This year has proved tumultuous for Indonesia, with the presidential election and Jakarta hotel bombings taking centre stage. In the aftermath, how is the Indonesian market positioned for Australian exporters? Find out some of the trade opportunities available with our northern neighbour.
Indonesia is the world’s fourth most populous country and, perched on Australia’s doorstep, one with which we have a unique and important relationship. The Department of Foreign Affairs and Trade (DFAT) reports that there are more than 400 Australian companies currently operating in Indonesia in such sectors as mining, construction, finance, food and beverage, and transport, including some of Australia’s most trusted names: BHP Billiton, the Commonwealth Bank and Goodman Fielder.
The Australian Bureau of Statistics valued investment in Indonesia at $3.4 billion in 2008. Two-way trade in goods and services reached $10.3 billion in 2007/08, making Indonesia our 13th largest trading partner, and our 11th ranked export market. Australia primarily exports live animals, aluminium, wheat, crude petroleum and sugars to Indonesia, with our major service exports being education-related travel and personal travel.
In 2009/10, Australian aid to Indonesia will be worth an estimated $452.5 million, making Indonesia the largest recipient of Australian aid, and demonstrating our commitment to neighbourly relations.
Risky Business
Recent high-profile court cases on drugs, perceived complexities in doing business in Indonesia, previous terrorist attacks such as the Bali bombings, political upheaval and natural disasters such as tsunamis and earthquakes are all existing sources of negative investor sentiment for Indonesia. Cautious investor confidence has, however, returned since the Bali bombings, and was greatly enhanced by the re-election this year of President Susilo Bambang Yudhoyono for another five-year term.
The 2009 terrorist attacks on the Marriott and Ritz-Carlton Hotels in Jakarta challenged this growing confidence. Although the attacks appeared to target foreign businesspeople, a DFAT spokesperson says early indications are that the bombings “are not significantly adversely affecting business and investor sentiment. Anecdotal evidence suggests that if they are isolated events these attacks will have little lasting impact on investment planning by Australian investors”.
Roger Donnelly, chief economist of the Export Finance and Insurance Corporation (EFIC), reports in the agency’s World Risk Developments paper that prior to the bombings, the currency, share and bond markets had all been rallying and that interestingly, “the blasts completely failed to shake this optimism”.
Indonesia still faces many challenges moving forward, however. In the World Bank’s Doing Business 2010 report, Indonesia ranked 142 on contract enforcement, with investment risks largest in the mining and energy sectors, where not coincidentally foreign investment has stagnated over the past decade, according to Donnelly.
“High tax and royalty payments, an uncertain regulatory environment and concerns over the sanctity of contracts, all accentuated by the devolution of power to regional bodies, are the chief headaches,” he says.
Australia Indonesia Business Council (AIBC) national vice-president Ross Taylor agrees, noting that addressing ‘KKN’ (corruption) is a major problem for the Yudhoyono government, and that “dealing with a number of recalcitrant regencies as a result of the introduction of regional autonomy legislation presents some enormous challenges.”
Other challenges are business systems and governance Taylor adds: “Many major companies involved in telecommunications and in the resources sector still want more transparent and simplified systems for establishing and operating large scale businesses in Indonesia.”
EFIC identified that “budgetary constraints mean the government has limited capacity to invest. Roads have seen little investment over the past decade, while ports cannot accommodate the larger cargo ships. Electricity generation is struggling to keep up with annual demand growth of 8 percent.”
Donnelly also found that direct investors were holding tight and that a bigger setback for the economy than the bombings was on the horizon—oil price rises. “The fall in world commodity prices in general, and oil prices in particular, from vertiginous peaks last year has conferred several benefits: cutting Indonesia’s import bill, lowering rupiah prices of fuel and rice, damping inflation, and enabling the central bank to cut interest rates. But now that the oil price is climbing again these effects are unwinding. The budget is particularly vulnerable because it subsidises fuel and electricity prices.”
Pages: 1 2
