In the last couple of years, Southeast Asia’s largest economy, Indonesia, has significantly lifted its global economic profile by increasing the annual growth (export.gov 2012). A few months ago Bank Indonesia predicted a forecast of 6.4% GDP growth in the country by the end of 2012 (dfat.gov.au, 2012).
Not only did Indonesia manage to sidestep the world’s recent financial crisis, but it also outperformed many of its export-oriented peers in the region (Austrade, 2012). The Indonesian consumer market continues to rise, along with possibilities for international trade. Indeed, today Indonesia can be considered as Australia’s most ambitious trade deal.
On January 12 2012, the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) entered into force for Indonesia (Austrade, 2012). This event was marked as particularly important for international exporters (including Australian) doing business in the country as it was promised to deliver a number of commercial benefits to their companies. The Australian exporters will be able to take advantage of the Australia-Indonesia Development area (AIDA), the policy that has been designed to develop closer economic relations between Australia and the eastern provinces of Indonesia.
Throughout the last decade, the relationship between Australia and Indonesia has become considerably stronger (dfat.gov.au, 2012). The two neighbour countries have been able to sustain a healthy trade and economic relationship with two-way trade (both services and merchandise) which in 2011 was worth of $13.8 billion, and two-way investment which in 2010 was worth of approximately $5.7 billion. Indonesia is currently Australia’s 4th largest trading partner in ASEAN and 12thlargest partner overall (dfat.gov.au, 2012). There is big potential in promoting trade and investment links between the two parties, which are currently counted as the two largest in the region. At the moment, Indonesia is continuously encouraged by the Australian government to maintain liberalised trade and investment regimes. The government seeks reductions in tariffs to help Australian exporters open their businesses in Indonesia. Moreover, Australia and its neighbour country are working closely within the Cairns Group of Agricultural Fair Traders (the Cairns Group) with the aim to boost liberalisation in international trade in agricultural products during the current round of WTO negotiations (dfat.gov.au, 2012). Indeed, Indonesia is an important exporter of agricultural goods, and therefore plays a big part in the Cairns Group.
According to Austrade (dfat.gov.au, 2012), more than 400 Australian companies are currently operating in Indonesia. Some of the most successful businesses specialise in sectors of agribusiness, mining, resources, infrastructure, clean energy and environment, consumer goods and many more.
For years Indonesia has been well known for its spices and seafood exports (rsj-international.co.uk, 2010). In addition, the country has been famous for its artisans who create unique artwork, making handicrafts another important sector for export purposes. Tourism also plays a crucial role in Indonesian economy, which causes a higher demand for improvement in the existing infrastructure for tourists. With the great popularity of tourism, there are opportunities to open up hotels, cafes and restaurants in the country. Similarly, Indonesia is in need of health care services, IT professionals, architects and engineers. The air craft market also favours overseas products (replacement parts and service). At the same time, the expansion of banking provides software and systems opportunities (export.gov, 2012). Training and education, renovation and construction of regional and municipal infrastructure and water systems, military upgrading, safety and security systems, telecommunications technology and satellites - all these areas create endless possibilities and are expected to deliver great benefits for Australian companies operating in Indonesia (rsj-international.co.uk, 2010).
However, despite all the above listed business opportunities, it is also important to bear in mind that there are potential problems that Australian export-oriented companies are likely to face when trading with Indonesia. One of these problems is caused by the the rule-of-law issues that still persist in the country. Foreign and local businesses continue to cite corruption, and due to courts being unable to deal with it, complications occur. Business disputes that can potentially be considered administrative in Australia, can count as criminal cases in Indonesia (export.gov, 2012). Another problem represents the recent depreciation of Indonesian Rupiah (BBC, 2012), which in the nearest future is expected to make Australian exports relatively more expensive. There is also a fear that the weak Indonesian currency can decrease the purchasing power of local consumers and therefore dent demand. Moreover, it may not be easy for Australian exporters to start their businesses due to high barriers to entry. Although some of the barriers have been eliminated through deregulation (which brought more transparency in trade and investment regimes), the Indonesian bureaucracy remains ponderous (export.gov, 2012). Competition from companies operating in China, Japan, Malaysia and Singapore can be difficult to overcome, and therefore may lead to significant profit losses.
Overall, opportunities for Australian exporters in Indonesia appear to outweigh the possible challenges. Nevertheless, when engaging in trade business, important factors need to be considered in advance. Australian companies are highly recommended to visit the Indonesian market before they decide to enter it in order to find and choose the right agent or distributor. Similarly, they should be prepared to invest capital into making their representative in Indonesia the best service provider. It is also crucially important to take into account all hidden costs that are likely to arise in the company once it has been set up. Starting a business in a foreign country is not an easy step to take and it requires a lot of knowledge, effort and patience. As a result, every single benefit and cost has to be critically examined before action is taken.
Kristina Kovalenko, Project Manager - Export Council of Australia
1. Austrade (2012), “Indonesia Profile: Current Business Situation”, Retrieved from: http://www.austrade.gov.au/Indonesia-profile/default.aspx[Accessed 15/05/2012].
2. Australian Government (2012), “Indonesia country brief”, Australian Government: Department of Foreign Affairs and Trade, Retrieved from: http://www.dfat.gov.au/geo/indonesia/indonesia_brief.html[Accessed 16/05/2012].
3. BBC( 2012), “Indonesia’s economy grows at a slower pace”, BBC, Retrieved from: http://www.bbc.co.uk/news/business-17980123[Accessed 20/05/2012].
4. Export.gov (2012), “Doing Business in Indonesia”, Retrieved from: http://export.gov/indonesia/doingbusinessinindonesia/index.asp[Accessed 17/05/2012].
5. RSJ International Freight Services- Your Global Logistics Partner (2010), “Trade and Business Opportunities in Indonesia”, Retrieved from: http://www.rsj-international.co.uk/News/2010/Trade-business-opportunities-Indonesia.html[Accessed 16/05/2012].
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