INDONESIA AND THE OPPORTUNITY OF ASEAN

Jakarta Traffic

Jakarta Traffic

The Australian relationship with our closest Asian Neighbour Indonesia has without doubt been strained over the past 12 months. Despite this recent tumult, Indonesia remains one of Australia’s most important regional partners, and as the most populous, and largest market in South East Asia, the Australian – Indonesian Relationship is critical to Australia’s successful political, business and social engagement with ASEAN. This year is the 40th Anniversary of the founding of the Association of South East Asian Nations, and Indonesia remains at the forefront of this important political and economic grouping of 10 member states throughout Asia. Indonesia hosts the administrative headquarters of ASEAN, and Australia has recently appointed our first ambassador to ASEAN, a move similarly adopted by the United States. Australia’s relationship with Indonesia is therefore not singularly about one country, but the region and the 10 countries of ASEAN. Yet Australia’s political and economic relationship with Indonesia has continued to lag behind other ASEAN countries such as Singapore, Malaysia and Thailand. Despite the relative size of the economy, population, consuming class, our proximity, and indeed our collective experience through tourism (holidays to Bali), Indonesia remains outside of Australia’s top 10 trading partners.

AsiaAustralis and our consultants have been a strong advocate of the opportunities for building a closer economic relationship for more than two decades. Throughout this period large Australian corporations, SME’s and Indonesia focused academics have seen Indonesia’s rise and fall and rise again in popularity and opportunity. Indonesia has gone through many changes over the past 20 years from the Suharto Presidency onwards to 2014 where Indonesia will once again democratically elect a new President for a five year term. The Presidency of Susilo Bambang Yudhoyono has seen Indonesia mature into a stable emerging democracy, fostering economic and political relationships through liberalising regulatory environments and advancement of regional engagement through ASEAN. Indonesia has been at the forefront of negotiations which will see South East Asia harmonise many trade, labour, and inter-country regulations across the region through the ASEAN Economic Community – scheduled for full implementation in late 2015. Additionally, Indonesia has opened market access with a range of regional trade agreements through ASEAN, including with China, South Korea and Japan, India, and Australia and New Zealand. It could be said that Indonesia is now at the nexus of business, trade and politics between South and East Asia, and yet the Australian business community seemingly looks upon Indonesia as an enigma, a risk, a threat, a challenge. The question that needs to be asked of our business community is why do we not see Indonesia as an opportunity?

The answer to this question is not straightforward. Many of Australia’s largest and most successful corporations have developed strong and thriving businesses in Indonesia; Commonwealth Bank, ANZ, BHP Billiton, Santos, Coca Cola Amatil, and Theiss to name a few. There are numerous more examples of Australian businesses engaging in new trade, and investment. However, Australian business and political interest in Indonesia has often fallen a longways behind our focus upon China, Japan and South Korea. Indonesia is not the high value export market that China, and in the past Japan has been for Australia, Indonesia as a general rule does not buy Australian minerals, as do our partners in North East Asia. Australian miners are however invested in Indonesia through wholly owned and joint venture mining operations, to extract some of the very same minerals from which Australian export wealth is based. The recently enacted mineral processing regulations in Indonesia, have been widely criticised within Indonesia as an undue cost burden upon industry, through regulation aimed at building mining productivity, and value adding through refinement. Yet this regulation could prove to be an opportunity for Australian mining services companies to assist Indonesian miners to improve productivity and efficiency in operations. The ASEAN Economic Community and effective harmonisation of a variety of regulations will provide further synergies for Australian companies active not just in Indonesia, but throughout South East Asia.

These opportunities exist across multiple industries, from agribusiness and food, through to manufacturing, education and training. Opportunities for Australia to collaborate and partner with Indonesia towards further industrial efficiency, productivity and value should be encouraged and grasped, not eschewed in favour of the status quo. ASEAN is moving towards greater synergistic movement of business and capital across the region, and the largest country in the trading block is seeking to be at the centrepiece. Australia has a once in a generation opportunity to show regional leadership at a business and political level, and take our place at the ASEAN table alongside our largest nearest neighbour – Indonesia. Our challenge to Australian business is to accept this challenge, and help create this shared value and regional prosperity.

Dr Nathan Gray is the National Vice President of the Australia Indonesia Business Council, and Managing Partner of AsiaAustralis, an Asia focused strategic management firm.