The world's largest nickel producer and Southeast Asia's largest economy — an underutilized Canadian trade relationship with structural alignment on critical minerals
Indonesia is the world's largest archipelago nation, the fourth most populous country on earth (280 million people), and the largest economy in Southeast Asia at approximately $1.4 trillion USD GDP (2024). It is also the world's largest producer of nickel — accounting for more than 50% of global supply — and holds significant reserves of bauxite, copper, and coal. These two facts together make Indonesia one of the most strategically important countries in the global critical minerals race and one of the most consequential bilateral relationships Canada has not yet fully utilized.
Canada and Indonesia are both members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which Indonesia ratified and which entered into force for Indonesia in 2023. This gives Canadian exporters preferential tariff access to a 280-million-person market that was previously accessible only on MFN terms. The bilateral trade relationship is currently dominated by Indonesian exports to Canada (primarily electronics, textiles, and palm oil) with Canadian exports (primarily agri-food, machinery, and technology) running a deficit. The CPTPP's phased tariff reductions are expected to improve Canadian export competitiveness significantly through 2030.
The critical minerals dimension is the most strategically significant aspect of the Canada-Indonesia relationship. Indonesia's decision to ban raw nickel ore exports in 2020 — forcing foreign buyers to invest in Indonesian processing capacity — is the template that several other resource-rich nations are considering emulating. Canada's critical minerals strategy explicitly identifies Indonesia as a priority partner for supply chain diversification. The question is whether the bilateral relationship can be deepened at the government and commercial level fast enough to matter for Canada's EV battery supply chain timeline.
Prabowo Subianto won Indonesia's February 2024 presidential election decisively, succeeding Joko Widodo (Jokowi) who had governed since 2014. Prabowo's government has signaled continuity with Jokowi's economic nationalism and industrial policy — particularly the downstream processing requirements for critical mineral exports — while pursuing a more assertive foreign policy positioning. Indonesia under Prabowo continues to maintain strategic autonomy, refusing alignment with either the US-led or China-led economic blocs, and positioning itself as a sovereign actor in the critical minerals supply chain rather than a raw material supplier to any single partner.
Indonesia's nickel export control policy is the most consequential industrial policy decision by any commodity-producing nation in the past decade. By banning raw ore exports and requiring foreign companies to invest in Indonesian smelting and processing capacity, Indonesia captured dramatically more economic value from its nickel deposits than it would have from raw ore royalties. China responded by building nickel processing facilities in Indonesia, effectively moving the supply chain rather than losing access to the resource. Western nations — including Canada and the US — are now attempting to build alternative partnerships with Indonesia that provide processing investment without China's scale advantage. This is the central commercial and geopolitical dynamic in the bilateral relationship.
Indonesia's economy is diversifying from commodity dependence toward manufacturing and services, following a development trajectory similar to Malaysia and Thailand a generation earlier. The government's making Indonesia a regional manufacturing hub ambition is partly realized in textiles and electronics, and is being extended to EV battery manufacturing through Jokowi-era and now Prabowo-era industrial policy. Indonesia's consumer market — 280 million people with a growing middle class, significant urban concentration in Java, and rapidly increasing digital commerce adoption — creates genuine demand for Canadian agri-food products, educational services, and technology.
Canadian exports to Indonesia are underdeveloped relative to the market's size and the CPTPP access now available. Agri-food — wheat, canola, pulses, and processed food products — represents the largest and most structurally sound Canadian export category to Indonesia. Indonesia is the world's largest palm oil producer but imports significant volumes of other vegetable oils and processed food inputs. Canadian wheat and canola have established market presence; the CPTPP's tariff reductions create improved price competitiveness for additional categories.
The bilateral investment dimension is more significant than the trade figures suggest. Canadian pension funds — particularly CPPIB and OMERS — have invested in Indonesian infrastructure and real estate assets. Canadian mining companies have exploration and development interests in Indonesia's nickel and copper deposits. The investment relationship is constrained by Indonesia's foreign ownership rules, which require local partnership in most sectors, but the Canadian investment presence is real and growing.
The Canada-Indonesia relationship is characterized by alignment on strategic direction (both are rule-of-law democracies pursuing economic diversification, both are CPTPP members, both have interests in a stable Indo-Pacific) and friction on specific commercial questions.
The palm oil question: Indonesia is the world's largest palm oil producer and has longstanding grievances about Canadian and European trade policies that it characterizes as discriminatory against palm oil on grounds that are really about protecting competing domestic vegetable oil industries. Canada's canola sector does compete with palm oil in global vegetable oil markets. This is a real commercial tension, not a manufactured grievance, and it creates friction in the bilateral relationship that complicates market access negotiations for Canadian agri-food exports beyond canola.
The nickel processing requirement: Indonesia's export ban on raw nickel ore requires any company that wants Indonesian nickel to invest in Indonesian processing facilities. This is Indonesia's sovereign right, it is economically rational from Indonesia's perspective, and it requires Canadian companies and government to decide whether to make the investment required to access Indonesian critical minerals or to source from other suppliers. The alternative — Chilean, Philippine, or Russian nickel — all carry their own supply chain risks. Indonesia's policy is a constraint, not a deal-breaker.
Labour standards: Indonesia's labour standards in export manufacturing sectors have been documented by international labour organizations as inadequate in specific areas — freedom of association, child labour in supply chain agriculture, and working conditions in some mineral extraction operations. Canadian companies with due diligence obligations under emerging supply chain transparency frameworks will need to address this in their Indonesia sourcing assessments. This is not a reason to disengage — it is an area where Canadian engagement can support improvement.
| Risk | Category | Level | Note |
|---|---|---|---|
| Nickel export policy expansion to other minerals | Policy | Medium | Indonesia has signalled interest in applying similar restrictions to bauxite and copper |
| Local ownership requirements block market entry | Regulatory | Medium | Most sectors require Indonesian local partner with majority or significant ownership |
| Currency volatility (Indonesian Rupiah) | Financial | Medium | IDR historically volatile; USD-denominated contracts common for large transactions |
| Political uncertainty under new government | Political | Low | Prabowo signals continuity on economic policy; democratic institutions stable |
| Corruption and procurement integrity | Compliance | High | Transparency International consistently ranks Indonesia in mid-to-lower range; due diligence essential |
| Supply chain labour standards | Reputational | Medium | Sector-dependent; minerals and garment supply chains highest exposure |
Indonesia presents a high corruption and compliance risk for Canadian companies. Bribery and facilitated payments remain prevalent across customs, permitting, licensing, and government procurement — particularly at regional government level where the decentralization introduced by reformasi has created numerous local corruption pressure points. Canadian companies are subject to CFPOA obligations and should implement enhanced due diligence protocols for all Indonesian agents, distributors, and local partners. The natural resources and mining sectors — highly relevant to Canadian companies — carry elevated compliance exposure due to complex licensing processes and multiple government touchpoints.
PEP exposure is elevated: Indonesian state-owned enterprises (Pertamina, PLN, Antam, Bukit Asam) are significant commercial counterparties, and executive and board positions carry PEP status. Political and business networks in Indonesia are closely interwoven — family and political connections of senior officials frequently intersect with commercial activity. Indonesia is not FATF-listed but AML supervision has historically been inconsistent. CTI rates Indonesia High Compliance Risk requiring a documented CFPOA program and enhanced agent screening before any market engagement.
The Indonesian-Canadian community is approximately 30,000–40,000 people, concentrated in Metro Vancouver, Greater Toronto, and Calgary. It is smaller than the Vietnamese-Canadian or Filipino-Canadian communities but growing steadily through skilled worker immigration and international student flows. Indonesian international students in Canada number approximately 10,000–15,000, concentrated in engineering, business, and technology programs.
The Indonesian diaspora's commercial significance is proportionally larger than its size. Indonesian-Canadians are disproportionately represented in professional and entrepreneurial sectors and maintain strong commercial and family ties to Indonesia. The Indonesian Chamber of Commerce in Canada (INACHAM) provides a network for bilateral business introductions.
Trade data: Statistics Canada (2025). Bilateral trade data, Canada-Indonesia. · GDP and macroeconomic data: IMF World Economic Outlook (2024). · Nickel production: US Geological Survey, Mineral Commodity Summaries 2025. · CPTPP: Global Affairs Canada, CPTPP implementation status (2025). · Corruption index: Transparency International, Corruption Perceptions Index 2024. · Labour standards: ILO Country Profile Indonesia (2025). · Investment data: Bank Indonesia, Foreign Direct Investment Statistics (2025). · Digital economy: Google-Temasek-Bain, e-Conomy SEA 2024.