Monday, 9 July 2012

Indonesia and Australia's Relationship Has Room to Grow

(Repost of article written with Junianto James Losari and published in The Jakarta Globe on 6 July 2012)
Indonesia-Australia relations have grown steadily since their lowest point in the late 1990s. We have matured in our appreciation of one another as regional powers in this Asia-Pacific Century. And tragedies like the Bali bombing and the Aceh tsunami have brought us closer as neighbors.

A recent survey by Australia’s Lowy Institute pointed out that most Indonesians rated Australia as one of the most trusted countries to act responsibly at the international stage.

However, as much as these conditions have augured better feelings of closeness, it is not difficult to see that bilateral cooperation has been overshadowed by issues in the political and security fields. While economic opportunities are abundant, Indonesia and Australia have yet to maximize on this potential.

This appears to be the message that President Susilo Bambang Yudhoyono tried to convey during his visit to Darwin earlier this week, as part of the 2nd Annual Leaders Meeting.  Among the many areas of bilateral cooperation currently existing, Yudhoyono chose to focus on trade, investment, connectivity and tourism.

Indeed, in economic terms, Indonesia and Australia are not minnows. As emerging economies and part of the G-20, the two countries’ economic performance has in recent years commanded the attention of many around the world.

Not only that, there is considerable complement between the two economies, as shown by the differences in goods and services produced and consumed. These conditions should make the Indonesia-Australia economic partnership matter significantly. But the truth is that trade growth remains sluggish.

In 2011, the two countries recorded total trade of $10.75 billion. This is an increase compared to previous years’ numbers. But if we were to compare them against Australia’s trade with Malaysia ($13 billion), Thailand ($15.3 billion) or Singapore ($20.7 billion), then Indonesians and Australians should expect more from their growing ties.

On investment cooperation, Indonesia remains Australia’s biggest blind spot. Up until 2010, Australian foreign direct investment to Indonesia stands at $3.55 billion, which amounts to 1.4 percent of its total FDI abroad. More concerning, the realization of Australian FDI in Indonesia in 2011 actually decreased about 58 percent from the previous year.

With a population of approximately 240 million, Indonesian consumers and labor resources not only provide a lucrative market, but also tremendous potential for Australian investment. We see this in Indonesia’s growing demand for beef, which is a result of the Indonesian people’s changing culinary habits and lifestyles.

As the growth of democracy complements economic achievements, the stable social and political conditions have generated a conducive domestic climate for greater foreign investment.

Nevertheless, while the numbers may not reflect Indonesia and Australia’s real economic potential, there are ways to boost this economic cooperation.

Indonesia’s entry-into-force of the Asean-Australia-New Zealand FTA this year is one of these means. Spanning 12 economies, around 600 million people and a combined GDP of $3.1 trillion, the AANZFTA covers the goods, services, investment and intellectual property sectors. While aimed at promoting the economic growth of all countries involved, the agreement should provide channels for enhancing trade and investment ties between Indonesia and Australia, which are by far the two largest economies in the group.

Tariff elimination under the AANZFTA will enable duty-free trade. Indonesian products benefitting from this arrangement include, wood, paper and paperboard, crude oil, plastic pipes and ceramics. Meanwhile, the benefitting Australian products include wheat, aluminum, cotton and fertilizer.

The AANZFTA also liberalizes investment in several areas for Australian companies, while at the same time providing a regime for the legal protection of investors. Such a framework, coupled with Indonesia’s positive investment climate, should provide sufficient reason for Australian companies to join efforts.

In addition, during the visit to Darwin, Yudhoyono welcomed efforts to begin negotiations for an Indonesia-Australia Comprehensive Partnership Agreement. When completed, the agreement will provide a comprehensive, targeted framework for greater overall economic cooperation.

Among these targets would be to enhance connectivity at the national, bilateral and sub-regional levels. The strengthening of connectivity not only creates job opportunities through the investment in infrastructures, but also expands markets, trade flow and people-to-people connections.

Through participation in realizing Indonesia’s Master Plan for Expansion and Acceleration of Economic Development (MP3EI), Australia would not only assist Indonesia’s domestic connectivity, but also open opportunities for greater bilateral connectivity, particularly between Indonesia’s eastern parts and Australia’s Northern Territory.

The 1992 MoU signed between Indonesia and the Northern Territory is a basis for cooperation on primary and tertiary industries, air services, energy, professional services, manufacturing, processing, transport and infrastructure.

Government-to-government efforts will continue to evolve positively, yet the onus falls on the private sector to identify, grasp and maximize on these potential opportunities.

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