Indonesia’s Nickel Strategy Needs to Grow the Pie, Not Divide It

Indonesia sits on the world’s largest nickel reserves. This is an asset that will shape its economy for decades. As President Prabowo Subianto moves to tighten state control over resource revenues, the instinct is understandable: to capture more value from a resource many feel has been under-priced for too long. There are two very different ways to do this: the government could seek to secure a bigger slice of resource revenues, or upgrade the sector to strengthen the country’s ecosystem. The latter would help to grow the economy that Indonesia is trying to build.

When addressing Parliament in May 2026, Prabowo announced plans to centralise oversight of strategic commodity exports through a state-owned entity, Danantara Sumberdaya Indonesia. Nickel pig iron (NPI), a low-grade nickel product and a major export, is currently excluded from the policy, but the government has signalled it may be brought into the policy later.

Designed to curb under-invoicing, prevent transfer pricing and boost resource revenue, the initiative reflects a broader deepening of Indonesia’s resource nationalism, where nickel holds a central place.

In 2009, Indonesia enacted the Mineral and Coal Mining Law (Law No.4/2009), which mandated domestic mineral processing. That mandate translated into a ban on raw nickel exports in 2014, fully reimposed in 2020. In the following years, Indonesia went from a raw mineral exporter to the world’s dominant nickel processing hub. Jakarta has since pushed further downstream, leveraging its nickel supply chains as a platform for batteries and electric vehicles (EVs). 

Under Prabowo, this strategy has expanded. A stricter export-proceeds rule requires natural resource earnings to be kept within the domestic financial system. Indonesia has also reverted to annual production approvals under the annual mining work plan permits (RKAB) system, while cutting 2026 mining quotas to support commodity prices, including nickel.

Together, these measures point to an increasingly state-directed approach to managing Indonesia’s strategic resource wealth.

This is understandable. Many resource-rich countries have been caught in a familiar trap: they are exporting raw materials and bearing the social and environmental costs of extraction, while high-margin processing and manufacturing happen elsewhere. Indonesia’s nickel strategy is designed to break that pattern.

Upgrading is a positive-sum strategy. It means using today’s nickel base not just to move further up the value chain, but to cultivate the broader industrial capabilities required to anchor future competitiveness.

Here is where the strategic choice lies: redistribution or upgrading.

The first pathway — redistribution — seeks to capture a larger share of today’s resource rents. For a government under fiscal pressure, the appeal is obvious. Higher revenues from current resource operations could fund social welfare programmes, help stabilise the economy and signal that the state is reasserting sovereignty over national wealth.

But this comes with a trade-off. If the state leans too hard into this, investors may increasingly see Indonesia’s gain as coming at their expense. Policy uncertainty is already weighing on investor sentiment, even if recent market pressures are not attributable to resource policy alone.

Existing nickel-processing assets will likely keep running, since their investments are sunk costs. But future investment is more discretionary. When regulations, quotas and feedstock access look unpredictable, investors are more likely to shelve expansion plans or redirect their capital elsewhere. Volatile nickel supply may also push downstream manufacturers towards battery chemistries less reliant on nickel, such as lithium iron phosphate (LFP) — a segment already led by Chinese firms like CATL and BYD. Pursued alone, redistribution risks shrinking the economic pie it is trying to divide. Put differently, the Indonesian government (and its coffers) will benefit from redistribution, but it might end up with a bigger slice of a smaller pie.

Indonesia has already shown its policy settings are not yet fixed. In early 2026 it cut the year’s nickel mining quota to roughly a third below 2025 levels (379 million tonnes). By mid-year, reports suggested a sharp increase back to 2025 levels might be on the table, though the government ruled out any broad increase weeks later.

The shifting signals are telling. Policy is still being shaped. This is precisely the moment to make the case for an upgrading strategy.

Upgrading is a positive-sum strategy. It means using today’s nickel base not just to move further up the value chain, but to cultivate the broader industrial capabilities required to anchor future competitiveness.

Decarbonisation is where it starts. Battery materials, cell manufacturing, and EVs face growing scrutiny over their carbon footprints, and companies choosing where to locate new downstream capacity may hesitate to bet on a platform still heavily reliant on captive coal. Rebasing that platform on cleaner energy is therefore the starting point.

But attracting another battery or EV factory is not the ultimate prize. The more important question is what Indonesia can build around it. Midstream fabrication is one part. This includes the tube mills, components and precision parts that turn processed metal into finished products. This is still largely underdeveloped in Indonesia. Beyond it lies sophisticated manufacturing, which needs a far denser industrial ecosystem than mining and processing: qualified suppliers, engineering and technical services, reliable logistics and energy infrastructure, quality control and a trained workforce.

The benefits of building that ecosystem are significant. The same capital that builds a single smelter is estimated to support four to five times as many jobs if directed into midstream fabrication instead. It could also create spillovers into the domestic value chain, including local suppliers and services.  

Realising these benefits is not straightforward. Industrial capabilities do not arrive automatically with a single investment. But every new project creates demand for them. The strategic opportunity is to use that demand deliberately — helping local suppliers meet higher technical standards, aligning workforce training with emerging industrial needs, and building the infrastructure and specialised services that sophisticated manufacturing requires.

Building such an extended ecosystem takes patient policy, and years before the effects show at scale. That often makes the upgrading option a harder sell than redistribution, which can deliver quick revenue. Once built, however, those industrial capabilities can support new industries far beyond nickel. That is the real prize: not a single factory, but the “garden” in which future industries can grow. After all, new industries need more than fresh capital or a new “seed”. They also need fertile “soil”: skills, suppliers, infrastructure and specialised services.  

The state’s role, then, is not simply to harvest more from the crops already growing. It needs to tend the “garden”, using Indonesia’s resource wealth to cultivate a larger, cleaner and far more capable industrial economy for the future. And that starts with a clear strategic choice to upgrade, not merely redistribute, so the policy details have something to anchor to.

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