The potential of EU-Indonesia relations: from trade to political cooperation?

By Pierfrancesco Mattiolo

For the EU, deepening its relations with Jakarta is an opportunity - perhaps even a necessity. High Representative Borrell's visit early this June is a sign of this.

‘As the EU, we are well aware that the global centre of gravity is shifting towards the Indo-Pacific region’. With these words, published in an article of his for the Jakarta Post, Josep Borrell made it clear how closely Brussels is watching political and economic developments in the ASEAN countries. The EU High Representative for Foreign Affairs and Vice-President of the European Commission went to Jakarta in June for an official visit, where he met with high-profile figures from the Indonesian government - President Widodo, the Ministers of Foreign Affairs and Defence, some members of the Parliament - and ASEAN - including Secretary-General Lim Jock Hoi.

There are many reasons behind the EU's renewed focus on ASEAN. While Brussels has made a qualitative leap in its relations with two member countries, Vietnam and Singapore, thanks to the recent free trade agreements, it is at odds with other governments. For example, on a political level, the EU responded to the coup in Myanmar with a series of sanctions against Tatmadaw-linked officials and, last year, to repeated human rights abuses in Cambodia by revoking the favourable Everything But Arms (EBA) trade regime. On the trade front, Brussels has been sued twice before the World Trade Organization (WTO) over its measures on palm oil and biofuels produced from it, by Kuala Lumpur and Jakarta, respectively. Despite the ongoing legal dispute, the future of trade relations between the EU and Indonesia looks promising and deepening the cooperation, on a political and strategic level too, with the most populous state of ASEAN is in the best interests of Brussels. Borrell was clear on this point: ‘the potential of our relationship is untapped. We can do much more’.

On the trade side, negotiations on the EU-Indonesia Free Trade Agreement are at an advanced stage and both sides seem keen to speed things up. One of the major issues, palm oil, could be moved to a separate negotiating table for a compromise to close more easily the the TSD (Trade and Sustainable Development) Chapter of the Agreement. Borrell himself gave this approach a nod during his visit to Jakarta. Discussions on the other chapters are progressing positively, although on some issues it is more difficult to find a common ground - for example, on technical barriers to trade (TBT), government procurement, and protection of intellectual property rights. The Agreement will also cover investments, a topic that is quite important for the Indonesian government. Indeed, the investment chapter of the Omnibus Law, Jakarta's ambitious economic reform plan, was implemented a few months ago, opening the country to foreign investment in many sectors - including telecommunications, transport, energy, and construction services providing various incentives to attract it. This opening could be further strengthened by the Free Trade Agreement and bring new opportunities to European companies. For the time being, the Indonesian market is particularly favourable to competitors from countries that have signed the RCEP (Regional Comprehensive Economic Partnership, the trade agreement between ASEAN countries, China, Japan, South Korea, Australia and New Zealand). In particular, Indonesia needs foreign investment in its infrastructure, the inadequacy of which is an obstacle to the country's economic growth, and China has eagerly stepped in.

The appeal of Chinese investments and the support received in the management of the COVID-19 crisis are prompting the Indonesian government to warm up its relations with Beijing, which have been particularly tense in the past years due to disputes over fishing grounds in the South China Sea. China's growing influence in the region is undoubtedly one of the reasons that encouraged the EU and some of its member states - France, Germany and the Netherlands - to draw up a new and bolder "Indo-Pacific strategy" that involves Jakarta. While dialogue with Myanmar and Cambodia, for instance, is difficult due to deep political differences - and China has taken advantage of the situation to increase its influence over the two regimes-, the EU has no problem acknowledging Indonesia as ‘one of the world’s largest democracies and economies’ and a ‘like-minded country', as if to underline its intention to cooperate on a political level too. Jakarta has sent out encouraging signs in this sense: after the talks with Borrell at the beginning of June, the Minister of Foreign Affairs Marsudi reiterated her government's commitment to obtaining the appointment of an ASEAN envoy for Myanmar, the cessation of violence and the release of political prisoners by Burmese coup forces. Political cooperation could soon step up to a strategic level as well. The EU has expressed its intention to be present in South-East Asia with its military navies too. This is a significant policy shift for Brussels, seeking a pragmatic approach that balances economic and political cooperation with a strategic projection in the Indo-Pacific to balance China's influence. Indonesia - which, by the way, will hold the presidency of the G20 next year, immediately after Italy - is certainly an essential partner, probably a necessary one, for this new vision.

GoTo: the new ASEAN e-commerce giant

Gojek and Tokopedia announce the merger into a new entity to challenge Grab and Sea.

Gojek and Tokopedia have recently confirmed the rumours of recent weeks by announcing their merger. GoTo, the resulting e-digital platform, will be a new ASEAN e-commerce giant worth over $18 billion. This news comes at a time when the tech industry, and especially digital commerce, has recently been extremely dynamic.

The sense of urgency that accompanies the creation of GoTo is significant, suggesting that it might be the only way for both companies to gain a more relevant role in their target market.

Tokopedia and Gojek are two important scale-ups, both Indonesia-based, and both with excellent fundamentals and bright growth prospects in their respective markets.

Tokopedia is an e-commerce platform, one of the top five in ASEAN, while Gojek is undoubtedly the leader in shared mobility in the national market.

Both companies are very promising and have proven to be able to compete on a large scale, thanks to the characteristics of their country of origin. With a population of more than 270 million (the fourth largest in the world) and an economy that was booming before Covid (+5% in 2019 before dropping by 2.1% in 2020), Indonesia is one of the most attractive markets for e-commerce. 

In addition, Tokopedia has received funding rounds of $2.8 billion to enhance its e-commerce platform and can boast names such as SoftBank, Google and Alibaba among its investors.

On the other hand, Gojek has a portfolio of investors of the calibre of Facebook, PayPal, Visa and MUFG (Japanese banking giant) amounting to over $5 billion, and is a definite promise of digital mobility, comparable to Uber in its early years in the US.

Both have not only excellent foundations but also the necessary funds and access to Asia's best-in-class ICT infrastructure.

The cause of the merger between Tokopedia and Gojek must therefore be sought outside, especially in the threat posed by other competitors. In this respect, the golden rule of e-commerce applies: agglomeration and centralisation are synonymous with power and a guarantee of survival.

On one side, in fact, the two companies have to deal with the exploit of Grab - the largest shared mobility platform in Southeast Asia with 200 million users - which has announced an imminent listing on NASDAQ for over $40 billion. Grab is the region's first true super-app, the first example of an all-encompassing mobile application that includes social networking, digital payment, e-commerce, mobility and financial services: hence its motto, 'The Everyday Everything app'. Everything suggests a strategic desire to achieve rapid international expansion, as well as an explicit ambition to become the undisputed leader in the ASEAN region.

On the other hand, Tokopedia and Gojek have to compete with giants such as Sea, which is beginning to represent a major competitor in the Indonesian market as well. The Singaporean group continues to invest relentlessly to increase its presence in individual local markets in the region: with a stellar capitalisation, it has the power to exclude other players from many digital markets in the region.

Indonesia opens up to foreign investment

Indonesia change tack and opens up to foreign investment, as part of the reforms planned by the implementation of the Omnibus Law

The Presidential Decree 10/2021, also dubbed as “Positive Investment List”, took effect on March 4, 2021, outlining the new list of business fields open to investment. This regulation is included in the implementation of the so-called “Omnibus Law”, the largest economic reform plan ever launched in Indonesia and replaces Presidential Decree no. 36/2010, which listed the sectors closed to investment and those open under specific conditions.

Approved on October 5, 2020, the controversial Omnibus Law (UU 11/2020 Cipta Kerja) mainly aims to create new jobs, encourage domestic and foreign investment, and stimulate the economy through the simplification of bureaucratic processes and the speeding up of political decisions. However, strong disapproval was expressed by trade unions and workers' rights associations, epitomized in massive protests throughout October to condemn the law for the damage caused to wages, job safety and to environmental protection, with further centralization of power in Jakarta.

The new investment list has significantly reduced the number of sectors that are completely closed to any form of investment (foreign or local) and those that are totally closed or partially open to foreign investment. This aligns with the government's efforts to counter the impact of the Covid-19 pandemic by encouraging the arrival of more FDI in Indonesia. The decree certainly represents one of the major liberalizations of foreign capital: before the introduction of the Omnibus Law, the country did not have a comprehensive system to promote investments.

Important sectors such as telecommunications, transportation, energy, distribution and construction services, which were severely restricted in previous years, have been opended up to foreign investment and stimulated with fiscal incentives, such as corporate income tax reductions. Additional benefits include the provision of support infrastructures to foreign companies, as well as energy and raw materials, together with simplified business licensing. In addition, foreign investments in technology start-up sectors in Special Economic Zones have been exempt from the minimum investment threshold of IDR 10 billion.

The business fields have been classified into 4 main categories, emphasizing the group of priority sectors. Within the latter category, 245 business areas now open to foreign investment have been outlined. Priority sectors also include some industries that are strategic for the country's economic development, such as the processing and refining of nickel, a key material in electric vehicle (EV) batteries. Indonesia is home to the world's biggest nickel reserve and plans to become EV battery production hub, developing a complete supply chain for nickel, from the extraction of raw materials to the manufacturing of the batteries themselves. Tesla has recently put forward its investment proposal to help Indonesia implement its ambitious plans in this direction.

Hence, Indonesia sends a strong message to the international economic community, putting on paper the list of new business opportunities. The openness to foreign investment enshrines a new and valuable approach for the future of the country.

Indonesia will vaccinate workers before the elderly

The ASEAN giant chooses a different strategy to halt the advance of COVID and jumpstart the economy

The vaccination challenge, an extraordinary logistical enterprise made all the more daunting by manufacturing delays, requires tough choices. Over the past year, policymakers around the world have focused their efforts and resources first on research for vaccine development and then on the purchase of the doses needed to inoculate their fellow citizens. In recent months, however, a new question has taken center stage in the political debate: who will be given the first available doses?

The discussion regarding the correct order of precedence in the administration of vaccines is of extreme importance. Once the vaccination of health workers has been completed, most of the EU Member States have chosen to give priority to the elderly citizens, considered the most fragile elements in the face of the virus, starting from the over-80s, the over-65s, and so on down. Indonesia, on the other hand, has chosen a different strategy: to vaccinate first citizens between 18 and 59 years old, the workforce, which represents more than 60% of the population. 

The government chose to take this route for two main reasons. The first is purely health-related; Indonesian authorities hope to stop the advance of the infection by immunizing those who move around the most, whether for professional commitments or social activities. These people are more likely to be infected and consequently to infect others: 80% of COVID cases recorded in Indonesia are among the working population. The second reason is essentially economic; like and perhaps more than other world economies, in fact, Indonesia is paying a hefty bill for the epidemic. Recovery also means restarting tourism and transport, which are among the hardest hit sectors, and for this reason people need to be able to return to work as soon as possible, perhaps even to travel, in safety. 

This result, according to Fithra Faisal Hastiadi, an economist at the University of Indonesia and spokesperson for the Ministry of Commerce, can only be achieved through a mass vaccination campaign of people of working age, starting, of course, with those who carry out a profession in which the risk of contagion is highest (health workers, the police and the military). Indonesia is therefore turning to the vaccine to solve both the health emergency and the economic crisis. In Hastiadi's words, "when we talk about public health we are also talking about economics, because public health is a function of economics." 

Like all choices, this one too is not without its critics, and the Indonesian government has been accused on several occasions of not caring enough about the health of the weakest sectors of the population. However, Amin Soebandrio, director of the Eijkman Institute of Molecular Biology, defends Jakarta's strategy, stating that vaccinating workers first is the only way for Indonesia to achieve herd immunity and bring contagion under control. Another strong supporter of this choice is the Minister of Health, Budi Gunadi Sadikin, who, despite the fact that there are still no in-depth studies on the impact of vaccines on the spread of the virus, insisted that thanks to this strategy the elderly will no longer risk being infected by relatives who return home after a day in contact with other people. 

Of course, when Indonesia started the vaccination campaign, it was not sure if it had enough doses to vaccinate the entire population, and the country only had the Sinovac Biotech vaccine, developed in China, which, at the time, was not considered scientifically effective and safe for the elderly. The approval for the use of Sinovac on the over 60s arrived on February 6th and in the meantime the government has reserved an additional 125 million doses of the Chinese vaccine and 330 million doses of AstraZeneca and Pfizer-BioNTech vaccines. Yet the government does not seem, at this time, intent on changing the order of priority in which the vaccine will be administered. 

CB. Kusmaryanto, a member of the country's Bioethics Committee, says that in Indonesia it is not possible to "make good choices, but to choose the lesser evil." Indonesia's economy, the largest in Southeast Asia and tenth largest in the world on a purchasing power parity basis, overtook India in 2012 to become the second largest G20 member state in terms of GDP growth. Since the turn of the new century, Indonesia has cut poverty in half and prior to Covid-19 qualified for upper middle-income status. The government's plan now is to vaccinate 67% of individuals in the next 15 months, hoping that the strategy will prove effective and sufficient to put Indonesia back on its development trajectory.

By Carola Frattini

The Islamic economy in Indonesia

With the launch of the Masterplan for the Islamic economy and the mandatory halal certification, Indonesia aims to become a global hub of the halal sector by 2024.  

On May 14th, 2019, Indonesian President Joko Widodo officially launched the first Masterplan for the Islamic Economy (MEKSI) to be implemented in the five-year period 2019-2024. As the country with the largest Muslim population in the world, Indonesia in the last years has been concretely aspiring to develop strong strategies for its Islamic economy.

The State of The Global Islamic Economy Report 2020/2021 records that Indonesia continues to rise in all the rankings related to the global Islamic economy’s sectors, always among the top 10 countries. With reference to the GIEI (Global Islamic Economy Indicator), Indonesia climbed from tenth place in 2018 to fourth place in 2020, further advancing compared to the fifth place in 2019. In addition, it ranks first in the Top 5 halal food consumer markets, spending $144 billion; seventh in the Top 10 countries by Islamic finance assets; second, fourth and fifth place in the corresponding Top 5 halal cosmetics, halal pharmaceuticals and modest fashion consumer markets.

The data confirm the role of Indonesia among the countries with the greatest potential to become hubs of the Islamic economy. Recently, Indonesia has taken decisive steps in this direction. First of all, with the Law No. 33/2014 on Halal Product Guarantee, the Indonesian government decided to make the certification for all halal products released on the domestic market mandatory, including imports. The law came into effect in October 2019 and extended until 2024 to allow producers to adapt their business and obtain halal certification. Halal requirements are applied to different types of goods and services. The global halal market, analyzed by the Global Islamic Economy Report, consists of 7 economic categories: halal food, Islamic finance, Muslim-friendly travel, modest fashion, halal pharmaceuticals, halal cosmetics, Islamic-themed media and recreation.

The launch of the so-called MEKSI 2019-2024 (Masterplan Ekonomi Sharia Indonesia) follows the same route. It is the first masterplan aimed at making Indonesia a leading country in the production of halal products and services (permitted by Islamic law). The plan identifies four main strategies. They include the strengthening of micro, small and medium-sized enterprises’ role, as the first engine of the halal value chain, focusing on the most competitive sectors of the country (halal food and beverages, and modest fashion); the enhancing of the Islamic financial sector, with a wider presence and supply of capital for halal production companies; and finally, the promotion of Indonesian halal products and services through a more intense collaboration with e-commerce platforms.

The Indonesian government started the Masterplan through the establishment of the National Islamic Finance Committee (KNKS, Komite Nasional Keuangan Syariah). The main goal is to broaden the role of Islamic finance in driving the country’s economic growth, supported by a national roadmap for Islamic fintech. The KNKS changed its name to National Sharia Economy and Finance Committee (KNEKS), as part of a new strategy and a new executive management.

The KNEKS will embrace four areas: halal products industry development, Islamic finance development, Islamic social finance development and expanding of Islamic business activities. The demand for Islamic finance, as well as its analysis and understanding, is getting increasingly strong in Indonesia. The country also noticed the largest number of events in this sector, and ranks second for the amount of studies about Islamic finance.

The implementation of MEKSI involves several players of the Islamic economy through large and ambitious initiatives. In fact, the principal goals of the Masterplan include the construction of the Halal Lifestyle District in Jakarta, an industrial district of 21 thousand square meters with an investment of $18 million; and the Muslim Fashion Project (MOFP), a roadmap for the modest fashion industry growth, which include competitions and elaboration of fashion start-ups, involving about 656 small and medium enterprises and 60 designers. Thus, Indonesia aims to become the next global capital of modest fashion.

MEKSI 2019-2024 represents an important turning point for Indonesian economic policy. The Islamic economy is destined to become the identity value of Indonesia, which has the ambitious purpose of becoming a key producer and global hub of the halal sector by 2024.  

13th Bali Democracy Forum: the future of democracy in South-East Asia

From the protection of civil rights to the need for an inclusive economy, Indonesia puts the spotlight on the development of democracy in the Asia-Pacific region.

The thirteenth edition of the Bali Democracy Forum, entitled la tredicesima edizione del Bali Democracy Forum, intitolata Democracy and the Covid-19 Pandemic, took place on 10th December in semi-virtual mode. The speech by Indonesian Foreign Minister Retno Marsudi, the first woman to hold this position in the country, opened the event convened in Nusa Dua. After her speech, the words of the United Nations Secretary-General and the Director-General of the World Health Organization were presented via video.

The 13th Bali Democracy Forum (BDF) addressed the impact and consequences of the Covid-19 pandemic on democracy and solidarity between states. Together with the global health and economic emergency, the restrictive measures adopted by governments to contain the infection are also threatening some founding values of democratic societies. Therefore, the main goal of the 13th BDF was to provide a space for sharing experiences between states and stakeholders, as well as to find answers on the future of democracy as a consequence of the global crisis.

The annual intergovernmental forum focuses its attention on developing democracy in the Asia-Pacific region. Established by the indonesian government in 2008 to seal the first democratic decade in Indonesia, the BDF aims to encourage regional and international cooperation on the issue of democracy and peace, through a productive dialogue between all participating States. Democracy is one of the founding principles of Indonesia, enshrined in the so-called Pancasila, the philosophical thought on which the Indonesian state is founded. The promotion of democracy is also an integral part of Indonesia’s foreign policy, particularly in the Asian region.

Adherence to the values of equality and mutual respect has become the foundation on which the authentic spirit of the Forum is based. Over the years, the BDF has made democracy a key point of the strategic agenda in the Asia-Pacific region, as the region’s biggest meeting on this issue. In line with the three founding pillars of the United Nations Charter, the BDF puts the spotlight on the need to succeed in creating a lasting balance between economic and political development, the maintenance of peace and security, and the protection of human rights and humanitarian values in Asia-Pacific. 

Furthermore, the 13th Bali Democracy Forum conducted a series of events as part of the Road to BDF, from September to November 2020. This new initiative was divided into three main segments: Bali Civil Society and Media Forum (BCSMF), Bali Democracy Students Conference (BDSC), and the Panel of Inclusive Economy. Each segment produced a series of preliminary meetings and consultations on democracy and the Covid-19 pandemic.

The BCSMF aims to encourage the participation of civil society and media, as main actors in the process of public policy making. This Forum brings together community leaders, NGO activists, academics, researchers, journalists and public figures. The BDSC involves students from many Indonesian and foreign universities in a precious moment of discussion on various issues, which arise from the Forum’s dominant theme. Finally, the Panel of Inclusive Economy was introduced in the 2019 edition as an essential part of the BDF. Through this Panel the importance of an inclusive economy was highlighted, being able to guarantee the participation of all stakeholders, especially the private sector. Indeed, the collaboration between public and private sectors enables the strengthening of the democratic system and the economic development. The Panel also plays as a platform to deepen the topics in question and to propose concrete actions to address economic challenges. The strengthening of micro, small and medium-sized enterprises (MSMEs) was a crucial theme of the BDF 2020. In fact, the 13th BDF emphasized the need to fortify MSMEs as a key part of the economic recovery, since they represent one of the sectors most hit by the pandemic.

«Our task is not easy, we need to make sure that democracy can support our efforts in the post-pandemic era» said the Foreign Minister Retno Marsudi. Through the BDF, Indonesia places itself at the center of the Asia-Pacific region and it affirms a very important prerogative in the delicate historical moment we are experiencing. The spirit of inclusion is the cornerstone of a successful democracy. The support and protection of democratic principles must become a positive force to overcome the challenges and problems caused by the current pandemic and start the post-pandemic phase. 

RCEP: sfide e opportunità per l’Indonesia

L’Indonesia cerca di trarre vantaggio dall’adesione alla RCEP mentre è alle prese con problemi di infrastrutture e investimenti

La firma della Regional Comprehensive Economic Partnership (RCEP) avvenuta il 15 novembre segna un’importante tappa nella storia recente dell’Indonesia. Dopo otto anni di negoziati, i dieci Stati membri dell’ASEAN insieme a Cina, Giappone, Corea del Sud, Australia e Nuova Zelanda, hanno finalmente firmato un accordo commerciale destinato a diventare il più grande della storia. Il trattato infatti creerà un mercato di circa 2,1 miliardi di consumatori, equivalente al 30% del PIL globale.

L’obiettivo della RCEP è quello di creare un partenariato economico reciprocamente vantaggioso per ciascuno dei Paesi partecipanti grazie all’abbassamento delle tariffe, alla semplificazione delle procedure doganali e alla stesura di regolamenti economici comuni. Per l’Indonesia, l’adesione alla RCEP non solo aprirà le porte a una vasta gamma di opportunità commerciali future, ma nell’immediato servirà al Paese per rimettere in sesto un’economia pesantemente colpita dalla pandemia di Covid-19. Molti economisti stanno tuttavia ancora cercando di prevedere tutte le possibili implicazioni che un accordo così ambizioso comporterà per il mercato indonesiano.

Uno degli obiettivi immediati della RCEP è consentire alle merci di circolare in modo più efficiente attraverso i 15 Paesi membri. Ciò comporterebbe un indubbio vantaggio per Jakarta, poiché le attività commerciali di queste nazioni hanno rappresentato il 57% delle esportazioni totali dell’Indonesia e il 67% delle sue importazioni totali nel 2019. Inoltre, il 66% degli investimenti diretti esteri proviene da diversi Paesi firmatari quali Singapore, Cina, Giappone, Malesia e Corea del Sud. Tuttavia, per sfruttare al meglio i vantaggi dell’accordo, l’Indonesia ha bisogno di adeguare il suo sistema infrastrutturale.

Anche prima della pandemia di Covid-19, la crescita economica del Paese è stata spesso rallentata da questo fattore. Nel 2017, la Banca Mondiale ha stimato che l’Indonesia dovrà investire circa 500 miliardi di dollari nei prossimi 5 anni per colmare il suo divario infrastrutturale. Secondo gli esperti, una delle possibili soluzioni è quella di sfruttare maggiormente le iniziative infrastrutturali lanciate dai governi dell’Asia-Pacifico. Questi includono la cinese Belt & Road Initiative, la Partnership for Quality Infrastructure del Giappone, e l’istituzione della Banca Asiatica di Investimento per le Infrastrutture sponsorizzata da Pechino. 

La partecipazione a queste iniziative multilaterali non è tuttavia esente da rischi, e il governo indonesiano deve tenere conto dei risvolti geopolitici. In quanto uno dei principali Paesi del Sud-Est asiatico, l’Indonesia ha un mercato interno che fa gola alle altre potenze del continente asiatico e del mondo. Un esempio è il progetto della ferrovia ad alta velocità Jakarta-Bandung, la cui gara per la costruzione ha causato frizioni tra il Giappone e la Cina, entrambe interessate all’appalto. A vincere alla fine è stata Pechino, che ha offerto tassi di prestito più bassi e una tempistica più breve il completamento dell’opera.

La partecipazione alla RCEP contribuirà senza dubbio ad aumentare degli investimenti esteri diretti verso l’Indonesia. In passato, le rigide leggi sul lavoro hanno indotto molte aziende straniere a ridurre i propri investimenti; per risolvere questo problema, il governo ha introdotto quest’anno una nuova riforma, la Legge Omnibus, che mira a facilitare le attività economiche nel Paese modificando ben 76 leggi esistenti. Sono incluse tra le varie norme la riduzione della burocrazia, l’allentamento delle restrizioni sugli investimenti stranieri e l’abrogazione di alcune leggi sul lavoro.

Nonostante gli sforzi del governo, il progetto ha ricevuto severe critiche da vari gruppi sociali, poiché il disegno di legge taglia alcune protezioni sociali e allenta le norme ambientali, aumentando il rischio deforestazione e inquinamento. Tuttavia, è ancora troppo presto per vedere l’impatto a lungo termine del disegno di legge, in quanto tutto dipende dalle modalità di attuazione. La Legge Omnibus potrebbe effettivamente portare a un clima migliore per gli investimenti in Indonesia e quindi creare più posti di lavoro, ma deve essere sostenuta da una solida esecuzione e da un ampio monitoraggio da parte del governo.

Sulla base di quanto descritto è chiaro che fare affidamento solo sulla RCEP non è sufficiente, né per la ripresa post-pandemia, né per lo sviluppo economico a lungo termine dell’Indonesia. Per trarre il massimo vantaggio da questo accordo, il Paese deve sostenerlo con una solida pianificazione infrastrutturale e un quadro normativo moderno, entrambe grandi priorità per l’attuale governo. Una volta raggiunti questi obiettivi, l’Indonesia otterrà significativi benefici economici, aumentando la propria competitività e integrandosi maggiormente nella regione Asia-Pacifico. 

By Rizka Diandra 

Translated by Andrea Passannanti 

Indonesia's entry into the EV sector will strengthen its position in the global market

Indonesia, the world's largest producer of nickel, aims to build an industry that will include the construction of electric vehicles. 

In Indonesia, the transport sector contributed to nearly a third of 2018 greenhouse gas emissions, mainly due to road mobility. The Indonesian government has pledged to reduce its CO2 emissions to achieve the 2016 Paris Agreement on Climate Change goal of keeping the global temperature below 2° C. The spread of electric vehicles (EVs) has been seen by many observers as the main future strategy for reducing polluting emissions.

In order to clarify the matter, the Indonesian Ministry of Transport has already drawn up a draft regulation that electric vehicles will have to face before they can be sold on the market. The quick adoption of these guidelines is a good sign for both domestic and foreign electric vehicle manufacturers, as they have long aimed at this market of over 200 million potential consumers. The push came from President Joko Widodo himself, who is aiming at accelerating the EV program for land transport.

The regulation also outlines the various initiatives the government will take to strengthen the domestic electric vehicle industry, including the requirement for finished products to use locally made components. The construction of 2,200 EV units, 711,000 hybrid units and 2.1 million electric motorcycles by 2025, will make Indonesia less dependent on oil import, which weighs heavily on the national budget. However, state-owned electricity giant Perusahan Listrik Negara estimates that Indonesia will need more than 31,000 new electric vehicle charging stations by 2030 to meet its targets, at a cost of 3.7 billion dollars. The Institute for Essential Services Reform has identified the lack of charging stations as one of the key factors inhibiting the spread of electric cars in Indonesia. Moreover tax incentives aren’t sufficient enough and the costs to support the EV infrastructure required are still high.

On the other hand, Indonesia is one of the largest producers of nickel in the world, which its export has been recently banned by the government: the ban’s aim is to encourage foreign companies to invest in the production of finished products directly in the country, using its nickel and its batteries. Tesla CEO Elon Musk, while not yet present in the Indonesian market, has asked mining companies to increase production.

The Minister of Industry Agus Gumiwang has shown interest in Tesla's proposal, which already plans to build a battery factory on site, more specifically in Batang Province. Negotiations are currently underway between the Californian tech company and the Indonesian government to build a new nickel mining and processing company in the country. The Coordinating Minister for Maritime and Investments Affairs, Luhut Binsar Pandjaitan, also confirmed that they would secure their nickel supply if Elon Musk's company will decide to invest in a battery factory in the country.

Now aware of the growing importance of nickel in the development of this sector, Indonesia also wants to create a domestic industry of batteries for electric vehicles, with the aim of putting the first cells on the market by 2023. They will be designed and built by Indonesia Battery Holding, a new joint venture launched by the state oil company Pertamina, the energy distribution company Perusahan Listrik Negara and the mining company Aneka Tambang. The founding of this new state-owned company will put Indonesia in a strong position in the global battery market.

Nowadays, the weak point of this strategy is the difficult access to the technologies necessary for the production on an industrial scale. To fix this, the government is negotiating with the Chinese company CATL and Korea’s LG Chem, two of the world's largest manufacturers of EV batteries. The entry of these players into the Indonesian market will bring investments for an additional 20 billion dollars to be allocated to the development of the missing technologies. Furthermore, the batteries for electric vehicles produced in Indonesia will not only be destined for the transport sector, but also for the energy storage sector: experts predict that demand will increase for both uses in the next years.

In conclusion, given Indonesia's current market, existing regulations and weak industrial infrastructure, electric vehicles will face very difficult challenges to break into the automotive sector. To achieve a high market share and a significant reduction in emissions, supportive policy tools are needed. Policies must aim to provide incentives for electric vehicles and disincentives for internal combustion engine vehicles (ICEVs). The tools should include tax incentives (both initial and recurring), non-financial incentives, regulatory incentives and the availability of public charging infrastructures, indispensable tools already adopted in other countries with a high diffusion of EV vehicles.

By Diego Mastromatteo

Indonesia moves its capital city: complications of the megalopolis in South-east Asia

A few months after his re-election, Indonesian President Joko Widodo announced the move of the capital from Java to Kalimantan 

Jakarta, the capital city of Indonesia located on the Java’s island northwestern coast, has a population of nearly 11 million inhabitants. The enormous surrounding metropolitan area Jabodetabek, name after the five megacities that comprise the area( Jakarta, Bogor, Depok, Tangerang and Bekasi) easily reaches a population of 30 million inhabitants. 

A study conducted by Euromonitor International reveals that Jakarta will become the most populous city in the world by 2030, with a total population of 35.6 million inhabitants, surpassing today’s Greater Tokyo.

With a density of over 14,000 inhabitants per km², overpopulation is one of the main problems of the Indonesian capital, in addition to other critical issues, including atmospheric and water pollution. 

According to the TomTom Traffic Index 2019, Jakarta is included in the top ten most congested cities in the world, with a road congestion level of 53%, which significantly impacts its air quality level. It is estimated that the inhabitants of Jakarta spend 22 days per year in traffic, with a loss to the economy amounting to $7 billion annually.

Furthermore, there are more problems complicating Jakarta’s current condition: the remarkable rise of sea levels caused by global warming, the massive presence of asphalt and cement that does not allow water to flow into the soil and the excessive extraction of water from underground aquifers, as a consequence of scarce water distribution. In addition, the capital is hit by frequent and dangerous flooding all over the metropolitan area. 

Due to these phenomena, Jakarta is sinking at the rate of 25 centimeters per year and half of the city stands already below sea level. A survey estimates that 95% of the northern part of the city will be completely submerged by 2050.

These issues pushed President Jokowi to move the capital from the island of Java, the political and economic heart of the entire nation, to Kalimantan. On August 16, 2019, a mere three months after commencing his second term as president of Indonesia, Jokowi stated that «the relocation of the capital is necessary to achieve economic equality. It serves to achieve the progress of Indonesia».

This is not a new issue in Indonesia, but rather a plan that has been repeatedly discussed for a long time, which Jokowi now aims to carry out. «The plan to move the capital city was considered for many years, since the era of the first President of the Republic of Indonesia, Sukarno. As a great nation that has been independent for 74 years, Indonesia has never chosen its own capital», said Jokowi, explaining that the decision was made to lighten Jakarta and Java from the burden of their functions. 

«Jakarta’s burden is currently too heavy being the center of government, business, finance, trade and services, as well as the largest airport and seaport in Indonesia. The burden on the island of Java is getting worse as well, with a population of 150 million, 54% of Indonesia’s total population and 58% of Indonesia’s economic GDP comes from Java, which also represents a source for food security», declared Jokowi. He also emphasized the immediate urgency of facing these issues in order that «this burden on Jakarta and Java, in terms of population density, traffic, air and water pollution, does not become even more onerous». 

Indonesia would not be the first ASEAN country to move its own capital city: Malaysia did so in 1999 and Myanmar in 2006. Other countries such as Egypt , Pakistan, Kazakhstan, Nigeria and Brazil followed suit, highlighting a rapidly spreading trend among developing countries. 

On August 26, 2019, Jokowi officially announced the move of the capital to Kalimantan, the Indonesian part of the island of Borneo and the second largest province in Indonesia. This area boasts exceptional natural resources and is much less densely populated than Java, with 13 million inhabitants. The choice specifically concerns an area of 180,000 hectares, between the cities of Balikapan and Samarinda, in the eastern province of Kalimantan, which records «a minimal risk of natural disasters, including floods, earthquakes, tsunamis, forest fires, volcanic eruptions and landslides, with its strategic position in the center of Indonesia, bordering developed urban areas with adequate infrastructure» explained Jokowi. 

The capital relocation project, which will cost 466 trillion Indonesian rupiah ($33 billion), has been included in the National Medium-Term Development Plan 2020-2025. The start of the first phase of infrastructure development is set for the second half of 2020 ending in 2024. However, the Minister of National Development Planning recently announced that the new capital construction plan will be postponed until 2021, in order to give priority to the emergency situation caused by the Covid-19 pandemic. 

Hence, Indonesia is trying to tackle and solve the problems of its capital city, common among many other megalopolises in South-East Asia, setting very ambitious goals. A new, great beginning, just waiting to be put into motion. 

By Annalisa Manzo 

Trade Expo Indonesia 2020: the very first B2B virtual fair

A great opportunity to relaunch Made in Indonesia exports

Covid-19 has led people and companies to reshape their activities, and the events sector in particular has understandably suffered the situation. However, despite the inability to attract and manage massive numbers of spectators and visitors in attendance (events such as the Tokyo 2020 Olympics and the UEFA European Football Championship have been delayed), the events sector is expressing its vitality despite current contingencies. After all, it is all about the ancestral human need for sociality.

In this respect, the Indonesian government is organizing from the 10th to the16th of November 2020 the 35th edition of one of the most important B2B fairs for the country, the “Trade Expo Indonesia Virtual Exhibition (TEI-VE) 2020”. The online event will host more than 400 companies from all over the world and this year’s theme will be "Sustainable Trade in The Digital Era". Thanks to 3D technology, buyers will be able to have access to a virtual exhibition platform, through which they can develop business networks and cultivate investment opportunities.

The event will also be an opportunity to learn more about Made in Indonesia products and, parallel to the exhibition, participants will be able to join round tables on trade and touris, encouraged by business matching sessions. Exhibitors will include leading catering, craft and fashion companies, as well as companies from the manufacturing and tertiary sectors. In order to cater for the lack of aggregation and networking opportunities, the event will include both virtual opening and closing ceremonies and supporting tools addressed to buyers and suppliers, with the aim of offering them a complete virtual experience on business and investment opportunities. Moreover, the event will witness the granting of the Primaniyarta Award, the highest national recognition by the Indonesian Government to the most successful exporters.

Therefore, the fair is a very important moment for Indonesia. In this regard, the Ministry of Trade reported the success of the previous edition that achieved transactions of $10.96 billion. An increase of 29.04%, if compared to the 2018 transactions of $8.49 billion. “With the current situation of the Covid-19 pandemic, we cannot stop" said Minister of Trade Agus Suparmanto who then added "this is one of our efforts to fight the virus". Indeed, he hopes that the TEI-VE 2020 can mark the beginning of a new era for the world of B2B fairs, showing commercial operators that it is possible to activate international trade through virtual tools.

This opportunity fully represents the responsiveness and resilience that have characterized the ASEAN countries in previous months. In the new context imposed by the current health emergency, Indonesia has been able to react to the challenge by rethinking one of the most important moments for the country’s trade policy. The event will be full of novelties and contents, which could give interesting indications on the future of the events sector and on the state of international trade.

An Open Economy: Indonesia’s Latest Goal

After having successfully achieved unity and democracy, now the country strives for economic openness 

Indonesia is a country with over 14,000 islands, 700 languages, and 1,300 ethnic groups. Yet, despite its size and heterogeneity, Indonesia managed to find strength in its national motto ‘Bhineka Tunggal Ika’ that means ‘Unity in Diversity’. The country is now ranked as the world’s 16th largest economy and is predicted to rise to the 7th position by 2030, based on a report from McKinsey. However, this success didn’t come overnight. According to Kishore Mahbubani, a distinguished fellow at the Asia Research Institute and a former diplomat in the Singapore Foreign Service, one of the reasons behind Indonesia’s success is that the country had the right leader in each point of history.

Soekarno, the first president of Indonesia, created unity among the people. He was able to unite the country through Pancasila – the Indonesian state philosophy- and he also established the country’s national language: bahasa Indonesia. His successor, Suharto, with an authoritarian approach managed to deliver economic growth to the country (6.6% on average during his regime), putting it on a favorable development path. Finally, in 2014 Susilo Bambang Yudhoyono, President for two terms, delivered significant progress in democracy and international cooperation. Also thanks to Indonesia’s leadership in ASEAN, the country was admitted to the G20, obtaining a permanent and visible role in the global arena.

Today, the current administration, led by President Jokowi, is faced with one major challenge: economic openness. Indonesia is still somewhat reluctant to open its market to competitors, and the reason behind this is rooted in the country’s history. Indonesia has a legacy of economic nationalism that began in Soekarno’s era when the struggle for national liberty was also seen as an economic one. Protectionist measures and hostile policies towards foreign investors were in place, with the hope of making Indonesia a self-sufficient nation. This all changed under Suharto’s leadership when his administration proposed different policies aiming at a gradual integration into the global economy. 

The current aim is to promote and strengthen Indonesia as an open economy, with economic development at the core of the strategy. The government is focusing on the completion of various Free Trade Agreements, among which the Regional Comprehensive Economic Partnership (RCEP) and the Indonesia-EU Comprehensive Economic Partnership Agreement. The latter in particular, according to the programme of the next trio of Presidencies of the Council of European Union, will likely be concluded in 2021. Negotiations between the two sides are entering the 10th round this autumn, and looking at the previous results, several areas recorded good progress, among which the removal of technical barriers to trade, subsidies, and investments. On the other hand, negotiations on trade in goods, intellectual property rights, and sustainable development might require more time to reach an agreement.

The government’s effort is also reflected in Legatum Institute’s 2019 Global Index of Economic Openness. Indonesia ranked 68th out of 157 countries, jumping six places in the last decade. Overall, Indonesia has managed to secure numerous trade deals, mostly with its ASEAN counterparts and other Asian countries. However, some critical elements continue to persist. Tariffs and import quotas are still being applied to protect the domestic market. In addition, a World Bank report also shows Indonesia’s FDI being less than half of the global average – at 2% of its GDP. According to experts, this lack of FDI might slow down development in several sectors, especially infrastructures.

Nevertheless, in spite of Indonesia’s structural differences, and the lingering issue of economic nationalism that might hinder the country’s development, Indonesia is well on its way to becoming a major actor in the international scenario. Actions taken by the government show that President Jokowi’s administration is giving priority to the opening up of the Indonesian market, to grasp the benefits of international trade. At this moment, the real challenge for Indonesia is to balance the domestic and foreign capital in the country, in a way that can actually benefit the economic system. Once the equilibrium point is met, no doubt it will transform Indonesia, unfolding all its true potential. 

By Rizka Diandra and Tullio Ambrosone 

Italy and Indonesia: a great potential

The recent experience with Covid-19 has improved the political and economic dialogue between Italy and Indonesia 

The Italy-ASEAN Association organized a meeting on Indonesia and its response to the crisis caused by the Covid-19 pandemic. The meeting saw the participation of the Italian Ambassador in Indonesia, Benedetto Latteri, the Indonesian Ambassador in Italy, Esti Andayani, the Vice-President of Confindustria responsible for internationalization, Barbara Beltrame, the Indonesian Deputy Minister for Foreign Affairs responsible for European and American Affairs, Ngurah Swajaya, and finally the Vice-President of KADIN, Shinta Kamdani.

The experience of the pandemic has greatly affected Indonesia’s economy, weakening key sectors such as trade and tourism. To date, the virus has spread to all provinces across the country and the most affected areas are those of Jakarta, North Sumatra and East Java. This phenomenon led to a 5.3% contraction in GDP and a 30% reduction in trade volumes in the first half of 2020. However, this emergency has highlighted Indonesia’s increased degree of resilience in dealing with the crisis, laying the foundations for a renewed spirit of cooperation between Indonesia and Italy.

Indonesia exports a variety of products to Italy ranging from tropical fruits and vegetable oils to cosmetics, electrical machinery and componentry. The EU is Indonesia’s third largest trading partner, generating a total trade value of EUR 23.8 billion in 2019. The two countries appear to have complementary import and export needs and intend to seize the opportunities given by the new international context in order to develop successful trade strategies.

To ensure a more intense flow of investments between the two countries, the EU is also showing more flexibility towards its companies, supporting them in the economic recovery and relaunching the importance of foreign trade and internationalization. The European institutions recognize the strategic importance of ASEAN and they are enhancing international negotiations with the purpose of promoting intense cooperation, in contrast with the emergence of protectionist measures by other partners. Free trade will be the key to emerge from the crisis and will be the most effective tool to promote the economic growth of the two countries.

There are two international agreements, still being negotiated, which represent an interesting opportunity for Indonesia and the EU: the Regional Comprehensive Economic Partnership, a trade agreement including 15 Asian countries, and the Indonesia-EU Comprehensive Economic Partnership Agreement. The latter focuses on trade relations between Indonesia and the EU, and aims to ensure a more solid and productive relationship between Indonesia and European countries. The topics covered range from the removal of duties to the promotion of the flow of investments, from the protection of intellectual property to the strengthening of international cooperation. With the conclusion of these agreements, the value of trade between the two regions would increase significantly and ensure mutual benefits.

Therefore, it may be held that although the pandemic has generated significant consequences for the Italian and Indonesian economy, this experience has also opened the doors to new opportunities for the two countries. In fact, it has highlighted the mutual willingness to explore respective markets, adopting a renewed approach that, echoing the words of the Indonesian Ambassador in Italy Esti Andayani, aims to "transform pessimism into optimism".

Article written by Hania Hashim