Quick Bites | Spotlight on Indonesia …Country on the Move

While some were celebrating Valentine’s Day, Indonesians went to the polls. Indonesia hardly gets much press coverage in Australia – but it should because it is of enormous significance to our region and our economy. On 14 February, the world’s third-biggest democracy set to vote for a new leader to replace President Joko Widodo, the favourite contender being Prabowo Subianto, an ex-general with a poor human-rights record.

Indonesia is a country of great potential, much of it yet to be realised, but there all the same. The country is huge in size, made up of thousands of islands, and in population numbering around 276 million (fourth in the world behind India, China and the US). The population size is a vast opportunity for growth in its consumer base, and its youthful demographics are a big advantage: 25% of the population is under 15 and only 7% are over 65.

Source: The Economist 

 

Indonesia has been one of the world’s best-performing economies in recent years. With a GDP of USD 1.2 trillion, it is the sixth-biggest emerging market by Gross Domestic Product (GDP), and its GDP per capita exceeds India’s and Vietnam’s when adjusted for purchasing power. If Indonesia stays on this path for the next decade, it could become one of the world’s ten biggest economies.

Source: The Economist 

 

The backbone of Indonesia’s economy is commodities, some of which are in high demand owing to the green energy transition. Its production of nickel, for example, used in electric vehicle (EV) batteries, dwarfs that of the rest of the world. Analysis by The Economist suggests that by 2030 Indonesia could be the world’s fourth-largest producer of green commodities, behind Australia, Chile and Mongolia.

The Indonesian government has banned exports of some of these minerals, pushing multinational firms to build refineries locally (a policy known as “downstreaming”); Indonesia aims to be a major manufacturer of EV batteries by 2030.

Source: The Economist 

 

Indonesia’s mix of location, size and resources make it a key theatre in superpower rivalries. Investments have poured in from both America and China, though the Chinese have invested significantly more. Australia is yet to climb into the top ranks of investors but has made a strong start.

Source: The Economist 

 

Trade and commercial ties between Australia and Indonesia have significant further growth potential. The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) was signed in March 2019, aimed at unlocking the opportunities of the bilateral economic partnership. In 2021-22, total two-way trade in goods and services with Indonesia was worth $18.4 billion, making Indonesia our 14th largest trading partner.

Indonesia ranks 27th as a destination for Australian foreign investment, and Indonesia is the 38th largest source of foreign investment for Australia. IA-CEPA will help grow the trade ties as it will allow all goods produced in Indonesia to enter Australia tariff-free. This makes Indonesian goods such as clothing, footwear, vehicles and pesticides more competitive in the Australian market.

Australian goods will also face lower tariffs in Indonesia, including our high quality agricultural products, but the vast majority of Australian goods exported to Indonesia are used in Indonesia’s manufacturing sector. Many Australian companies already have a strong presence in Indonesia, including market leaders BHP, Woodside, RIO, Wesfarmers, Macquarie Group, Telstra and Qantas – but the list and the depth of ties are almost certain to grow strongly into the future.

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