Indonesia pitches its plan to leverage natural resources as a model for other developing nations
4 min
A few years ago, Indonesia set out to turn its treasure trove of nickel into an electric-car manufacturing boom.
It imposed a sweeping ban on the export of raw nickel. That meant that companies wanting to tap the world’s largest source of the mineral—used in the most powerful type of EV batteries—would have to build smelters in Indonesia. Officials bet that factories to make EV batteries and entire electric cars would also follow, spawning end-to-end supply chains close to the mineral bounty.
The smelters came, and Indonesia’s nickel industry witnessed explosive growth. But powering it is a coal binge that is throwing off the country’s climate goals. And Indonesians are still waiting for EV makers to lay down production lines.
As President Joko Widodo prepares to leave office this year after a decade—the most he can serve—he is exhorting his potential successors to stick with the policy that is at the centre of his economic legacy. Indonesia holds presidential elections on Feb. 14, and a new leader will take charge in October.
Widodo has cast his plan, referred to in economist-speak as downstreaming, as the answer to the question of how Indonesia will become a rich nation. He says the country is reversing a 400-year pattern dating back to colonial times of being exploited for its natural resources and getting little in return. He has prodded other developing nations to follow its lead.
Last year, officials escorted delegations from mineral-rich Papua New Guinea and the Democratic Republic of Congo to one of Indonesia’s largest nickel industrial parks to show them the scale of Indonesia’s achievements. New Chinese-built smelters dot the archipelago. The value of Indonesia’s nickel exports is up four times since 2019 to around $33 billion.
Not everyone believes the silver metal is a silver bullet.
Nickel smelters have led to a surge in coal use, with new coal plants coming up at a time when the world is trying to phase out the fossil fuel. A January report by Climate Rights International, a U.S. environmental group, said that a single nickel-focused industrial park located on eastern Indonesia’s Maluku islands will burn more coal than Spain or Brazil when it is fully operational.
“We are sacrificing the environment and society, while at the same time getting limited profits for the country,” Muhaimin Iskandar, a vice-presidential candidate in the coming election, said during a televised debate with his political opponents.
Other candidates have pledged to carry forward the president’s nickel policies, including the front-runner for president, Prabowo Subianto, who has said it is much better to export electric-vehicle batteries than raw nickel.
The “dirty nickel” reputation is threatening the very economic opportunities Indonesia covets. In October, nine U.S. senators signed a letter opposing a proposed free-trade agreement to source critical minerals from Indonesia, citing environmental and safety concerns. Without a free-trade deal, EV batteries with substantial quantities of Indonesia-processed nickel won’t be eligible for a major U.S. tax credit.
That makes the country’s nickel less attractive to Western EV makers, who are already battling questions from green groups about the environmental fallout of the country’s sprawling nickel operations.
In a sign of the growing unease, a deputy director for batteries and critical materials at the U.S. Energy Department, Ashley Zumwalt-Forbes, voiced concern in a LinkedIn post last month about what she called the grip of dirty Indonesian nickel on the market. Indonesia accounts for half the global nickel supply, up from a quarter in 2018.
The problems with nickel are also pushing EV makers to rework car batteries and go nickel-free. A lithium-iron-phosphate alternative is gaining traction, though it remains less powerful than batteries containing nickel.
Then there is the question of whether the policy is taking Indonesia toward Widodo’s goal of downstreaming—that is, a shift to higher-value manufacturing. Widodo has long said the endgame isn’t localising nickel processing but rather attracting EV and battery factories. Anything less, he says, could put Indonesia on the same track as some commodity-rich Latin American economies that have languished.
But so far, EV makers haven’t rushed into Indonesia. Tesla, which Widodo has assiduously courted, including on a 2022 trip to Texas to meet with founder Elon Musk, hasn’t shown any signs it plans to set up a factory in the country. No other Western automakers have built EV factories either, though General Motors has a stake in one China-based automaker producing electric cars in Indonesia. Some, like Ford, have made deals to tie up nickel supply.
Korean automaker Hyundai has since 2021 operated one of Indonesia’s only EV factories, focused on the domestic market. The unit can produce 150,000 vehicles a year, but made fewer than 9,500 in 2022 and 2023. Hyundai and Korea’s LG expect to begin producing battery cells at a plant in West Java this year.
Automakers generally look to set up battery and EV plants in the markets where people are already buying electric cars. That puts Indonesia, where few consumers have switched from combustion-engine vehicles, at a disadvantage. The country has a limited charging network and gasoline is heavily subsidised.
Indonesian policymakers who believe the country’s nickel bounty gives it leverage over carmakers are mistaken, said Tom Lembong, a former trade minister under Widodo. He pointed to the growth of nickel-free batteries as a warning against betting big on nickel.
Lembong, who is advising presidential candidate Anies Baswedan—whose ticket advocates focusing on promoting labor-intensive industries—said Indonesia has made limited progress moving up the value chain.
“The irony about this is they call it downstreaming, but we’re still very upstream,” he said.
Septian Hario Seto, a senior Indonesian official involved in nickel policymaking, acknowledged that EV battery and car factories have been slower to come than nickel smelters. The government has brought new regulations to address that, he said, such as one that makes it easier for EV makers to import cars into Indonesia on the condition they later build a factory.
Last month, Chinese EV giant BYD said it would begin car sales in Indonesia, and break ground on a manufacturing unit later this year.
Overall, Seto said the nickel policy has been successful, boosting economic growth in less-developed eastern regions where the nickel is found, and providing jobs and tax revenue. The government has taken steps to limit environmental degradation, such as by banning companies from jettisoning mining waste into the ocean, and will try to bring hydropower projects online as an alternative to coal, he said.
Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics in Washington, D.C., said there are two ways to assess Indonesia’s industrial policy.
“It’s been successful at driving foreign investment and building nickel processing capacity,” he said. “So far it hasn’t achieved the fully integrated mine-to-EV battery assembly to which it aspires.”
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Multinationals like Starbucks and Marriott are taking a hard look at their Chinese operations—and tempering their outlooks.
4 min
For years, global companies showcased their Chinese operations as a source of robust growth. A burgeoning middle class, a stream of people moving to cities, and the creation of new services to cater to them—along with the promise of the further opening of the world’s second-largest economy—drew companies eager to tap into the action.
Then Covid hit, isolating China from much of the world. Chinese leader Xi Jinping tightened control of the economy, and U.S.-China relations hit a nadir. After decades of rapid growth, China’s economy is stuck in a rut, with increasing concerns about what will drive the next phase of its growth.
Though Chinese officials have acknowledged the sputtering economy, they have been reluctant to take more than incremental steps to reverse the trend. Making matters worse, government crackdowns on internet companies and measures to burst the country’s property bubble left households and businesses scarred.
Now, multinational companies are taking a hard look at their Chinese operations and tempering their outlooks. Marriott International narrowed its global revenue per available room growth rate to 3% to 4%, citing continued weakness in China and expectations that demand could weaken further in the third quarter. Paris-based Kering , home to brands Gucci and Saint Laurent, posted a 22% decline in sales in the Asia-Pacific region, excluding Japan, in the first half amid weaker demand in Greater China, which includes Hong Kong and Macau.
Pricing pressure and deflation were common themes in quarterly results. Starbucks , which helped build a coffee culture in China over the past 25 years, described it as one of its most notable international challenges as it posted a 14% decline in sales from that business. As Chinese consumers reconsidered whether to spend money on Starbucks lattes, competitors such as Luckin Coffee increased pressure on the Seattle company. Starbucks executives said in their quarterly earnings call that “unprecedented store expansion” by rivals and a price war hurt profits and caused “significant disruptions” to the operating environment.
Executive anxiety extends beyond consumer companies. Elevator maker Otis Worldwide saw new-equipment orders in China fall by double digits in the second quarter, forcing it to cut its outlook for growth out of Asia. CEO Judy Marks told analysts on a quarterly earnings call that prices in China were down roughly 10% year over year, and she doesn’t see the pricing pressure abating. The company is turning to productivity improvements and cost cutting to blunt the hit.
Add in the uncertainty created by deteriorating U.S.-China relations, and many investors are steering clear. The iShares MSCI China exchange-traded fund has lost half its value since March 2021. Recovery attempts have been short-lived. undefined undefined And now some of those concerns are creeping into the U.S. market. “A decade ago China exposure [for a global company] was a way to add revenue growth to our portfolio,” says Margaret Vitrano, co-manager of large-cap growth strategies at ClearBridge Investments in New York. Today, she notes, “we now want to manage the risk of the China exposure.”
Vitrano expects improvement in 2025, but cautions it will be slow. Uncertainty over who will win the U.S. presidential election and the prospect of higher tariffs pose additional risks for global companies.
For now, China is inching along at roughly 5% economic growth—down from a peak of 14% in 2007 and an average of about 8% in the 10 years before the pandemic. Chinese consumers hit by job losses and continued declines in property values are rethinking spending habits. Businesses worried about policy uncertainty are reluctant to invest and hire.
The trouble goes beyond frugal consumers. Xi is changing the economy’s growth model, relying less on the infrastructure and real estate market that fueled earlier growth. That means investing aggressively in manufacturing and exports as China looks to become more self-reliant and guard against geopolitical tensions.
The shift is hurting western multinationals, with deflationary forces amid burgeoning production capacity. “We have seen the investment community mark down expectations for these companies because they will have to change tack with lower-cost products and services,” says Joseph Quinlan, head of market strategy for the chief investment office at Merrill and Bank of America Private Bank.
Another challenge for multinationals outside of China is stiffened competition as Chinese companies innovate and expand—often with the backing of the government. Local rivals are upping the ante across sectors by building on their knowledge of local consumer preferences and the ability to produce higher-quality products.
Some global multinationals are having a hard time keeping up with homegrown innovation. Auto makers including General Motors have seen sales tumble and struggled to turn profitable as Chinese car shoppers increasingly opt for electric vehicles from BYD or NIO that are similar in price to internal-combustion-engine cars from foreign auto makers.
“China’s electric-vehicle makers have by leaps and bounds surpassed the capabilities of foreign brands who have a tie to the profit pool of internal combustible engines that they don’t want to disrupt,” says Christine Phillpotts, a fund manager for Ariel Investments’ emerging markets strategies.
Chinese companies are often faster than global rivals to market with new products or tweaks. “The cycle can be half of what it is for a global multinational with subsidiaries that need to check with headquarters, do an analysis, and then refresh,” Phillpotts says.
For many companies and investors, next year remains a question mark. Ashland CEO Guillermo Novo said in an August call with analysts that the chemical company was seeing a “big change” in China, with activity slowing and competition on pricing becoming more aggressive. The company, he said, was still trying to grasp the repercussions as it has created uncertainty in its 2025 outlook.
Few companies are giving up. Executives at big global consumer and retail companies show no signs of reducing investment, with most still describing China as a long-term growth market, says Dana Telsey, CEO of Telsey Advisory Group.
Starbucks executives described the long-term opportunity as “significant,” with higher growth and margin opportunities in the future as China’s population continues to move from rural to suburban areas. But they also noted that their approach is evolving and they are in the early stages of exploring strategic partnerships.
Walmart sold its stake in August in Chinese e-commerce giant JD.com for $3.6 billion after an eight-year noncompete agreement expired. Analysts expect it to pump the money into its own Sam’s Club and Walmart China operation, which have benefited from the trend toward trading down in China.
“The story isn’t over for the global companies,” Phillpotts says. “It just means the effort and investment will be greater to compete.”
Corrections & Amplifications
Joseph Quinlan is head of market strategy for the chief investment office at Merrill and Bank of America Private Bank. An earlier version of this article incorrectly used his old title.
