Indonesia diversified its economy away from commodity exports. Nickel export ban aims to boost domestic value but poses challenges.
The Indonesian Nickel Export Ban
Economists have long advised Indonesia to reduce its reliance on commodity exports and promote economic diversification. The Indonesian government has been pursuing this through the establishment of special economic zones and tax holidays. But in 2020, the COVID-19-induced recession led to a more draconian diversification approach with a ban on the export of all unprocessed nickel.
Controversy Surrounding the Nickel Export Ban
Using an export ban as an industrial policy instrument is controversial since it creates market distortions and its goals must be carefully stated and measured. Nickel is an important material for the production of most rechargeable batteries and its significance in the global supply chain has increased dramatically with the pursuit of global net-zero ambitions.
The Impact of the Ban
The ban has seen a 30-fold increase in the value of Indonesia’s nickel-related exports, but calculating domestic value added is not straightforward. Because Indonesia was one of the largest nickel ore exporters, the ban has led to an increase in the international price of nickel and its derivatives.
Challenges and Future Considerations
The Indonesian government is considering reducing its EV import tax to encourage the adoption of EVs domestically. By tapping into the market for electric scooters first, Indonesia could gradually expand its industry for larger EVs. Trade policy remains key, and the Indonesian government needs to understand the reciprocal nature of WTO membership if it wants to negotiate this matter with partners.
Read original article here : : Indonesia doubles down on nickel export bans and downstreaming
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