I Geo-Economics & ChokepointsAsia-Pacific
From Jakarta, nickel wealth brought no industrialisation; Thailand offers a way out
- Institution
- Centre for Strategic and International Studies (CSIS Indonesia)
- Author
- Deni Friawan, Rafael da Costa, Dandy Rafitrandi
- Country · language
- Indonesia · English
- Affiliation
- Independent think tank
Summary
In a policy paper published on 2 October 2026, Deni Friawan, Rafael da Costa and Dandy Rafitrandi of the CSIS Indonesia economics department ask what geoeconomic fragmentation means for Indonesia. By fragmentation they mean supply chains being rebuilt around security and bloc alignment rather than efficiency. The country holds more than 40% of the world's nickel reserves and, as of 2025, more than 60% of global nickel output. Investment reached 1,714.2 trillion rupiah in 2024 and roughly 1,931 trillion rupiah in 2025. Yet in the authors' view this capital produced no technological leap. Participation in global value chains stands at 43%, below Malaysia's 57%, Vietnam's 55% and Thailand's 52%. R&D spending is roughly 0.24% of GDP.
According to the paper, the bottlenecks are concrete. Logistics costs are high across more than 17,000 islands, informal employment stood at 56.6% in February 2026, and China accounted for almost a third of total trade in 2025. The authors see the solution in a selective division of labour with Thailand. Indonesia could specialise in nickel and battery materials, while Thailand, which produced roughly 1.46 million vehicles in 2025, could focus on assembly. Bilateral trade rose from 12.5 billion dollars in 2010 to roughly 18 billion dollars in 2025, and Indonesia's deficit fell to 503 million dollars. Thailand's net direct investment, however, was −42.7 million dollars in 2025. The proposal is to turn the existing Joint Trade Commission into a project-based production programme rather than sign a new agreement.
Blind spot
What the West misses: the West debates Indonesian nickel through dependence on China. Jakarta's main worry is being stuck in a model that produces no technology, and it seeks an answer within ASEAN. The weakness of this reading: the paper was backed by Thailand-based ITD. It underweights Chinese capital in nickel parks, the environmental cost and Western rules of origin.
Talay assessment
Bottom line
The CSIS Indonesia reading shows that the investment wave triggered by the nickel export ban made Indonesia indispensable to the battery chain but gave it no industrial depth. With roughly a third of trade conducted with China, a division of labour with Thailand stands out as a low-cost way to balance that dependence. The most likely path is continued volume growth in nickel alongside slow technological upgrading.
Likely effects
- Battery supply chainNegative6 months+
Because more than 60% of global nickel output is concentrated in one country, any change in Indonesian policy or export restrictions feeds directly into battery costs.
- Intra-ASEAN integrationPositive6 months+
If Indonesia and Thailand establish a division of labour in battery materials and vehicle assembly, the region becomes a more attractive base for electric vehicle production outside China.
- Reading for TürkiyeUncertain6 months+
As Türkiye attracts electric vehicle and battery investment, it will have to factor in the price risk of depending on Indonesia for nickel supply, and indirectly on the Chinese capital there.
Possibilities, ranked
- 1Volume grows, depth lags55%
Nickel processing and investment keep rising, but R&D and the local supplier network stay weak; the economy cannot break away from its raw-material-heavy structure.
Watch: Indonesia's R&D spending as a share of GDP and the share of manufactured exports other than processed nickel
- 2Regional division of labour30%
The Indonesia–Thailand joint trade mechanism turns into concrete battery and vehicle projects, and two-way investment rises.
Watch: A project-based electric vehicle supply chain programme emerging from the Joint Trade Commission
- 3Bloc pressure15%
The US or the EU restricts Chinese-funded nickel products, and Indonesia comes under pressure to choose between two blocs.
Watch: A new US or EU tariff or rule-of-origin decision targeting Chinese-funded Indonesian nickel
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Original publication: csis.or.id · 3 October 2026
This page summarises the institution's view and does not reflect the view of Talay Insight. No direct quotation is used.