Anyone who wants raw materials will have to invest in the future. This is Indonesia's president's plan to bring more economic growth to the resource-rich country. Will Europe fall by the wayside?
In order to reduce its dependence on China or Russia for raw materials, Germany is looking around for other suppliers. However, not every resource-rich country wants to deliver anymore. Industrialized countries have long benefited from buying raw materials cheaply abroad, refining them and using them to produce high-quality products, in order then to export them at high cost.
But it's not just China that has woken up for a long time. Instead of simply being the workbench of the world, the country is developing into a production site for higher-value goods. Other countries are following suit – including Indonesia.
Even though the economy there has grown steadily over the past 20 years, structurally, the emerging market is largely at a low level. One of the reasons: “In the past, Indonesia was very much dominated by raw materials in the export sector,” says Jan Rönnfeld, head of the German Chamber of Commerce Abroad (AHK) in Indonesia. The country is particularly blessed with palm oil, coal, tin, nickel ore, bauxite and copper. Indonesia is the world's largest exporter of thermal coal, palm oil and refined tin.
Indonesia is the world's largest exporter of thermal coal. Coal freighters are queuing near Samarinda, Indonesia
If you want raw materials, you have to invest
Now Indonesia's President Joko Widodo no longer wants to just supply raw materials. His goal: Indonesia should become an industrial country by 2045. That's why he already banned the export of mineral ores in 2014, says Frank Malerius, who works for Germany Trade & Invest (GTAI) is based in Jarkarta. So it should be forced that more processing takes place in the country, by domestic smelters or foreigners who invest. But this ban was very full of holes, says Malerius.
Therefore, the government is tightening the requirements for raw material exports. Since the beginning of 2020, if you want nickel, you have to invest and process the raw material on site. Indonesia is not so easy to avoid, as it has the world's largest reserves of nickel and nickel is urgently needed – for the refinement of steel, but also in electric car batteries.
In order to pave the way for potential investors, Indonesia also liberalized investment law and labor law in spring 2021, opening up hundreds of economic sectors to foreign ownership.
The calculation works – dependence on China remains for the time being
“And then exactly what the government had hoped for happened,” says Frank Malerius. “Foreign companies have come to the country. In the first six months of 2022, almost 21.6 billion US dollars in foreign direct investments were raised, according to the Ministry of Investment BKPM. That was almost 40 percent more than in the same period last year.
“Chinese companies in particular have built smelting plants and steel works here,” says Malerius. In the past three or four years, Indonesia has become one of the largest steel exporters – mainly stainless steel. Five or six years ago, Indonesia would have exported almost no steel, and this year, Malerius estimates that exports could be worth around 20 billion dollars.
Indonesia has gone from being a nickel exporter to a steel exporter
Volkswagen, Ford and Tesla would also like to become active in Indonesia in order to get hold of the coveted nickel. “But it will be difficult for them to find supply chains in which the Chinese are not already involved in some way,” says Malerius. This is probably only possible in cooperation with Chinese companies. Good for Indonesia – but as far as Europe is concerned, the dependence on China remains.
European companies are moving
Of course, Europe didn't like the export bans much. Since they do not fit with the rules of free world trade, the EU had lodged a complaint with the World Trade Organization (WTO) about the nickel export ban. In November 2022 she was also right, but Indonesia appealed and went one better. At the last G-20 summit in Bali, the country announced that it was considering forming a cartel with other countries for battery raw materials such as nickel – similar to that of the oil-producing countries, OPEC.
In order to secure access to nickel, the German chemical group BASF and the French mining company Eramet announced in January of this year that they would build a nickel-cobalt plant in Indonesia for the electric car market Investment of around 2.4 billion euros. The agreement is nearing completion. An investor presentation by Eramet recently showed that the planned new plant is expected to start production in early 2026.
Bauxite may also no longer be exported
Widodo doesn't just put a stop to nickel. He would also like to bring the further processing of bauxite, copper and tin into the country. From June this year, the export of unprocessed bauxite will be banned. Indonesia is one of the most important exporters of the ore, which is used for the production of aluminum and is therefore important for aircraft construction and car production.
Unprocessed tin may no longer be exported from 2024. Currently, Indonesia is the second largest producer of tin. Around 60 percent of the world's palm oil also comes from Indonesia, but the country has stopped exports here too.
Wooden pontoons used to dredge the seabed for tin ore deposits on the south coast of Bangka Island in Indonesia
In the future, the Indonesian government also wants to develop a domestic rare earth industry. The deposits of the critical raw materials are to be mapped and a concept drawn up for their use, reports Antara News, the government news agency. Indonesia is still importing rare earths to meet the needs of its green technology industry.
Lots of potential for German companies
“Even if Indonesia is far away – there is potential for German companies in many areas,” says Jan Rönnfeld from the AHK, – simply because of the size of the country. “With almost 300 million inhabitants, there is actually potential in every area.” Around 100 million people belong to the middle class. Indonesia is the fourth largest country in the world in terms of population. Mechanical and plant engineering or medical technology could benefit from this as well as the manufacturing industry, which has grown relatively below average in Indonesia in the last two decades, so  ;Rönnfeld.
So far, the Chinese, Japanese and South Koreans have primarily invested in Indonesia. Germany has provided technologies rather than investing. That could change. “There will certainly be more investment from Europe,” Rönnfeld believes. “Even if Indonesia is not an easy market.” Market entry is already relatively difficult, despite the easing. “But normally it's about a relationship between risk and return when making business decisions. And that's where Indonesia offers the chance of relatively high returns because there is little competition in many areas. In some sectors, 90 percent of the products are imported .”