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Demand for is driving domestic and foreign direct investment in the country’s minerals sector. But caution is needed.
Indonesia has historically had limited success with industrial policy. That may now be changing, with recent interventionist policies targeting the nickel sector suggesting initial success in developing downstream segments of the value chain. So successful have these industrial policies been that the government is planning to target other minerals in a similar fashion, despite the objections of major trading partners.
After a period of liberalisation following the Asian financial crisis, Indonesia saw strong economic nationalism emerge again in the late 2000s. Nationalistic policies have been particularly strong in the natural resource sector.
When Joko Widodo started his first presidential term in 2014, policymakers were still struggling to implement a new law on mineral and coal mining that was adopted in 2009.
The law aimed at expanding domestic benefits from mining by requiring mining companies to domestically add value through processing and refining minerals before exporting and forcing foreign investors to reduce shareholdings in mining companies operating in Indonesia.
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