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Indonesia is undertaking a number of initiatives to improve its international trade relations as well as to invite further foreign investment. APINDO’s involvement in the negotiations to forge these new relationships provides the organisation with unrivalled insights into the strategic role that Indonesian businesses can play in enhancing further trade and investment and ensuring the long term benefits that such agreements aim to achieve for both parties. Through its active involvement in the EU Comprehensive Partnership Agreement and the ASEAN – Latin America Business Forum, APINDO has identified three main areas of strategic focus needed for enhancing trade and investment partnerships.
Most of Indonesia’s competitors and neighbours now engage in proactive and successful economic diplomacy as well as having good working links between the government and the business sector. Indonesia must be up there with the best of them in achieving these objectives. Part of this is preparation and part of it is setting clear and shared objective between the government and businesses at home plus maintaining strong working links on a continuous basis from missions abroad. Over the last 18 months, APINDO has widened its mandate to bolster its own form of economic diplomacy with major economic partners including:
Growing Indonesia’s existing portfolio of trade and investment is of the utmost importance, but global markets are changing quickly. It is therefore important for our missions in South America and Europe to be our eyes and ears for new and emerging issues. Some of these issues are actually structural changes in the pattern of trade and investment and Indonesia needs to be alert to their developments in order to prepare businesses and policy settings. An example of this are the new demands to comply with ‘green’ practices; consumers and investors as well as governments in developed markets are now making much more discerning choices and regulations relating to green issues, sustainability and the environment. Should Indonesia not acts quickly and respond appropriately then it can lose out in markets and lose investment. New technologies are a further example of the need for businesses to be responsive in order to maintain a competitive edge. Another example in this area is the transformation of the service sector and the changes as to how businesses are operating through combining or bundling services across borders. Put simply, Indonesia may miss out on investment opportunities if local companies do not understand how international businesses are combining their operations.
There is a tendency in Indonesia to think that exports are good and imports are to be avoided and that foreign investment could overwhelm the country’s domestic investors. Of course maintaining and growing exports in traditional and new markets is vital but our partners all want to do that as well. However, in reality Indonesia cannot and should not expect that it can produce everything at home at the right price and in the quantities that the market requires. Indonesia also does not have the funds for investing in all the technologies and management systems that the country may require. Imports and inward investment are therefore a very important part of the trade and investment portfolio. On the occasion that imports are necessary, especially the inputs into production and vital supplies such as food, it is important to ensure that there are secure supplies and at the right price as this is all part of a balanced trade policy.
When seeking investment, businesses must discern between high quality investors who wish to take a long standing stake in Indonesia and those that do not. Indonesia must be seen as committed to being a fair trade and investment partner so that the country does not get embroiled in unnecessary disputes that cost time, money and unfavourable publicity.
These strategic points provide a useful framework when assessing the particular issues that need to be addressed by Indonesia and its private sector when establishing stronger trade links with the European Union and Latin America.
Regarding Europe, Indonesia must concentrate on the importance and opportunities of value added goods, investment and services. The country’s traditional and existing trade with Europe in manufactured goods, agricultural products and natural resources will be important for many years ahead. However, Indonesia has a shared interest with Europe to increase the growth in value added production and trade, in services and in investment.
The EU is Indonesia’s second largest source of FDI, third largest trading partner and largest market for manufactured goods. To increase the economic ties with Europe in the future, the linkages between valued added goods, investment and services must be understood. Very often they come as a package; without setting up the package of value adding, investment and services properly Indonesia risks remaining as a raw material or low value added producer and exporter. High quality services and investment will therefore be critical in making Indonesia more competitive and in driving future growth so it is vital to examine how European service providers and investors can take a role in Indonesia on their own and in partnership with local businesses. This will be especially important in the regional provinces of Indonesia.
In ASEAN, we are on the eve of the single market in production and consumption. In essence, this means Indonesia is in sharper competition with our ASEAN neighbours to maintain the country’s share of trade and investment with Europe and South America.
Bilateral trade and investment is still important but increasingly if foreign investors want to set up a production or distribution base in ASEAN they can do this in any ASEAN country and sell into Indonesia or the rest of Asia. This is both a threat and an opportunity for Indonesia which is why the CEPA with the EU is so important. It is also crucial to understand the FTAs and how they operate in South America.
Investors and exporters with an Asian focus need to be encouraged to choose Indonesia as their hub or focal point. This will give Indonesia the jobs, the new investments and the new exports that the country needs. Indonesia must therefore be alert to what foreign as well as domestic investors and exporters need and to have a clearer understanding of their Asia strategies so that it can attract European investors and companies and act as a local partner.
The European Union is also a single market where borders are seamless and where the trade policy is conducted through the European Commission. Some parts of the EU are struggling in terms of their economy but the EU still remains the world’s largest market and we need to take a strategic approach so that we do not lose sight of the bigger picture of this market in the individual bilateral relationships Indonesia has with European states.
It is important to understand that the economic relationship with Europe will increasingly be about supply and production chain integration but for this Indonesia needs to improve its infrastructure, logistics and its business climate. The proposal for a CEPA with EU and the capacity building includes elements to address this but both sides need to understand more about how the production and supply chains operate.
For South America, the long distances mean that the relationship will be through trade in raw, partly processed or final goods and the production and supply chains will, for the time being, be less important. However, there are high quality and experienced investors from Latin America who can be very valuable for Indonesia especially in the minerals, energy and food processing sectors. Indonesia could also learn from several South American countries about how to transform state owned enterprises to make them more dynamic and profitable.
Many of Indonesia’s businesses are already familiar with Europe but know little about the South American markets for exports or imports including food products such as beef. This was one of the reasons behind the ASEAN-Latin American Business Summit in Jakarta. The follow up to this summit and to other initiatives must be a cooperative effort between business and government in Indonesia. They must learn together by exchanging information and market intelligence and this comes back to stronger economic diplomacy.
If Indonesia is to move more rapidly from resources and raw products trade with South America to more manufactured products then businesses have to understand the distribution networks for Indonesian products and develop effective partnerships. South America can be a lucrative market for our manufactured goods but only after understanding how the markets work.
APINDO - 2012
Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)
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