Australia’s relationship with Indonesia: positive chemistry could seal the partnership

President Jokowi & Doug Ferguson, Partner in Charge, Asia and International Markets

Whilst Indonesia may not have signed a bilateral agreement in the past 10 years, the positive chemistry between Prime Minister Turnbull and President Jokowi could end the drought before year’s end.

The Chairman of Indonesia’s Investment Promotion Board (BKPM) Mr Thomas Lembong, has seized upon this goodwill and is backing the completion of the Indonesia Australia Closer Economic Partnership Agreement (IACEPA) in the coming months. It will be a landmark deal for both states that recognises Australia’s rich offerings in both bilateral trade and investment related services.

The prize will be access to not only Indonesia’s 257 million consumers but eventually the ASEAN Economic Community of 600 million.

Having participated in a CEO roundtable with 15 other Australians in Sydney with President Jokowi in late February and the second Indonesia Australia Business Week in Jakarta in March, I sense a serendipitous confluence of events is finally bringing Australia and Indonesia closer together.

Despite being neighbours, bilateral trade has been low, at less than 10 percent of our trade with China, and under 3 percent overall. A series of diplomatic fumbles has stalled growth in the trade relationship and perpetuated distrust and tension between our governments and societies where there need not be any.

The senior representatives of 120 Australian companies including large corporates, our big banks, law firms, accounting firms and many SMEs who came to Jakarta in March seeking to promote their exports left with a greater sense of wide ranging opportunities. Opportunities for investment in an economy that is growing at over 7 percent and subject to successful implementation of Jokowi’s reforms will become the world’s seventh largest economy.

Chairman Lembong was very clear about his country’s needs. Indonesia has massive infrastructure, tourism and advanced manufacturing sector growth objectives. Maritime, rail, electricity, mass rapid transport, irrigation and tourism are the priority sectors for new investment. He wants to leverage Indonesia’s young working population to transform the country into the new modern manufacturing base for ASEAN.

New Australian investment capital is welcomed in areas such as maritime infrastructure, tourism real estate expanding tourism beyond Bali, healthcare and food manufacturing. Mr Lembong encouraged Australian companies to go beyond investment and partner with Indonesian companies in the services sectors: private banking, asset securitisation, tourism and hospitality services, integrated food services, vocational training and many more areas where we have clear competencies.

“We don’t need investment from Australia” he said as he explained companies from China, Japan and Singapore in particular are very actively chasing investment project opportunities. Investment is welcomed but Indonesia’s Government wants Australian companies to bring skills and experience to help professionalise key aspects of the Indonesian economy in partnership with local firms. This plays very much to our strengths and the Indonesian Government has signalled a preference for Australian companies to play key roles.

Alison Watkins, the CEO of Coca Cola Amatil (CCA), which has invested AUD 1.5 billion and employs over 10,000 Indonesians across eight manufacturing plants and many more distribution centres, shared some practical advice in her key note address: Invest in local communities and build a social license. She explained how CCA has focused on leadership training and staff development, caring for the environment and building local advisory boards to ensure the success of Indonesian tailored strategies and programs.

Indonesia remains an inherently challenging country for western companies to compete and succeed in. Despite the national macro-economic reform objectives, success will be determined by companies’ ability to navigate through the many variable micro-economic factors.

It’s therefore important to start now with a specific niche strategy and take a long term approach, identifying and working with strong local partners while engaging experienced advisors.

Asia & International Markets

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