Indonesia has diversified its economy away from commodity exports. The ban on nickel exports is aimed at increasing the domestic price, but poses challenges.
Economists have long urged Indonesia to become dependent on commodity exports and heralded economic diversification. The Indonesian government pursues this purpose by creating special economic zones and tax exemptions. But in 2020, the COVID-19-induced recession led to a more draconian diversification technique with a ban on exporting all raw nickel.
The use of an export ban as a trade policy tool is debatable because it creates distortions in the market and its objectives will have to be conscientiously stated and measured. Nickel is a vital element for the production of fully rechargeable batteries and its importance in the global supply chain. It has increased especially with the pursuit of global net-zero ambitions.
The ban has increased the cost of Indonesia’s nickel-related exports by 30 times, but calculating the aggregate domestic cost is straightforward. As Indonesia is one of the largest exporters of nickel ore, the ban has led to an increase in the foreign value of nickel and its derivatives.
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