Adding value to critical minerals: are there alternatives to Indonesia?

Demand for minerals like nickel, lithium, copper, and rare earths is set to grow four to six times by 2040. For resource-rich countries across Asia-Pacific, Africa, and Latin America, this looks like a historic window - for structural transformation, for building capabilities, for moving beyond the extractive enclave model that has left so many mineral-rich economies with depleted resources and limited development to show for it.

One country has emerged as the dominant reference point for how to respond: Indonesia. And for a good reason: what it achieved in nickel processing in less than a decade is, by any measure, remarkable. Between 2015 and 2024, Indonesia went from producing 6% of world nickel to over 60%. It built more than 40 smelters and moved from virtually no presence to 30% of world supply of battery-grade nickel. The policies are well known: export bans on unprocessed ore, conditioned foreign investment, integrated industrial parks - and they have attracted enormous attention from governments elsewhere.

But before others reach for the same toolkit, it is a question worth asking more carefully: were the policies the whole story?

What made it work - and at what cost

Much of the discussion about Indonesia focuses on the export ban - the boldness of the decision, the political will required to sustain it. And that focus is not wrong. Indonesia made consequential choices, and it made them well. But those choices worked because they were well-matched to a very specific configuration of conditions: exploding global demand and China's need to move production offshore; a China–Indonesia strategic alignment that channelled technology and capital at scale; a new processing technology (High Pressure Acid Leach, HPAL) that was available but had been lying dormant; vast nickel reserves combined with cheap coal and cheap labour; centralised political authority that could sustain an export ban over years without caving to pressure; and a fragmented domestic mining sector with no strong processors capable of resisting change. 

The policies did not create these conditions - conditions and policies co-evolved. The government read the moment well, and the conditions made the policies work. Remove any one of them and the outcome changes entirely.

But the conditions that made the policies work also shaped their costs. The following are examples of some of the costs being discussed. Indonesia's nickel industry is overwhelmingly powered by captive coal plants, and most facilities produce between 57 and 70 tonnes of CO₂ per tonne of nickel. In communities near the Weda Bay industrial park, respiratory infections increased more than 24-fold between 2020 and 2023. Meanwhile, Chinese firms still control approximately 75% of refining capacity and supply 80-90% of refining machinery, with 94% of Indonesian nickel exports going to China in the first half of 2025.

Indonesia produces more, but much of the knowledge, the technology, and the margins remain elsewhere. Repositioning in the value chain is not the same as upgrading within it.

But are there alternatives?

Indonesia followed the pathway that dominates current thinking about mineral value addition: downstream processing. It is the option that captures the imagination: moving from raw ore to refined metal to battery components, climbing the chain, capturing more value at each step. And the logic is real. At present, given China's dominance in processing, controlling these stages might give countries leverage and bargaining power that raw ore exports simply do not.

But downstream processing also comes with costs and constraints that are less often discussed. It is capital-intensive, energy-intensive, and generates limited employment relative to investment. Entry barriers are also high: processing is dominated by a small number of large, vertically integrated companies with established technology, capital, and supply relationships, making it difficult for new entrants to compete on anything other than cost and regulatory laxity. It typically produces another commodity rather than a diversified industrial base. And the environmental burden is significant: processing is among the most polluting stages of mineral value chains, and as China has tightened its own environmental standards, the most damaging stages are migrating to countries with less regulatory capacity. 

Two other pathways have received far less attention, but both carry real potential. The first is building knowledge-intensive upstream capabilities - making extraction itself more knowledge-intensive, technologically sophisticated, and environmentally sustainable. This does not mean expanding extraction. It means investing in geological expertise, environmental management, extraction technologies, automation, low-carbon approaches. The more a country understands its own resources and the best available ways to extract them, the stronger its position: to negotiate terms, to attract better partnerships, to improve social and environmental outcomes. Knowledge investment generates spillovers and builds capabilities that travel, to other firms, other sectors, other problems. It is a less dramatic transformation than building a smelter, but very likely a more durable one.

The second is supporting the development and expansion of supplier ecosystems: local firms that provide services to the mining sector: engineering, environmental management, software, water treatment, logistics. This pathway tends to be more accessible than downstream processing, as it builds on capabilities that many resource-rich countries already have in partial form, it can generate spillover effects across sectors, and in the longer term reduce dependency on the resource itself.

Chile: upstream by design, enabling by choice

Chile is an excellent example of a genuinely different model, not superior to Indonesia's, but instructive in its own way of the possibilities of going upstream and capturing value. It has not achieved dramatic downstream repositioning, and by that conventional metric its scorecard looks modest. But looking more carefully, the picture changes.

Some numbers tell the story. Today, in Chile 78% of copper mining electricity comes from renewable sources, up from 44% in 2021  as a result of years of investment and learning in adapting renewable systems to the specific demands of large-scale mining. Similarly on water, a critical and increasingly contested resource in one of the world's driest mining regions, 41% of water now comes from the sea, heading to 68% by 2034, made possible by major investments in desalination infrastructure and the engineering knowledge to pump seawater to mines at high altitude across hundreds of kilometres of desert. These are not operational tweaks. They are upstream innovations enabled by changes to the extraction process itself that required sustained capability building, and that now represent transferable knowledge applicable to other mining regions worldwide. Together, they are also beginning to build something else: the foundations of a distinctively Chilean brand of green copper, extracted with renewable energy, produced with minimal freshwater use, with the potential to command a price premium and anchor long-term partnerships with manufacturers in the clean energy and electronics sectors.

The fact that Chile registers 6.7 mining patent families per billion dollars of mineral exports, compared to 0.33 for Indonesia, a twentyfold difference in knowledge intensity per dollar exported, goes some way to explaining how these changes became possible.

Interestingly, and in contrast to Indonesia, this was not built overnight nor through a single dramatic policy intervention. Chile's approach has relied on a mix of policies developed and sustained over decades, combining enabling instruments, direct state involvement in extraction, and strict environmental regulation.

Enabling instruments include government-funded R&D investment, contractual innovation obligations written into operating licences, supplier development programmes, and renewable energy frameworks. On environmental regulation, water rules in the north offer a good example: legal penalties for freshwater over-extraction and mandatory environmental impact assessments pushed companies toward desalination long before it became economically attractive on its own terms, a shift reinforced by sustained civil society pressure. On state presence, Codelco - the world's largest copper producer - has acted as an anchor for knowledge, innovation, and R&D in the sector, leading the transitions toward renewables and cleaner production that private operators have progressively followed. Most recently, this model of state leadership has been extended to lithium: in December 2025, Codelco and SQM created Nova Andino Litio, a public-private partnership in which the state holds majority control and will capture between 70% and 85% of the operating margin from Atacama lithium production until 2060.

Given Chile's conditions, its institutional depth, its geopolitical choices, its resource economics, it was the right fit. Not without challenges: ore grades are declining, processing capacity remains limited, and supplier ecosystems have yet to reach the scale the sector demands. But it has compounded, slowly and steadily, over time.

Diagnose before you prescribe

Two countries, two minerals, two pathways, two very different sets of circumstances, and two genuinely instructive experiences. The point is not which model is more successful. It is that the right strategy depends on conditions that vary enormously: resource position, existing capabilities, institutional depth, geopolitical relationships, and the social and environmental costs that communities are willing and able to bear.

What this suggests is that honest diagnosis should come before policy design. Which conditions are already in place? Which can realistically be built over time? What kind of development is achievable, and sustainable, given where a country is actually starting from? There is much to learn from Indonesia, and from Chile. But the goal is not to become either of them. The minerals belong to these countries. The path forward should too.