Why Mining Is No Longer the Main Pillar of Indonesia's Economic Growth

Mining was the only sector to contract amidst the euphoria of high economic growth in the second quarter of 2026. Indonesia’s growth rate was recorded at an impressive 5.29 percent year-on-year, precisely in the second quarter of 2026. Compared to the previous quarter’s 5.61 percent, performance slowed, but it was relatively stronger compared to the same period in previous years. Among the 17 business fields monitored by the Central Statistics Agency (BPS), mining and quarrying was the only sector that contracted, shrinking by 1.64 percent. The contraction in the mining sector during the second quarter was influenced by the dynamics of various new government regulations. One of these was the structuring of production quotas in the 2026 Work Plan and Company Budget (RKAB), which aims to maintain the balance of supply and coal prices at the global level. Additionally, the contraction was caused by a decline in the production of several mining commodities, such as bauxite, tin ore, and nickel ore. However, the contraction in mining sector growth is not a new phenomenon, as the sector entered negative territory starting early last year. Looking at a longer timeline, the lustre of mining is now fading. Since 2024, achieving 5 percent growth in the mining sector has appeared difficult, and it has been contracting since last year. This year, the situation has become more challenging as the government cuts and limits the production volume of several commodities like coal and nickel. Although not overly large, at only around 8 percent, mining and quarrying remains among the top five sectors with the largest contribution to the national gross domestic product (GDP), with the caveat that the economic pie created so far has not been distributed evenly. This year, particularly since the second quarter of 2026, the government has limited production in the 2026 annual RKAB to maintain the balance between supply and demand for coal and nickel commodities. Nickel ore production in the 2026 RKAB, for example, is set at a range of 250 million to 270 million tonnes, while for coal, the government is targeting production of 600 million tonnes. Iwan Kusmawan, General Chair of the National Workers’ Union (SPN), stated that the production tightening in the 2026 annual RKAB is considered to hamper business activities and reduce the need for labour. Since the 2026 RKAB was implemented last April-May, companies have been forced to cut operational costs by eliminating overtime and returning working hours to the normal eight hours per day. According to SPN data from several mining centres in Indonesia up to Friday (12/6/2026), around 2,000 workers in the mining sector have been affected. The majority of workers come from supporting companies, including mining service companies, rather than from parent companies or holders of Mining Business Permits (IUP) and Special Mining Business Permits (IUPK). Iwan said the main cause of this condition is the declining production of mining companies. This decline creates a domino effect on tenants and contractors, which ultimately affects the absorption and sustainability of the workforce. Gita Mahyarani, Executive Director of the Indonesian Coal Mining Association (APBI), added that the greatest impact is currently being felt by mining contractors, as the volume of work is highly dependent on production figures and upstream mining operational activities. This condition particularly hits companies that cut production by a large amount. ‘So adjustments to work contracts, operating hours, equipment utilisation, and labour requirements are also made,’ Gita said. Sudirman Widhy Hartono, General Chair of the Indonesian Mining Experts Association (Perhapi), said that a number of mining companies have been forced to stop operations because they have run out of production quotas. This situation is highly risky and could trigger a wave of layoffs in the mining industry as a result of the cuts. Not only that, the national mining business is also experiencing turbulence due to repeated delays in RKAB approvals. The government had anticipated this delay through licensing relaxation by allowing companies that meet administrative requirements to operate on a limited basis of up to 25 percent of the 2026 production plan. This policy was in effect until 31 March 2026. The implementation of this rule caused several impacts, including supply constraints for coal needed for domestic power plant operations. On the other hand, the limited supply is also caused by the low domestic market obligation (DMO) price for coal, which has not been adjusted since 2018. The DMO price for coal for the electricity sector is currently 70 US dollars per tonne, while the international market price for coal is now around 127-143 US dollars per tonne. With limited production quotas, companies will prefer to sell their products to the global market rather than supply domestic needs (DMO). This situation has the potential to widen the gap for unofficial production quota leaks and the emergence of illegal mining in Indonesia. High foreign demand and relatively high prices make the coal mining business vulnerable to oversupply. The pressure looming over the mining industry, particularly on several main commodities, has actually been felt since 2025. Weakening demand and low prices, triggered by a combination of global and domestic factors, have suppressed the performance of this sector.