EU-Indonesia CEPA: A New Frontier for Critical Raw Materials and Strategic Supply Chain Shifts

The EU-Indonesia Comprehensive Economic Partnership Agreement (CEPA), finalized in June 2025, marks a pivotal moment in global trade dynamics. By unlocking access to Indonesia's vast reserves of critical raw materials (CRMs)—including nickel, cobalt, and lithium—the pact positions the EU to strengthen its clean energy supply chains while reducing reliance on China. For investors, this agreement presents a transformative opportunity to capitalize on a resource-rich market primed for industrial growth, ESG-aligned infrastructure, and strategic diversification.

Strategic Opportunities in Critical Raw Materials

Indonesia holds approximately 21 million metric tons of nickel reserves—the world's largest—alongside significant cobalt and lithium deposits. These minerals are indispensable for electric vehicle (EV) batteries, renewable energy storage, and green technologies. Under the CEPA, the EU will eliminate tariffs on 80% of Indonesian exports, including raw minerals, by 2026. This immediate tariff relief creates a cost-efficient pathway for European manufacturers to source CRMs, bypassing China's dominance in nickel processing (which controls 80-82% of battery-grade production).

The phased elimination of tariffs on processed materials like EV battery components—scheduled over five years—adds further incentive for European firms to invest in Indonesia's downstream processing facilities. This aligns with the EU's Critical Raw Materials Action Plan, which aims to secure 100% of its battery material needs from non-Chinese sources by 2030.

Investors should track companies positioned to leverage this shift. Firms with partnerships in Indonesian mining or EV supply chains—such as Vale SA (nickel mining) or BASF SE (battery materials)—are likely to benefit as demand for CRM supply diversification surges.

Investment Avenues: Mining, EV Supply Chains, and Sustainable Infrastructure

1. Mining Sector: Direct investment in Indonesian nickel and cobalt mining operations offers high returns, though it requires navigating environmental and social risks. Companies like Antam (state-owned) and Harita Nickel are key players.
2. EV Supply Chains: The CEPA incentivizes EU firms to build joint ventures in Indonesia's Morowali Industrial Park and Batang Toru (a lithium project), which could become hubs for battery-grade material production.
3. Green Infrastructure: The pact's emphasis on sustainable development opens opportunities in renewable energy projects. Investors might focus on solar/wind farms or recycling facilities to meet the EU's 25% recycling benchmark for CRMs by 2030.

Timing the Investment Window

The CEPA's phased implementation offers a clear roadmap for investors:
- 2026: Full tariff elimination on 80% of Indonesian exports, including raw materials.
- 2027–2031: EU recycling targets and Indonesian FDI growth (already at $55.3B in 2024) will drive demand for CRM processing infrastructure.

Investors should act swiftly to secure positions ahead of 2026. Early movers can lock in favorable terms in mining concessions or infrastructure projects tied to CRM logistics.

ESG Considerations and Risks

While the CEPA promises growth, it faces criticism over environmental and labor standards. Indonesia's mining practices have been linked to deforestation and human rights abuses, particularly in regions like Sulawesi and Raja Ampat. The agreement's weak enforceability of ESG clauses means investors must prioritize companies with third-party sustainability certifications and transparent supply chains.

Additionally, the CEPA's Investment Court System (ICS) could expose Indonesian policymakers to lawsuits over regulatory changes—a risk for firms operating in politically sensitive sectors. Investors should favor partnerships with local stakeholders and firms that align with Jakarta's Omnibus Law on Job Creation, which balances labor protections with investor incentives.

Conclusion: Positioning for a Post-China Supply Chain

The EU-Indonesia CEPA is not just a trade deal—it's a geopolitical realignment. By diversifying CRM sourcing and anchoring EV supply chains in Indonesia, the EU gains resilience against China's resource dominance while spurring sustainable development in Southeast Asia.

Investment recommendation:
- Short-term: Invest in EU-based CRMs firms (e.g., Vale SA, Sandvik AB) with Indonesian partnerships.
- Long-term: Deploy capital into green infrastructure funds focused on Indonesian recycling and renewable energy projects.
- Avoid: Companies with poor ESG records or exposure to high-risk mining regions.

The CEPA's 2026 deadline is a clarion call for investors to act. Those who position now will secure a stake in a resource-rich economy at the heart of the clean energy revolution.

Risk disclosure: This analysis does not constitute financial advice. Investors should conduct due diligence on specific firms and regulatory risks.