Indonesia – a golden opportunity not to be missed

Indonesia as is regularly the case, has been in the media again, mostly with tales of woe and conflict, as best demonstrated by the scrambling of Indonesian Airforce Jets to intercept an Australian piloted light plane into Indonesian air space. However we shouldn’t be distracted by these ancillary issues, and instead focus on the real and tangible opportunities to build a stronger economic, social and political relationship between Australia and Indonesia. Australia’s engagement with Indonesia has always been complicated as demonstrated by the spying scandal last year, however, the recent inauguration of President Jokowi saw Australian Prime Minister Tony Abbott, join other world leaders such as US Secretary of State John Kerry attending. This is a positive show of the importance the Australian government places on Indonesia. This visit is not in isolation however as there has been a flurry of high level business and government visitors to Australia over the past 6 months including Suryo Sulisto – President of the Indonesian Chamber of Commerce and Industry (KADIN), and Mahendra Siregar – Chairman of the Indonesian Investment Coordinating Board (BKPM), both seeking to engage directly with the Australian business community and encourage active increased Australian investment to Indonesia.

The Presidential election raised a degree of uncertainty over what the election of either candidate might mean for Australia, but that is the state of play with democracy and elections; the electors will vote on domestic issues that may effect international partners. Attempting to interpret political musings on domestic election campaigns, and the direct implications for Australia is a challenging exercise if for no other reason than they often ignore commercial realities. Comments during the election campaign about suspending or cancelling international investment treaties are a prime example. Australia and Indonesia are signatories of an investment treaty which, has allowances for cancelation, which at the earliest available notification point would be 2023, and which would not come into action until 15 years later. In practice the political musings mean that even if Indonesia were to drastically curtail investment allowances for Australian companies, it would not come into effect at the earliest until 2038. Australian investors in Indonesia can therefore look forward to at least another 24 years of continuity in current regulations. The new Indonesian cabinet has a good mix of political and bureaucratic experience, while also including substantial experience in business. Hopefully this is a good sign for the future of the Indonesian trade and investment relationship.

The one certainty from this election is that Indonesia is still Australia northern neighbour, and flying north will invariably take us past the archipelago that has been critical to world commerce and trade for more than four centuries. The late 16th century saw an age of colonial expansion to the far east, with Britain and the Netherlands competing for influence from South to East Asia. Indonesia was then known as the spice islands and it’s produce was in such demand, that spices such as nutmeg were more valuable than gold. Ultimately the Dutch gained a colonial foothold across what is now present day Indonesia, while England attained supremacy in South Asia (India), China (Hong Kong), while Singapore and Malaysia were the South East Asian strongholds. The colonial era has long since ended, yet once again the world is flocking to Asia. Indonesia has experienced consistent and stable economic growth in excess of 5% annually for a decade, built mostly upon domestic demand. Economic forecasters are predicting Indonesia will have more that 100 million people in the consumer classes, and charge into the top 10 largest global economies within the next 16 years. The renewed interest in Asia, has placed Australia in the best geographical location of the worlds advanced economies to respond to the opportunities.   Many Australian companies demonstrate a general lack of interest in Indonesia, nominating a variety of challenges and ‘risks’ that could equally be applied to emerging growth markets around the world; corruption, regulation constraints etc. The opposite is true of many European and North American companies who have sought to increase investment and strategic development of Indonesian markets. Canadian and US companies have been actively building market share in agricultural commodity markets in Indonesia, often at the expense of Australian exporters. Indonesia has developed a thriving automotive manufacturing industry, with strategic investment from European, North American and Japanese automakers.

It should be noted that while Australian business watches and waits for the ideal time to invest and engage in Indonesia, we risk the opportunity to strike early and develop a strong market presence that would be beneficial to both our countries. The largest risk of all is that while we procrastinate, our Asian and Western friends will jump in ahead of us, taking the best commercial opportunities. It is time for the Australian business community to foster and develop a mature business relationship with Indonesia. If we don’t act now, we may miss a golden opportunity.

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.