Pyramids and Pagodas
Macro Podcast
Ep 4. Indonesia Macro – Onshoring of minerals refining creating global EV and battery manufacturing hub?

Ep 4. Indonesia Macro – Onshoring of minerals refining creating global EV and battery manufacturing hub?


Audio Stamps:

00:50 Intro to Indonesia macro

03:41 History of Indonesia

07:05 The Joko presidency and resource nationalism

10:43 Indonesia's infrastructure thematic

13:08 GDP, currency, inflation and rates

15:58 Indonesia's business and labor environments, FDI and import/exports

20:27 Indonesia's position in the global nickel market and outlook

29:08 Accessing the Indonesian (equities) market

29:53 Final remarks

Episode Summary:

In this episode, we prime our readers for an upcoming deep dive into an Indonesian EV minerals player by providing an overview of the country’s economy and ambitions to become an EV and battery manufacturing hub.

Over the past year or so, there has been much positive coverage of Indonesia’s rosy economic outlook, with much of this centering around the presidency of the highly popular Joko Widodo. Joko has long cultivated an image as a political outsider with a clean track record who has “risen above” the infamous corruption and influence peddling of Jakarta’s business and military elites. This image has allowed him to undertake an infrastructure spending spree and bold reforms, particularly those relating to ease of doing business, labor laws, and foreign investment. Joko has also sought to capitalize on Indonesia’s vast mineral wealth by banning the export of various raw materials, and instead forcing companies to onshore their processing operations to create more value-add for exports.

By all means, these policies have led to impressive GDP and FDI growth and surging exports, but we also discuss some of the structural challenges faced by the economy, political uncertainties, and the limits of infrastructure-led growth. However, our view is that stable commodities prices, long term global demand for EV minerals, and Indonesia’s unique advantages in this space will form the bedrock of strong economic performance over the next decade. Indonesia already produces 50% of the world’s nickel – a critical resource in battery production with long wait times and high capital costs for exploiting new reserves. Joko’s mining policies have taken on an overtly nationalist flavor – the whole point of the onshoring policies being to capture more value for the local economy. The companies best positioned to cash in on these trends locally are those with offtake agreements with large global players, strong government connections, and control of vast reserves. The on-shoring of nickel refining is still at an early stage, and concentrated in less sophisticated outputs – but as export bans expand into other applications of nickel, international players have taken note and are locking themselves into Indonesian supply agreements by building processing facilities in-country.

While the onshoring of nickel processing is very much in motion, the eventual goal of the Indonesian government is to establish a full EV supply chain, which we see as a natural culmination of the onshoring measures already rolled out. This has led to the establishment of massive industrial parks focused on EV and battery production, with large international players already signing agreements to build manufacturing facilities in-country. Indonesia already accounts for 50% of ASEAN’s planned lithium-ion battery production, for which nickel is a key component. As usual, Chinese players in the metals processing and EV industries such as Tsingshan, Jiangsu Delong, and CATL are ahead of the curve in this emerging market due to their long-established dominance as some of Indonesia’s foreign largest investors and mineral export clients. The creation of an EV supply chain, previously hindered by a small domestic market for these technologies, will also be spurred by a raft of new measures including subsidies and tax breaks to bolster local demand.

For those wondering how to gain exposure to Indonesian equities, we have also included a link below to Asian Century Stocks’ article on this.

Spotify version:

Additional resources:

Asian Century Stocks

Asian Century Stocks The best retail broker for Asia

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Pyramids and Pagodas
Macro Podcast
Contextualizing emerging market opportunities with geopolitical and macroeconomic thematic analysis.
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