Australia-Indonesia Trade Relationship: Good, but could (and can) be Better

16 November 2016 Leighton G. Luke, Research Manager, Indian Ocean Research Programme

The Indonesia-Australia Comprehensive Economic Partnership Agreement is the key to improving the depth of the trade relationship. Addressing incorrect perceptions of each other will also be crucial.

Background

Future Directions International was an attendee at the Australia Indonesia Business Council Conference, held in Perth from 13 to 15 November. The conference heard that the two countries will need to redouble their efforts and capitalise on the high levels of interest from both sides if the trade relationship is to achieve the same level of success as the security relationship. The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) will be the key to doing that, as will the need to address the commonly-held perception of Indonesia being an unduly risky location in which to do business.

Comment

Justice Minister Michael Keenan told the 250 attendees that while the bilateral security relationship had never been better, the two countries’ trading relationship required significantly more work if it is to reach the same depth.

Presenters and attendees alike agreed that that the Australia-Indonesia trade relationship was in good shape but that it could be better and that, in fact, it deserved to be better, given the two neighbours’ proximity, complementarity and interest in each other. Despite the popularity of Bali among Australian holidaymakers, that interest was actually more pronounced on the Indonesian side, particularly in the tourism and education sectors. It will be necessary, therefore, to raise the level of awareness in Australia of the tourist attractions and business opportunities available beyond Bali and Jakarta.

There is a perception that the risks for Australian companies entering into business in Indonesia are high. It was stressed, however, that provided that the necessary robust research and preparation were done – particularly in the choice of the right local partner – and that expectations, especially regarding monetary return timelines, were realistic, the risks were not overly high when compared internationally. Indonesia undeniably has work to do on the regulatory front and it will be quite some time, if ever, that it is considered a low risk environment, but there are frameworks in place and some very competent people working on them.

Conversely, Australia will need to better promote the attractiveness of this country as a potential market for Indonesian firms, which frequently perceive the size of the Australian market as just being too small to worry about.

The IA-CEPA is significant to boosting the trade relationship in both a business and a political sense, as it will be Australia’s first free trade agreement (even if not named as such), in what might be called the “Trump anti-FTA era” that is pointing towards the death of the Trans Pacific Partnership Agreement. Both countries are working hard on making IA-CEPA a showcase agreement concluded in good humour at a rapid pace.

Promisingly, the youth of both countries do not have the baggage of mistrust between the two countries that exist in older generations. Indonesian youth, in particular, are highly tech-savvy and, if the ambition for the country to be the largest e-commerce market in South-East Asia by 2020 comes to fruition, the US$130 billion worth of online sales that the Indonesian e-commerce industry will generate could present considerable opportunities for astute Australian businesses.

There is a great deal of good will on both sides for the business relationship to progress and a key component of achieving that – IA-CEPA – is indeed progressing well. Once the lengthy process of negotiations and eventual ratification is completed, there should be little reason for the bilateral trading relationship not to achieve the same the closeness and depth as the security relationship.

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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