Next door in the Philippines, policymakers are carefully watching how Indonesia navigates these challenges as it seeks to become a nickel powerhouse itself.

Nickel Boom — and Bust?

Indonesia has emerged as a global nickel hub after former President Joko Widodo, known as Jokowi, attracted billions of dollars of Chinese investment into “downstreaming,” or adding domestic capabilities to process raw ore into higher-grade nickel, over the last decade after Indonesia put in place a ban on exports of raw minerals. These processing plants have benefitted from cheap labor and energy as well as readily available raw materials. 

China’s technological edge in processing and conversion technology, as well as its large-scale domestic push for steel and EV batteries, has made it the only international partner willing to invest the capital needed to process nickel inside Indonesia. Today, a majority of Indonesia’s nickel mines, processing sites and supply deals are controlled by Chinese groups.  

This has led to nickel production increasing fourfold over the last decade — but not without criticism. Nickel production in Indonesia is largely powered by coal-powered energy, giving it higher emissions per ton than rival producers. Rapid expansion of mining has also degraded rainforests. 

And now, with Indonesia flooding the nickel market, the price of the metal has fallen more than 40 percent over the last year. This has meant that production outside of Indonesia has taken a massive hit, with some nickel mines in western Australia being forced to shutter doors. The scale of the collapse has only strengthened Indonesia’s control of the nickel market, which has reignited concerns among U.S. and European policymakers about China’s control over key commodities. 

Nickel Enters Indonesian Politics

Nickel has quickly become a bellwether for Indonesia’s economic future and has leapt into the public consciousness. In January, for the first time ever, nickel featured as an issue on the presidential debate stage. Recently elected president, Prabowo Subianto, vowed to continue Jokowi’s nickel policies. One of his two opponents, former Jakarta governor Anies Baswedan, argued that only Chinese companies have reaped most of the benefits, and local communities have had their land stolen in the name of nickel production.  

Environment and Conflict Concerns

While there are mounting issues with nickel in the market, development of nickel extraction and processing sites continue apace in the country. Sulawesi, a large and lush region of Indonesia east of Borneo, has been the epicenter of the rush. Many nickel companies, including Merdeka Battery Materials (MBMA) — a subsidiary of the Indonesian metal and mining company Merdeka Copper Gold — have made this part of the country their home base to become “one of the main suppliers of raw materials for global electric vehicle production.” MBMA owns many mines and processing plants in the area — often with the support of Chinese investors. For example, the Indonesia Konawe Industrial Park industrial park is a joint venture between MBMA and Chinese firm Tsingshan Holding Group, the world’s top nickel producer. And in 2022, Chinese battery manufacturer CATL, the world’s largest EV battery maker, bought a strategic 5 percent share in Merdeka Copper Gold. 

This expansion has not been without tension.  

As early as the mid-2010s, protests over nickel mining have erupted in different parts of Sulawesi. In 2015, for example, villagers from the tiny island of Wawonii set trucks and other heavy equipment belonging to the company PT DBM on fire in protest. In 2019, in the face of mining company PT Gema Kreasi Perdana’s attempts to expand, villagers led demonstrations, riots, and in some instances, armed clashes.

In southwest Sulawesi, indigenous farmers near the MBMA-controlled Sulawesi Cahaya Mineral mine have been systematically evicted from the land in order to make way for extraction and processing sites since 2022. To complicate matters, many of those evicted do not have land tenure recognized by the Indonesian government, so have little recourse. Still, local leaders have complaints of human rights violations to the National Commission of Human Rights and to the national parliament. 

Land grabs in the name of nickel, along with sometimes paltry one-time payments, have been widespread. This means that today, Sulawesi’s once forested highlands have started to look like industrial zones, littered with pockmarks and teeming with red, sludge-like water. 

Wither an “EV Battery” Trade Deal?

Nickel has become increasingly important in the push for a modern green economy — and Indonesia wants to reap the benefits. Instead, it has sown discord both in local communities and in the larger nickel markets, while also enabling Chinese control over an important segment of the economy. Now, with Prabowo elected as Indonesia’s next president, nickel-related tensions may only be on the rise. 

Nickel is also a key issue in U.S.-Indonesia relations, topping Jokowi’s list of issues to discuss with U.S. officials and business leaders during his November 2023 visit to Washington. While the two countries continue to be in talks about a potential free-trade deal on “EV minerals,” including nickel, officials on both sides would like to see Indonesian nickel in supply chains in alignment with the Inflation Reduction Act (IRA), which contains specific environmental and human rights stipulations for critical mineral suppliers. However, some critics believe that Indonesia’s nickel comes with inexcusable baggage — including weak labor rights, lack of community engagement and high emissions — that does not justify a deal.  

At present, a U.S.-Indonesia “EV battery” free trade deal has yet to materialize.
In the Philippines, another Southeast Asian country richly endowed with nickel deposits, policymakers are drawing lessons from how Indonesia navigates these issues. The Philippines does not have a ban on raw mineral exports like Indonesia, so it currently sees its raw nickel shipped straight to China. The Philippines seeks investment in domestic downstreaming, but is extremely wary of Chinese investment in critical economic sectors due to the current administration’s geopolitical leanings. Much like during Jokowi’s visit to Washington, critical minerals have likely had high billing during this month’s U. S. presidential trade and investment delegation visit to the Philippines — and will continue to do so when Philippine President Ferdinand “Bongbong” Marcos visits Washington in April.

The Way Ahead

In Indonesia, Prabowo will likely continue to work hard to strike a deal with the United States. The question will be whether U.S.-backed ethical and environmental standards and the incentives embedded in the IRA will be enough to mitigate domestic nickel tensions. The United States could make moves now to ensure that these pledges are made into reality.

First, the United States can ramp up investments in Indonesia via the U.S. Agency for International Development (USAID) on democracy, human rights and governance challenges as they relate to mining. Already, USAID has identified value in increasing public participation and government accountability, fighting corruption and protecting human rights —all pillars that should enable more transparent and equitable nickel mining development. However, USAID’s current approach is not mining specific. A 2021 USAID report on green minerals recommends that the agency invest in policy-oriented activities, including supporting studies and analysis, multistakeholder dialogues, the training of key actors and embedding technical advisors. USAID’s work in the Democratic Republic of the Congo may also prove to be a valuable template.

Second, since Indonesia has a ban on exporting raw nickel, the United States should partner with the private sector inside the country on building out processing plants. Such investment would be important to ensure both more control over labor and human rights standards, as well as stronger ties to the United States in the face of Chinese investment. This investment may also prove a catalyst for more fulsome dialogue on an “EV battery” trade deal.

Third, while the United States should capitalize on the goodwill of a new Indonesian president, it should not forget the Philippines. Marcos has rebuffed China and reinvigorated partnership with the United States, and thus may make for a better partner for the Minerals Security Partnership, which identifies the United States for investment and trade in clean energy technologies. Indeed, the United States has already indicated that the Philippines is one of six countries that will be supported under the CHIPS and Science Act, which looks to boost U.S. manufacturing of semiconductors. However, the Philippines has its own track record of mining-related conflict, and the United States needs to ensure that this is addressed thoroughly in current diplomatic negotiations on clean energy with the Philippines. Timing is also ripe for development-related interventions, as USAID is in the process of orienting and implementing a new Country Development Strategy.