For a country of 270mn people that is also the world’s third-largest democracy, Indonesia doesn’t get much airtime outside of the Asia-Pacific region. But it plays a crucial role in supplying multiple global commodities, from copper and coal to palm oil.
This was evident last month when a brief ban on palm oil exports sent global prices soaring, further exacerbating inflation worries for some of the world’s poorest people. But this kind of rushed-and-reversed policymaking is normal under president Joko Widodo (known as Jokowi), who has been in office since 2014.
I was a freelance reporter in the capital when Jokowi, then the popular mayor of Jakarta, made his run to the presidential palace. Comparisons with Barack Obama were not far off of the mark, given his charisma and relative youth at the time.
But plenty of steel lies beneath his charm: as president he has not shied away from populist calls that have rattled markets. The shifting goals of a nickel ore export ban (forcing miners to invest in local smelting operations) between 2017 and 2020 smashed investment in operations there, especially when Jokowi brought forward a deadline for smelters to be in operation by two years. Nickel is a key battery metal, used in the cathodes of lithium-ion batteries.
The country has been very successful in its push for greater beneficiation at home: “While the export ban meant losing export earnings, jobs, and government revenues in the short term, Indonesia has won its bet on attracting investment in nickel processing and thereby adding value to its nickel resources in the long term,” says Isabelle Huber at the Centre for Strategic and International Studies (CSIS). This push will continue with battery factories and potentially car plants, so Indonesia will remain a key part of automakers' supply chains.
A long drawn out fight with Freeport-McMoRan (US:FCX) is also indicative of the government’s ability to take its share. It has resulted in the Grasberg mine being owned 51 per cent by the state, while the miner has spent $3bn (£2.4bn) on a copper smelter because of the ore export ban.
While Indonesia has done well out of putting in place tough rules that guarantee jobs and taxes remain in the country, it has also brought along companies – and countries – that are happy to front up more cash and play by these rules. Namely, China.
Huber estimates Chinese companies have put up $30bn in investment in the nickel supply chain while other Asian groups and western firms deemed it too risky. Forking out might have been the safer bet, given companies that quit rarely get a second chance in Indonesia.
