Nickel and Dime: The Philippines' Approach to Attracting Western Capital

Introduction

Aware of the integral role of critical minerals in clean energy systems and other modern technologies, the Philippines has begun courting Western investment to develop its domestic critical mineral industry. The country has vast reserves of untapped natural resources, including nickel, a critical component of electric vehicle (EV) batteries. According to the International Energy Agency, global demand for nickel is expected to increase by approximately 65% by the end of the decade. The Philippines stands to financially benefit from the expected surge of demand for nickel in the coming years, but must first build the requisite infrastructure (e.g., mines, refining plants, processing facilities, transport hubs, etc.) to realise the economic potential of this mineral resource.

To attract increased foreign investment, the Philippines is positioning itself as an alternative to China in the global nickel supply chain. This stance draws from the rationale that the United States (U.S.) and other Western countries will want to diversify their critical mineral supply chains away from China given contemporary security concerns with China and its dominance over nickel supplies and processing capabilities. Such a strategy has both geopolitical and economic implications, especially as it relates to strategic trading and investment blocs that reflect the U.S.-China power competition. By aligning with Western interests, the Philippines aims to bolster its economic growth while contributing to a more balanced global supply chain for critical minerals.

Nickel Industry in the Philippines

The Philippines is currently the world’s second-largest supplier of nickel, accounting for 11% of global production. The country’s nickel exports are expected to increase over the next couple of years to meet growing global demand, particularly in the EV sector. However, this outlook depends on how the country navigates other political and economic factors, including (1) volatility in market prices; (2) trade relations and international partnerships; (3) ability to attract foreign investment; (4) the implementation of government policies that promote industry development; and (5) environmental, social, and governance considerations. The Philippines Government has seemingly decided that, at its current stage, the best way to develop the country’s nickel production capacity is by focusing on boosting foreign investment in the domestic nickel industry.

Investment Strategy

Indonesia is the largest global supplier of nickel, producing over 40% of the world’s nickel in 2023. Approximately 90% of Indonesia’s nickel industry is controlled by Chinese companies, giving China a dominant market position over nickel. The market concentration of this critical mineral has caused unease and consternation amongst Western nations that fear China may leverage this control over the global nickel supply chain to their disadvantage. The Philippines, which itself has experienced escalating tensions with China over territorial claims in the South China Sea, has leveraged this fear, attempting to use it to spur greater foreign investment in their own nickel industry. Through this investment, the Philippine government hopes to develop the domestic nickel sector, especially as it relates to downstream processing, where most of the value-added occurs. The investment strategy comes amid a broader effort to augment economic ties and foster greater alignment with the U.S. and its allies, although the country is still open to Chinese investment. Government officials in Manila have shared that the U.S., Australia, Britain, Canada, and European Union have all expressed interest in directing investment to the Philippines’ nickel sector.

To date, there have been a few initiatives to advance the Philippines’ nickel industry. In late 2023, government officials from the Philippines and the U.S. signed a Memorandum of Understanding that provided $5 million to set up a technical assistance programme to develop the Philippines’ critical mineral sector. The leaders of the U.S., Japan, and the Philippines also held an economic security summit in April 2024 that featured discussions on strengthening critical mineral supply chains. Similarly, there have been preliminary talks about a trilateral arrangement in which the Philippines would supply raw nickel, the U.S. would provide financing, and a third country (e.g., Australia) would offer the technology necessary to process and refine the nickel. However, thus far, these discussions have yielded little in the way of concrete financing or investment initiatives that would provide notable benefit to the industry.

Geopolitical and Geoeconomic Implications

While the U.S. and its allies support a diversification of the global nickel supply chain, their ability to shift the paradigm will likely prove to be a difficult undertaking. Strengthening the Philippines’ nickel mining, processing, and refining capacity up to a level in which it will be able to recapture significant market share from Indonesia and China will require a huge amount of economic and political resources. This is something most countries will shy away from incurring in an important election year. For example, the U.S. has communicated its reluctance to sign a critical minerals agreement amidst the 2024 U.S. presidential race. Further, countries will not want to antagonise China and risk retaliation, given that many economies currently rely on China for the production and processing of critical minerals and their downstream technologies.

As a result of major Chinese investment and technological innovation, Indonesia’s production of nickel has notably increased in recent years. This flood of new nickel supplies has put downward pressure on global nickel prices and crowded out competition from entering the market. With slumping prices, it may be a challenge to attract sufficient foreign financing without a policy framework or safeguards that could inspire greater investor confidence. A potential remedy could be regulatory policies and tax incentives that favour non-Chinese companies. Nevertheless, the economic development associated with increased nickel production is integral to the Philippines economy, so the country does not want to alienate Chinese investors if they prove to be the best path forward.

Concluding Remarks

The Philippines’ strategic efforts to develop its nickel industry through Western investment illustrate the dynamics of economic ambition and geopolitical considerations. By positioning itself as a viable alternative to the China-dominated Indonesian nickel industry, the Philippines aims to leverage global security concerns to increase investment in its domestic nickel sector. However, the realisation of this ambition will hinge on overcoming significant political and economic challenges, such as fluctuating prices and dynamic geopolitical tensions. As the country navigates these hurdles, the outcome of its initiatives will significantly impact its role in the global critical minerals supply chain, shaping future economic and strategic alignments.