How Indonesia’s ban on raw nickel exports provides lessons for fiscal and economic policy in the low-carbon transition

Indonesia is pursuing a national strategic project that draws on its vast nickel resources to strengthen domestic industry and capture greater value from global supply chains. Nickel is critical to the global energy transition due to its use in technologies such as batteries, wind turbines and solar panels. In 2020, the Indonesian government accelerated the strategy by reinstating a ban on exports of nickel ore.

This report provides insights into the impact of Indonesia’s export ban on economic development, fiscal planning, environmental sustainability and social cohesion. It explores the challenges the country faces in the nickel market linked to oligopsony, price fluctuations, global competition, investment dynamics and a public backlash centred on environmental and biodiversity concerns. The authors show why the long-term success of Indonesia’s strategic project will depend on its capacity to manage environmental and social trade-offs, reduce its vulnerabilities and build a more sustainable growth model. The report also draws out lessons for state intervention and the design of economic policy in other emerging markets and developing economies that have a wealth of natural resources.

Core findings

• The export ban catalysed investment in production capacity and pushed Indonesia’s policy objectives towards deeper integration into supply chains for electric vehicle batteries.
• Indonesia’s shift towards exports of higher-value nickel products has helped it sustain a trade surplus, as well as higher government revenues at both the national and subnational levels.
• Major nickel-producing regions have experienced faster GDP growth than the national average, but these areas still make a relatively small contribution to national GDP and revenues.
• While the export ban has allowed Indonesia to move along the nickel supply chain, it has also effectively created an oligopsony in which Chinese-Indonesian smelting consortia can dictate the market price and reduce the profit margins of mining companies in the country.
• Indonesia faces a major policy challenge in how to sustain growth following a commodity boom while remaining on a sustainable development pathway.
• Indonesia’s experience shows that export restrictions can create space for industrial development and fiscal gains, but these benefits need to be balanced with strong governance, credible environmental safeguards and careful planning for adverse shocks. Different minerals, different places and different institutional contexts require different approaches.
• Priority areas for further policy discussion and research include: revenue management during resource booms; industrial policy design and state intervention; environmental safeguards and decarbonisation of the value chain; labour and community outcomes from industrial development; and development beyond economic growth in terms of human capital, inequality reduction and environmental sustainability.