in the long-term management of mining revenues. The Government of Indonesia should draw on both these lessons and its own mechanisms for managing revenue in other sectors to:

• Promote data transparency for traceable spending. The Government has piloted subnational climate budget tagging, but full disclosure of spending on climate adaptation and mitigation could enhance accountability.
• Improve coordination on revenue management with and between different types of stakeholders in the private sector, academia and civil society. Strengthening local planning and project appraisal capacity will help ensure that additional revenues translate into effective resilience investments.
• Explore the creation of revenue stabilisation funds to help manage fiscal windfalls during commodity booms. A share of fiscal revenues from the mining sector could be allocated to long-term investments, including those that build resilience.

Together, these three approaches could help create an environment that attracts climate adaptation funding and could improve Indonesia’s resilience in the medium and longer term.

DOI: doi.org/10.21953/researchonline.lse.ac.uk.00140368