Resource Control — How Indonesia Kept Value Within the Country

For decades, most resource-rich countries followed a straightforward economic model: extract raw materials, export them, collect royalties, and fund the state with the earnings. The approach generated revenue quickly, but it rarely translated into lasting industrial position. Earnings arrived once, while most of the value was created elsewhere.

This structure still defines much of global resource trade. Zambia exports copper as concentrate, refined later in China and transformed into wire and industrial components. The Democratic Republic of Congo produces roughly 70 percent of global cobalt supply, but most refining occurs offshore before the metal enters battery supply chains. Chile and Argentina extract lithium from brine deposits, yet battery-grade processing and cell manufacturing largely take place in East Asia and the United States.

In each case, the producing country earns from extraction alone. Industrial conversion — where margins, skills, and strategic leverage accumulate — happens elsewhere. The logic is practical: processing requires capital, power, infrastructure, and time. Raw exports generate immediate revenue. The state receives fast income but remains largely absent from the value chain.

Indonesia followed this same model with nickel until recently.

Indonesia's Starting Position

Indonesia holds some of the world's largest nickel reserves, concentrated in Sulawesi, Maluku, and parts of Kalimantan. For years, laterite ore was mined inland, transported to coastal ports, and shipped abroad. Processing took place primarily in China, Japan, and South Korea, where smelters converted Indonesian ore into ferronickel or nickel matte for stainless-steel production.

Indonesia earned export revenue from ore sales. Smelting, refining, and manufacturing occurred elsewhere.

As global demand for nickel increased — first through stainless steel, later through electric-vehicle batteries — this structure became increasingly difficult to justify. Indonesia was exporting one of the world's most strategic industrial metals in its least valuable form.

The Policy Break

In 2014, Indonesia banned the export of unprocessed nickel ore.

The regulation was explicit. Mining could continue, but exports were permitted only after domestic processing. The rule applied to both domestic and foreign operators. While transition mechanisms were allowed, the direction was fixed: access to Indonesian nickel would require processing inside Indonesia.

The policy did not eliminate foreign capital. It redirected it.

Companies that had previously imported Indonesian ore — primarily from China, Japan, and South Korea — began investing in processing capacity inside Indonesia. Supply security shifted from offshore refining toward onshore smelting. Incentives across the supply chain changed. Instead of competing for raw ore exports, firms competed to build processing capacity within Indonesia.

Building Processing Capacity

Nickel processing at scale needs integrated infrastructure — power plants, ports, transport links, and resident workers. Indonesia built this capacity through large industrial parks.

The largest is the Indonesia Morowali Industrial Park in Central Sulawesi. Morowali sits on Sulawesi's eastern coast, with nickel mines located inland at short distance. Deep-water access allows processed metal to be loaded directly onto bulk vessels for export. The site offered sufficient land for large-scale industrial development.

Construction began in 2013. By 2024, the park covered more than 2,000 hectares and integrated multiple nickel smelters, stainless-steel and ferrochrome production, dedicated captive power facilities, a deep-water port, worker housing, and internal transport links connecting mines, processing plants, and shipping terminals.

Similar complexes followed. Weda Bay in North Maluku and the Indonesia Weda Bay Industrial Park in Halmahera adopted the same structure: nearby mines, on-site processing, integrated infrastructure, and direct port access.

These parks didn't emerge organically. Tsingshan began construction at Morowali in 2013, ahead of the 2014 ban. The broader expansion across multiple industrial parks from 2014 through 2023 was financed and executed through a coordinated network of Chinese firms and state-linked institutions.

The Chinese System

Tsingshan Holding Group anchors this network. Although privately owned, the company operates with close state alignment and is the world's largest stainless-steel producer. At Morowali, Tsingshan controls the full production chain, from mine development through smelting to stainless-steel output.

Specialized Chinese firms operate alongside it. CNGR Advanced Material and Huayou Cobalt run High-Pressure Acid Leaching (HPAL) facilities that produce battery-grade nickel inputs. These companies brought proprietary processing technology that Indonesia lacked and retain operational control over these plants.

Infrastructure and finance developed in parallel. Chinese firms built and manage port facilities, logistics systems, and captive power plants. Policy banks such as China Development Bank and ICBC provided long-term project financing and trade credit. Political and operational risk was partially absorbed through state-backed insurance.

Together, this structure allowed Chinese firms to invest at scale while keeping capital costs and risk exposure contained. The integrated industrial parks and rapid build-out that reshaped Indonesia's nickel sector were financed and constructed primarily through this coordinated system.

Indonesia also pursued partnerships with Japanese and Korean firms. Sumitomo Metal Mining operates the Weda Bay HPAL project in partnership with Eramet, using a joint-venture structure that involves non-Chinese capital. South Korea's POSCO has explored stainless-steel and battery-material investments. These projects, however, advanced more slowly and at smaller volumes than Chinese operations.

Enforcing the Shift

The export ban did not take effect overnight.

When the policy was announced, mining companies and foreign buyers argued that Indonesia lacked sufficient smelting capacity to absorb domestic output. An immediate ban would have halted production and disrupted export revenue.

Enforcement was therefore phased. Between 2017 and 2019, limited quota-based ore exports were permitted while smelters and industrial parks were under construction. Production continued without reversing policy direction.

By 2020, enough capacity had come online for the ban to be reinstated in full. Limited exceptions persisted under tightly controlled quotas into 2023 and 2024, but volumes were marginal relative to processed exports.

From 2023 onward, the policy focus evolved again. Facing global oversupply, the government reduced mining quotas, increased royalty rates, and paused approvals for new processing capacity. The objective shifted from rapid expansion toward consolidation and downstream control.

What Changed in Economic Terms

Before 2014, Indonesia exported nickel almost entirely as raw ore, priced at roughly $50–70 per tonne. Total annual nickel exports were approximately $6 billion. From that, the state earned mainly through royalties of 2 to 5 percent, plus limited corporate tax from mining operations. In total, Indonesia retained roughly $400–600 million per year.

After the export ban, the same nickel left Indonesia as processed products — ferronickel, stainless steel, and battery materials. As a result, the scale and composition of exports changed. By 2022, total nickel and nickel-based exports had reached approximately $30 billion.

More important than export size was what Indonesia kept. From these higher-value exports, Indonesia retained an estimated $10–15 billion annually, through corporate tax on processing operations, wages across mining and smelting, export duties, and royalties applied to a higher-value base.

The difference is structural.
Before the ban, Indonesia retained less than 10 percent of export value. After processing moved onshore, it retained roughly 33 to 50 percent. The policy did not change the geology. It changed where value was captured.

Fiscal analysts and policy institutions note that these figures reflect gross economic capture, not immediate fiscal receipts. To attract the capital required for large-scale smelting and processing, Indonesia granted “pioneer status” to many projects, including corporate tax holidays of up to 20 years.

As a result, near-term tax inflows are lower than headline retention figures suggest. In effect, the state exchanged short-term fiscal revenue for long-term industrial capacity, infrastructure, and supply-chain positioning.

Foreign firms still operate most facilities, and core technology remains externally controlled. The change is location. Processing now occurs inside Indonesia, where economic activity generates employment, builds infrastructure, and becomes taxable over time.

Phase Two — Battery Manufacturing

Indonesia is not stopping at processing. The same strategy that redirected smelting operations inland is now being applied one step further: battery manufacturing.

The logic mirrors the 2014 ore export ban. Indonesia holds nickel. Battery and electric-vehicle manufacturers need it. Access can be negotiated in exchange for onshore investment.

By the mid-2020s, several major battery producers had committed to integrated facilities in Indonesia, linking processed nickel directly to battery cell production.

LG Energy Solution, in partnership with Hyundai Motor Group, is building a large battery complex in Karawang, West Java. The project is structured as a vertically integrated operation, with nickel sulfate feeding into cathode precursor production, battery cell assembly, and electric-vehicle manufacturing. Indonesia negotiated the investment by tying nickel access to domestic employment targets, partial Indonesian ownership, and technology participation. LG agreed in exchange for long-term nickel sulfate supply from Indonesian HPAL plants.

Contemporary Amperex Technology (CATL), the world's largest battery manufacturer, committed to a similar structure in North Maluku. Its project integrates nearby nickel processing at Weda Bay with cathode material production and battery cell manufacturing on a single site. For CATL, the investment secures upstream nickel supply. For Indonesia, it embeds the country more deeply into global electric-vehicle supply chains.

Geopolitical Leverage and Constraints

Indonesia's position as the world's dominant source of processed nickel creates leverage in negotiations with governments and manufacturers, but that leverage is constrained by structural dependencies.

China remains Indonesia's largest investor and primary export destination. Chinese firms operate most smelters and HPAL plants. The relationship is mutually dependent. Indonesia adjusts export quotas and royalty rates to push Chinese firms toward higher-value activity. Chinese companies respond by expanding capacity but retain control over technology and operations.

The United States presents a different challenge. The Inflation Reduction Act excludes battery materials tied to "foreign entities of concern" from EV subsidies. Because much Indonesian nickel is processed by Chinese firms, its IRA eligibility remains uncertain. Indonesia is negotiating a Critical Minerals Agreement with Washington, arguing that production on Indonesian soil should qualify regardless of operator nationality. Talks remain ongoing.

Japan and South Korea operate smaller projects with non-Chinese capital, diversifying Indonesia's operator base. Their scale, however, remains limited. They provide balance, not replacement.

Logistics infrastructure remains under foreign control. Deep-water terminals at Morowali and Weda Bay are operated by the same firms that run processing facilities. Most nickel leaves on Chinese-chartered bulk carriers. If geopolitical tensions escalate, Indonesia's ability to redirect exports depends on cooperation from foreign-controlled networks. State-owned shipping firms have announced plans to expand capacity. Progress has been slow.

Technology transfer remains limited. HPAL processing is controlled by a small group of firms, regardless of nationality. Core process design and intellectual property remain foreign-owned. Indonesia secured the location of processing, not the systems that enable it. Industrial activity occurs inside the country—where it can be taxed and regulated—but operational control remains external.

Trade-Offs and Constraints

The transition carried costs.

Nickel smelting is energy-intensive. Dedicated power facilities were built alongside processing zones, increasing emissions and placing pressure on surrounding air, water, and coastal environments.

Operational control concentrated. Foreign firms brought capital and technical expertise but retained influence over technology and supply chains. Indonesian participation expanded primarily through construction, logistics, services, and minority ownership.

Rapid industrialization reshaped local communities. Population growth outpaced housing, healthcare, and public services in several regions. Labor disputes and social tensions emerged intermittently.

These outcomes reflect the trade-offs inherent in building heavy industry at speed.

Conclusion

Indonesia didn't change the geology of nickel. It changed the rules governing access.

By 2025, nickel no longer leaves the country as ore — it leaves as processed metal, feeding stainless-steel mills and battery plants across Asia. Foreign firms still dominate operations, but processing now occurs inside Indonesia, where it can be taxed, regulated, and tied to infrastructure development.

The policy worked not because Indonesia controlled the technology, but because it controlled the resource. In 2013, Indonesia exported roughly $6 billion worth of nickel, almost entirely as raw ore. By 2022, that figure had reached $30 billion in processed products. The country retained an estimated $400–600 million annually before the ban; by 2022, that had grown to $10–15 billion.

That difference — between owning the input and owning the process — defines what resource economies can realistically achieve. Resources alone do not create industrial economies. Systems do.