Indonesia's ambition to become a leader in electric vehicles is sparking friction with the rest of the world, as the country bans exports of critical materials in favor of attracting investment and fostering related industries at home, Nikkei Asia reported.
"We are not closing ourselves. Instead, we are very open to investment and cooperation in building downstream industry in Indonesia," President Joko "Jokowi" Widodo said at the Hannover Messe trade fair in Germany on Sunday.
The comment came as Indonesia tightens its grip on its natural resources as part of efforts to become a regional hub for EV production. Nickel, a key component in EV batteries, has been central to this plan.
In 2020, Indonesia banned exports of unprocessed nickel ore, pushing foreign companies to set up shop in the country to process the material there.
Indonesia, home to the world's largest nickel reserves, has seen exports related to the element increase more than 27 times between 2014 and 2022 to Rp 468 trillion (US$31.2 billion). There is little profit to be made from shipping the raw ore, and the country wants to be involved in the entire supply chain from smelting to battery production to car-making to secure greater returns.
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The Jokowi administration is making similar moves on other materials as well. It will ban bauxite exports in June, and plans to do the same for copper this year. It will ban exports of 21 commodities overall by 2040, many of them minerals and agricultural products.
Developing related downstream industries in Indonesia is expected to require $545.3 billion in investment. The goal is to attract more foreign businesses to help take Indonesia's related industries and talent to the next level -- a step Jokowi considers crucial to advancing the economy.
Countries often struggle to boost gross domestic product per capita after achieving middle-income status. Jokowi wants to Indonesia to avoid falling into this middle-income trap, instead joining the ranks of high-income countries by 2045, 100 years after it became an independent nation.
Global efforts to reshape supply chains have only grown in response to the coronavirus and the rivalry between the U.S. and China. The export bans essentially leverage Indonesia's abundant natural resources to ensure the country is incorporated into those updated supply chains, despite its business environment seen lagging behind neighbors like Thailand and Vietnam.
But its inward-looking approach has met pushback. The World Trade Organization ruled in favor of the European Union in November over Indonesia's nickel export ban, which Brussels said affected the availability of the material within the bloc. Indonesia has since appealed the decision.
Indonesia is one of the world's top 10 producers for several of the 21 items on its export ban list. This means its policy could have major consequences for the global market and fuel further trade disputes.
Some analysts draw parallels between Indonesia's plans and other nationalist economic policies around the world.
Multilateral free-trade deals are weakening as the U.S., China and other countries prioritize their own economic security, according to Nobuhiro Aizawa, an associate professor who specializes in Southeast Asian politics at Kyushu University in Fukuoka, Japan.
"Because major powers abused existing rules to strengthen their economic security, it has become the new international norm for countries to focus on their own interests and securing resources for production," he said.
In 2018, the WTO ruled that the U.S. violated international trade rules by imposing additional steel and aluminum tariffs, citing security reasons. But the U.S. shows no signs of addressing the issue.
The U.S. and China are also taking steps to protect domestic industry, Indonesian Investment Minister Bahlil Lahadalia said in February, vowing to do what needs to be done to turn Indonesia into an advanced economy.
Indonesia chaired the Group of 20 last year and succeeded in producing a leaders declaration at the November summit despite rifts over the Ukraine war. In one private-sector poll, nearly 90% of respondents said leading the G-20 bolstered Indonesia's global clout.
With an approval rating above 70%, the highest since he took office in 2014, Jokowi is only ramping up his push to bolster the Indonesian economy. There is concern that the failure by international institutions to pushback against this nationalist strategy could lead other resource-rich countries to follow suit.
Editing By Reiner Simanjuntak
