Indonesia: current account deficit expected to shrink after nickel ore export ban – UOB
|Economist at UOB Group E.Tanuwidjaja assessed the implications of the nickel ore exports ban on the Indonesian current account.
Key Quotes
“Ministry of Energy & Mineral Resources (ESDM) has confirmed the earlier-than-scheduled timing for the ban of nickel ore exports. Under the ESDM Regulation 11/2019, the export of all nickel ores will effectively be banned as of 31 December 2019 instead of 11 January 2022 as per initial regulation”.
“While it serves to maintain the country’s nickel reserve for the greater benefits to the nation, the acceleration of the nickel ban is also intended to advance the local downstream processing facility, mainly battery and electric vehicle”.
“Given the run rate of nickel ore since 2018, we estimate exports would be reduced by about USD65mn each month or USD0.78bn per annum; which would have little to no impact on the country’s trade deficits considering the current trade deficit amount”.
“The recent development shows that the trend of higher nickel content electric battery is the present and the future for electric vehicles. If the current nickel export ban be supported by consistent legal and policy certainties, as well as sustained and immediate development of the processing and downstream industries, the resulting multiplier effect in reducing current account deficit will be substantial in the long-term. This would bring about more stability in the rupiah and opens room for a lower interest rate environment in the country”.
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