The rapid development of EVs (Electric Vehicles) is a huge blessing for the nickel industry. Nickel is an important component in EVs because it is the basic material for their batteries. In terms of the supply chain, this has led to a surge in demand for EV batteries, and this fact is undeniably a huge advantage for Indonesia. According to data from the United States Geological Survey in 2023, the country with the fourth largest population in the world is also the world’s largest nickel producer. To illustrate the magnitude of this, almost half of the world’s nickel supply is currently produced in Indonesia.

In theory, Indonesia could reap the most benefits from the rapid expansion of the EV industry. Historically, most of Indonesia’s nickel production has been exported abroad in the form of raw ore, making it a very low-value commodity that has provided little significant benefit to Indonesia. However, this situation changed dramatically in 2020 when the Indonesian government passed a ban on the export of raw nickel ore in order to encourage downstream processing and transform nickel into higher-value products in line with its potential. As a result, this regulation has had a domino effect on the nickel industry, which will be more beneficial for Indonesia in the future.

In the years that followed, there was a drastic surge in the construction of nickel smelters, from 13 smelters in 2020 to 43 operational smelters in mid-2023. In addition, there has also been an increase in foreign investment flows to Indonesia, one of which is from China, which has become a dominant player in nickel downstreaming in Indonesia. According to research from Transparency International Indonesia, investments from Chinese companies already control around 75% of the existing nickel smelting capacity in Indonesia. This is in line with the data stating that China is the world’s largest nickel importer.

China’s preparedness in terms of Indonesia’s shift in advancing the nickel industry is not merely a matter of luck. There are various reasons that can be examined from an economic and geopolitical perspective that strengthen cooperation between the two countries in accelerating the EV industry. Economically, China is the country with the largest EV ecosystem in the world. Major Chinese companies such as BYD, Tsingshan, CATL, GEM, and HUAYOU have already dominated battery production, making the country the world’s largest battery manufacturer. Therefore, when investors from other countries were still hesitant to venture into the high-risk nickel processing technology, China immediately seized the investment opportunity thanks to its wealth of experience. Geopolitically, China views the EV industry as a key pillar of its future. Therefore, China needs Indonesia to ensure a sufficient and stable supply of nickel.

As with mutualistic symbiosis in general, China benefits from the security and stability of the supply chain, while Indonesia benefits from the acceleration of nickel downstreaming. However, there are still a number of potential risks that need to be carefully managed in the future so that this transformation is truly sustainable and does not create further dependency risks for both countries. The first risk is environmental criticism related to the side effects of energy consumption and industrial waste, which could tarnish the reputation of downstreaming if not handled properly. In addition, a hidden risk that Indonesia may face is a downstreaming bottleneck. This could occur if global demand for battery supplies shifts to materials that do not rely heavily on nickel, or if other substitutes for nickel emerge.

Ultimately, nickel downstreaming is not a blessing that can be taken for granted. Indonesia’s future success will depend on good management systems, the ability to analyze risks, and maximizing opportunities wisely. Through this, it is not impossible that the beginning of this EV boom could pave the way for Indonesia to continue building a strong and sustainable economic foundation.

By Mahi Giyath Malaming