Nationalist enclaves: Industrialising the critical mineral boom in Indonesia

• Nickel's new status as a critical mineral has altered developmental agendas in the world's largest producer—Indonesia. • Indonesia used a nationalist industrial policy to force importers to invest in downstream. • The nickel industry has expanded at breathtaking speed and export revenues have soared. • But nickel-led growth exhibits enclave-like features, with economic benefits both limited and unevenly distributed. • Nickel extraction is generating positive “pecuniary externalities” for the state, massive profits for key business actors, and negative externalities and socio-environmental harms impacts those outside the enclave. Nickel's new status as a critical transition mineral has altered developmental agendas in the world's largest producer—Indonesia. The country's resource nationalist ambitions for a higher-value downstream mining industry dovetail with global demand for nickel, a key ingredient in low-carbon technologies like electric vehicles. Indonesia banned raw nickel exports and forced importers, primarily from China, to invest in downstream processing facilities. As a result, Indonesia's nickel industry expanded at breathtaking speed, export revenues soared, and economic growth along the country's nickel belt grew to over three times the national average. Indonesia's leaders cast the downstream sector as both an economic success story and a point of nationalist pride. This paper reflects critically on nickel-led growth in Indonesia, arguing the industry is generating new nationalist enclaves. I advance this concept to capture the paradox that new nickel-based industrial parks meet resource nationalist demands for a value-added extractive sector; yet the parks emerge as reconstituted extractive economic enclaves. Nickel-led growth relies on narrow networks of foreign and politically-connected domestic capital, and the industry's benefits are unevenly distributed. These political economy arrangements generate positive pecuniary externalities for a narrow set of state and private actors, and familiar negative externalities for the environment and communities at sites of extraction.