Indonesia’s nickel hub: Beyond state control?

Morowali, a regency in Central Sulawesi, Indonesia, was never meant to sit at the centre of global debates about sovereignty, industrialisation or the limits of foreign investment. When I visited the area in 2018 to conduct brief field research, it was still an emerging industrial frontier — noisy, chaotic and optimistic. The scale of transformation was already visible, but the idea that Morowali could become a “para-sovereign” industrial zone that questions the Indonesian state’s authority would have seemed far-fetched. 

Morowali is situated far away from Jakarta and the centre of Indonesia’s political life. It is this precise distance that has made it attractive as a site for industrial experimentation. 

The IMIP began as a flagship project for the processing of nickel, a mineral that underpins the global transition to electric vehicles. Backed by major Chinese firms including Tsingshan, the park quickly grew into a massive enclave of smelters, coal power plants, worker housing, internal transport systems and supporting facilities. Today, the complex spans thousands of hectares, operates around the clock and absorbs billions of dollars in foreign direct investment (FDI). It has become one of the largest nickel processing hubs in the world.

From an economic point of view, the success story is easy to tell. Indonesia sought to capture more value from its mineral resources, China needed a stable source of nickel for its battery industries, and Morowali became the meeting point. Yet this narrative hides the less visible cost — the emergence of an industrial territory where the lines between public and private authority are blurred.

Many Indonesian observers describe it as an autonomous zone for Chinese investors, protected by national elites who value the fiscal and political benefits of the project. The growth of IMIP created an ecosystem in which formal regulations, from labour standards to environmental approvals, are frequently bypassed or unevenly enforced. The state is present, but often not in control.

The recent controversy over an alleged illegal airport inside the industrial complex has brought this issue into sharp focus. Airports are symbols of sovereignty, because the movement of people and goods across borders is among the most tightly regulated state functions. Reports that an airstrip and its operations inside IMIP may have been running without full alignment with national aviation, customs and immigration regimes have raised uncomfortable questions, even if the Indonesian government has denied the claims in such reports.

If true, this is more than a technical violation; it would indicate that within the borders of Indonesia, a private industrial consortium has created a parallel infrastructure of mobility that operates outside the normal reach of the state. For many Indonesians, this revives longstanding fears that Morowali has become a state within a state.

This is not an isolated concern. Since its establishment, the Morowali zone has been criticised for its limited transparency, uneven governance and concentrated economic power. Environmental violations, workplace accidents, and labour disputes have been widely reported. Local communities often feel marginalised, and workers, especially migrant workers from China and domestic migrants from other provinces, face harsh conditions.

The combination of physical isolation and layers of private security amplifies the sense that Morowali functions by its own rules. Even before the airport story surfaced, questions were already being asked about who truly governs the area, and whose interests are being served.

Morowali represents a broader global phenomenon that arises when industrial enclaves grow faster than the regulatory capacities of the state. In such places, formal sovereignty is intact, yet practical authority is shared, fragmented, or captured by private actors. These zones are not fully autonomous, but they operate with enough discretion to reshape local governance. They become para-sovereign spaces, shaped by the logic of capital rather than the logic of citizenship.

Indonesia has long embraced the idea of special economic zones (SEZs) to attract foreign investment and stimulate development in remote regions. By design, these zones enjoy simplified licensing, reduced oversight, and administrative leniency. In theory, this produces efficiency, but in practice, it opens the door for regulatory gaps that powerful investors can exploit.

When an investment hub grows beyond the scale that the host government can monitor, it begins to function like a hybrid entity. Morowali is an extreme example because it is both physically massive and strategically vital. The state depends on its output, so it hesitates to enforce rules that might disrupt production. Over time, this creates a silent bargain: the state retains formal authority, while investors manage the day-to-day reality of governance.

This dynamic also reflects asymmetric dependence. Chinese investors bring capital, technology and access to global markets. Indonesia provides minerals and land. In such arrangements, the host state often negotiates from a weaker position. Foreign investors can threaten to relocate or withhold expansion, while local officials fear losing economic momentum. This imbalance can translate into regulatory exceptionalism, where the rules are flexible for those who are essential to the national development strategy. Morowali became a test case for how far this flexibility can stretch.

The current controversy around the alleged illegal airport reveals the limits of this model. It pushes the state to confront a hard question — can a SEZ become so privileged that it effectively acquires sovereign characteristics? The answer matters not only for Morowali or Indonesia, but for other countries experimenting with similar industrial hubs.

When an enclave begins to operate outside the scope of national aviation control, customs oversight, or border management, it signals a structural imbalance. It shows that the mechanisms meant to regulate investment have become subordinate to investment itself.

The situation also highlights the role of Indonesian elites, many of whom have defended Morowali as a national success story. Their protection of the park has contributed to the perception that the area is shielded from scrutiny.

As of this year, estimates suggest that total FDI in the Morowali complex has surpassed several billion dollars, with Chinese firms controlling key segments of the value chain from smelting to downstream nickel products. Their influence is not limited to capital; they shape industrial policy, labour demand and infrastructure priorities.

The internal logistics of IMIP, from roads to power plants to port facilities, reflect an integrated system designed primarily around investor needs rather than regional development goals. This depth of control reinforces the idea of a parallel governance structure.

Morowali illustrates the tension between national sovereignty and globalised industrial networks. Countries seek investment, but investment often arrives with conditions, expectations and power. The emergence of para-sovereign zones is not accidental; it is the result of states choosing to outsource economic functions without building the institutional capacity to oversee them. The challenge is not to reject investment, but to build regulatory frameworks that prevent industrial enclaves from transforming into autonomous territories.

The airport controversy can thus be seen as a turning point. It forces Indonesia to reconsider the balance between efficiency and authority. If Morowali is to remain a symbol of national industrial ambition, it cannot also be a space where basic regulatory functions are uncertain. The existence of an air facility that appears to fall outside normal state control, even temporarily, undermines the principle that the state is the only legitimate regulator of borders and skies.

Morowali will continue to play an important role in the global nickel supply chain. The question is whether Indonesia can reassert meaningful governance in a zone that has grown more quickly than the rules designed to manage it.

The stakes are high. What happens in Morowali will shape how other SEZs are understood and how the balance between economic openness and sovereignty is debated. It will also signal to investors that while Indonesia welcomes capital, it cannot afford to trade away the authority that defines a modern state.

The controversy has opened a window to reexamine what has long been overlooked. Morowali is not only an industrial project, it is also a political and social question. If the airport story accelerates a shift toward stronger oversight and clearer accountability, it may yet become the moment that brings the zone back into the framework of democratic governance. For now, Morowali stands at the intersection of ambition and autonomy, a reminder that even the most successful development projects must operate within the bounds of state authority and public interest.

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