Indonesia, explained.
Supervising the disposal of slag from nickel ore processing in Sorowako, South Sulawesi (Hariandi Hafid via Getty Images)
The nickel boom in Southeast Sulawesi is a paradox – reshaping the region while sidelining locals.
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Indonesia: The downstreaming dilemmaIndonesia: The downstreaming dilemma
As the Indonesian province of Southeast Sulawesi transitions into an industrial hub, driven by the burgeoning nickel industry, the region faces a dilemma. Will local communities benefit from this mineral wealth, or will they be left behind?
Indonesia has doubled down on downstreaming – the processing of raw nickel locally – but now it must deliver on development needs to stay competitive and keep communities on side.
Our visit and interviews with local communities and stakeholders last year highlighted that this remains possible, despite the limited effect on rates of poverty and employment that nickel downstreaming has had so far.
Nickel extraction in Southeast Sulawesi holds immense promise. In 2023, investment totalled US$898 million, led by mining ($288.1 million), followed by the metals industry ($263.3 million) and housing and infrastructure ($124.4 million), reflecting a focus on nickel processing and infrastructure growth.
But the rapid changes to Southeast Sulawesi’s economy have been disruptive.
If Indonesia is intent on dominating global nickel markets, it will need to sell into those countries that are increasingly demanding higher environmental and labour standards.
Agriculture, forestry, and fisheries have long been Southeast Sulawesi’s economic backbone. While employment in processing and manufacturing industries has risen from 5.1 per cent in 2015 to 9.6 per cent in 2024, traditional industries remain the primary source of local employment, at 45.5 per cent and 34.2 per cent when comparing the same period.
Traditional industries offer a lifestyle of autonomy – allowing workers to set their own pace and follow nature’s rhythms rather than the clock. Industrial work, by contrast, demands a rigid, schedule-driven discipline. One community leader lamented the loss of this flexibility, describing how older generations in particular struggle with this shift.
Local communities welcome foreign investment – largely from Chinese firms – but shifting to international productivity standards has been challenging. Chinese workers often outpace their Indonesian counterparts, frequently continuing work while locals take smoking breaks – highlighting cultural differences that are seen to disadvantage locals who are not as adapted to the demands of modern industry.
Furthermore, the local workforce is largely confined to low-skilled positions, while higher-skilled and better-paid positions are often filled by migrants from outside Southeast Sulawesi, notably Java or China. The result is a two-tiered workforce: outsiders dominate technical and managerial roles, while locals remain trapped in manual labour with little opportunity for advancement.
Many firms have local labour requirements, but labour representatives complain these are easily skirted; issuing local residence permits to non-Southeast Sulawesi workers is rife. Addressing enforcement and corruptive practices will be one part of a more inclusive downstreaming policy.
When locals exit the nickel industry, returning to farming and fishing is often the only option. However, pollution from nickel activities is damaging local resources and environments. A community leader noted that the area once thrived as a major producer of sea cucumbers. Combined with fishing, these incomes were sufficient to support a family. But toxic waste from nickel processing is not handled properly and has damaged much of the carrying capacity of surrounding fisheries.
Worse still, income from low-skilled nickel jobs is typically only enough to support an individual, not a whole family. So traditional income sources are negatively affected while sufficient substitutes are not forthcoming.
Environmental harm and labour violations are also drawing the ire of other countries – the United States now classifies Indonesia’s nickel industry as engaging in forced labour and European firms are hesitant to invest. If Indonesia is intent on dominating global nickel markets, it will need to sell into those countries that are increasingly demanding higher environmental and labour standards.
Despite these challenges, local communities and stakeholders are seeking to leverage the nickel industry as a springboard for broad-based development. They are advocating for a downstreaming policy that builds local expertise, prioritises local employment, and aligns industrial expansion with traditional industries.
Education and training opportunities are being expanded to equip local workers with the skills for the new industrial jobs. Both universities and the firms engaged in nickel downstreaming are driving this. But it is not happening fast enough. Skills development needs more support, from low to high-skilled jobs, to promote higher wages.
The nickel industrial parks consume large amounts of food, mostly sourced outside of Southeast Sulawesi. “Buy local” initiatives, lauded by local leaders, would help promote the primary sectors that still employ so many. What is needed are mechanisms for linking local producers with the large firms running the industrial parks, which would help producers target quality and crop requirements. This would provide much-needed income to local farmers and their communities.
The nickel boom in Southeast Sulawesi is a paradox – reshaping the region while sidelining locals. Local governments and leaders must push for stronger environmental and labour protections, focus on skill development and link new industries with the old. The national government must empower local leaders and curb the industry’s excesses to secure Indonesia’s dominant role in global nickel markets and lift the living standards of local communities. President Joko Widodo initiated downstreaming, and now President Prabowo Subianto must transform it.
About the authors
Hilman Palaon
Dr Hilman Palaon is a Research Fellow at the Lowy Institute’s Indo-Pacific Development Centre. His work focuses on digital economy issues in the Indo-Pacific region, including financial inclusion, economic empowerment, and technology innovation.
Robert Walker
Robert Walker is a Research Fellow at the Lowy Institute and works as an economist in the Institute’s Indo-Pacific Development Centre.
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