Indonesia Should Count The Real Cost Of Its Mineral Incentives

What does all this cost the nation? Nobody can say precisely, and that is the problem. No official figure combines the tax holidays, duty exemptions, cheap ore, cheap land and public infrastructure that nickel and bauxite processing receive. Indonesia is paying a bill it has never fully added up.

The results of those holidays, exemptions and subsidies to mostly foreign investors are mixed. Nickel has drawn heavy investment, and the energy minister says the industry has brought in $47.36 billion and created 180,600 jobs.

A World Bank study found that an earlier version of the bans increased the value Indonesia added to its exports, but also attracted small, inefficient firms. Much of the output remains in nickel pig iron, a low-value input for stainless steel.

This year, the government even proposed a new export levy on such products to push companies toward higher-value goods, an implicit admission that earlier incentives failed to steer investment where the country needed it most.

Bauxite illustrates a different risk. When the export ban on raw bauxite ore took effect in 2023, Indonesia's refineries could process about 13.9 million tonnes of it a year, while its mines produced around 30 million. Some miners had to halt operations and sit on piles of unsold ore. Support without a clear plan does not build an industry.

None of this means the government incentives are misguided. Smelters and battery plants are costly and risky to build, and almost every country that has industrialized has helped its firms along the way.

But in the successful cases, such as South Korea, help came with duties. Firms that received support had to export, invest and learn, and those that failed lost it. Indonesia should adopt the same rule: when the state helps a company, the company owes something in return. That requires four changes.

First, count the cost. Each year, the government should publish the full price of its support for nickel and bauxite processing, including tax holidays, duty exemptions and the gap between local and world ore prices. Citizens should be able to see what each large project receives and what it has delivered in return.

Second, attach clear conditions. Support should depend on hiring and training Indonesian workers, from engineers to managers; buying from local suppliers; and bringing research and technology into the country. It should also require compliance with strict pollution and safety standards. Every agreement should set verifiable targets with firm dates.