Indonesia’s Big Bet: Turning Resource Wealth into Industrial Power
Ron Chalamish | Raymond Hua Ge
As the global hunt for critical minerals intensifies, few countries are better placed to profit than Indonesia. Sitting atop vast reserves of nickel, bauxite, and copper, the archipelago now accounts for nearly a quarter of the world’s mineral output—resources essential to the clean-energy revolution. While Western economies scramble to reduce their strategic reliance on China and Russia for critical minerals, Jakarta has seized the moment with uncharacteristic confidence. A mix of export bans, domestic-processing requirements, and investment incentives is luring billions in foreign capital from firms eager to secure stable supply chains. The government hopes to turn this mineral wealth into the foundation of an industrial economy, moving from ore-dependent to manufacturing powerhouse in a single leap. The challenges are formidable—patchy infrastructure, regulatory uncertainty, environmental strains—but so is the prize. If Indonesia can sustain reform and investment, it will become not just a supplier of the world’s green economy but one of its chief beneficiaries. As the chief provider of several critical minerals, Indonesia is well set to replace other commodity exporters, but by preventing unprocessed commodities from being exported they also have the potential to replace China as the chief supplier of refined minerals in a time where tensions remain high.
Indonesia plans to better benefit from its natural resources by undertaking a process known as downstreaming. The core concept is that by instituting an export ban of unprocessed raw commodities a country can force investors and other states to spend on processing and manufacturing within the country. This means that certain minerals within Indonesia which are in high demand will not be exported raw but rather must be processed and refined within its own borders and perhaps even go higher up the supply chain, directly into manufacturing. While traditionally downstreaming has been a problematic step for many aspiring countries as their customers have sought different suppliers to protect their own workers and industries, Indonesia does not face these issues. Due to Indonesia’s massive mineral output, particularly in certain minerals such as nickel that are so heavily concentrated in Indonesia in terms of quantity and quality, finding any meaningful competing supplier will prove to be difficult for most countries. As for protectionist policies, since much of the developed world had already offshored mineral processing to China the number of workers or industries that would be harmed by purchasing cheap refined metals from Indonesia would be minor. As a result, many of the problems which Indonesia has faced in the past to further industrialize their mineral sector are either gone or have become primarily irrelevant.
The core of Indonesia’s mineral potential rests on three primary factors. The first of these is the demographic advantages that Indonesia possesses; it is a young middle income country with the fourth largest population in the world, making it well suited for certain sectors such as mineral processing. The second factor is the massive amounts of natural resources which the country sits upon, specifically with industrially crucial minerals such as nickel, bauxite, cobalt, and copper. Indonesia is the seventh largest producer of copper, second largest of bauxite, and possesses as much as half of all nickel production in the world, making it a very productive and attractive location for the mining industry. The third factor which cannot be ignored is the increasingly fraught relations between many developed countries with among the most crucial countries in the world for mining and mineral processing, Russia and China. Russia, which is the second largest producer of nickel, and China, which is a major producer of bauxite and other minerals but more crucially was the center for global mineral processing, are both facing increasing pressures domestically and internationally as alternatives are being sought for the economic roles which they have been so important to in the past. In these circumstances Indonesia plays a potentially great role in which they hope to fill both shoes. This is why both the Biden and Trump administrations have sought trade deals with Indonesia to secure supply chains for these minerals. By using its demographic advantages and chokehold on the mineral supply Indonesia can set terms to external actors, forcing them to move increasingly larger elements of their business to Indonesia.
Indonesia has long sought to better take advantage of its mineral production by not only exporting the raw commodity. Despite making approximately 12% of the country’s economy and having taken many steps to drive up the value chain, Indonesia has had many bumps along the way. An export ban in 2014 failed to deliver its promised results as countries looked towards other locations to expand their sources of minerals. Additionally, Indonesia remains reliant on China as its main customer for minerals while also relying on Chinese made processing machinery if they are to downstream. However, it should be noted that since then, tensions between much of the democratic world and China have dramatically risen, leading to a desperation to find new secure sources of minerals. This is further aggravated by Russia’s invasion of Ukraine and the sanctions that fell upon it. During the earlier export ban Russia was still a major exporter of these critical minerals being the second largest producer of nickel, but due to the sanctions and conflict that Russia situated itself it has been mostly driven out of some of these sectors. Indonesia could reconsider its earlier attempts at downstreaming.
Other issues that potentially could have curtailed Indonesia in the past, such as expansive infrastructure and a ready market, have also been for the most part either resolved or in the process of being so. One of the most debilitating problems for Indonesia has been that the majority of this mineral wealth has been found in locations such as Sulawesi and Borneo. These northern islands are far more sparsely populated than the Indonesian heartland based on Java and other southern islands, making them historically underdeveloped and their resources less tapped into. However, Indonesia has long sought to improve its grip on its sprawling state and more recently find a new location for a new capital for the country. The new location chosen to replace the old capital, Jakarta, has turned out to be in eastern Borneo, deliberately chosen for its proximity to mineral deposits on that island and nearby Sulawesi, providing a massive boost for capital and infrastructure. Despite the project facing hurdles, especially with its biggest supporter former President Jokowi stepping down from his previous role, billions have already been spent to build and expand the infrastructure in the region, easing the way for mining and processing development. The other hurdle of a ready market is even more easily resolved. Resource demands for the green transition have been mostly focused on rare earths in the media, and while this is something that Indonesia has in abundance as well, other more traditional materials such as copper and nickel are going to be needed in far greater quantities for the green transition. Copper is already expected to rise by 40% in demand while nickel demand will rise by 60-70%, although this can be even larger. With Indonesia’s dominance in critical minerals such as nickel, anyone who wishes to enact the green transition or even modernize their already existing energy infrastructure will have to take Indonesia’s down-streaming concerns seriously. This also includes Indonesia, which is already seeking to compete against China in production of batteries and other value-added industries that are dependent on Indonesian minerals with the help of investment from South Korea and other countries. Thus, a growing domestic and international market is essentially guaranteed as demand ramps up, and Indonesia has the added potential of being the lowest cost supplier for many elements within the green transition.
Indonesia’s mineral boom may prove to be either the foundation of a new industrial era or another chapter in the long saga of resource-fueled ambition. The government’s bid to leap from ore to industry reflects both newfound confidence and hard economic logic: in a world racing toward electrification, those who control the metals control the means of progress. Yet success will hinge on Jakarta’s ability to balance its domestic infrastructure and policy with global integration, and to turn infrastructure and governance from bottlenecks into enablers. The world’s factories are hungry, and Indonesia’s mines are rich, but whether the archipelago becomes a cornerstone of the green economy or merely its quarry will depend on how deftly it manages the next decade.
Ron Chalamish is a senior at Columbia University, where he majors in History. An international student, he brings a global perspective to his academic work and campus involvement. He serves as Co-President of the Alexander Hamilton Society at Columbia, helping lead discussions on foreign policy and international affairs.