Source:
https://scmp.com/week-asia/opinion/article/3022886/indonesia-still-wants-chinese-investments-jokowi-also-wooing
This Week in Asia/ Opinion

Indonesia still wants Chinese investments, but Jokowi is also wooing Middle East money

  • Jakarta needs to drum up foreign direct investment to boost lacklustre economic growth, and its recent favourite partner has been Beijing
  • But the world’s most populous Muslim nation is now building on deep-rooted historical ties with the Middle East to lessen dependency on China
Indonesian labourers work on a construction site in Jakarta. Photo: AFP

Indonesia made great strides in reforming its economy during the first term in office of President Joko Widodo, popularly known as Jokowi.

The country’s ranking in the World Bank’s ease of doing business study rocketed from 114 in 2014 to 73 this year, and ratings agency Standard and Poor’s in 2017 joined Moody’s and Fitch in awarding BBB investment status.

But securing capital remains a big challenge.

According to government figures, investment grew 11.4 per cent a year in Widodo’s first term, but that number was significantly smaller than in Susilo Bambang Yudhoyono’s second term between 2009 and 2014, when it hit 22.2 per cent.

Last year foreign direct investment fell 8.8 per cent, the worst performance since 2010, and figures for this year look similarly unsatisfactory – in the second quarter, growth stood at 5.01 per cent compared with 5.85 in the same period last year.

Indonesian President Joko Widodo, popularly known as Jokowi. Photo: SCMP
Indonesian President Joko Widodo, popularly known as Jokowi. Photo: SCMP

Finance minister Sri Mulyani says foreign investment is crucial to the economic ambitions of Southeast Asia’s biggest economy because the amount coming from domestic sources is limited and largely hindered by the country’s poor savings ratio. The government and state-owned enterprises are only able to stump up about a quarter of the funds needed to meet targets, so a large portion of cash will need to come from overseas.

Latest figures from the Investment Coordinating Board showed that investments from mainland China and Hong Kong totalled US$3.6 billion in the first half of this year, followed by US$3.4 billion from Singapore and US$2.4 billion from Japan.

Treats from the Middle East

While Jokowi’s administration has actively wooed Chinese investments, Indonesia is also diversifying its sources of funds and has looked to the oil-rich countries of the Gulf.

The United Arab Emirates (UAE) in April signed deals worth US$9.7 billion during an official visit to Indonesia by Abu Dhabi’s Crown Prince Mohammed bin Zayed al-Nahyan. 

His trip is the first state visit to the country by a UAE leader in almost three decades. The agreements were mostly business-to-business deals, including a US$2.5 billion partnership between state-owned energy giant Pertamina and Abu Dhabi National Oil Company.

Long-standing anti-Chinese sentiment has been building in Indonesia, making life difficult for investors from the Middle Kingdom. Some Chinese businesses could be dissuaded from placing their capital in the country. Consequently, bolstering relations with fellow Muslim-majority countries in the Middle East is seen as a safer option by the Jakarta government. It also allows Indonesia to hedge its bets against any economic downturn in China – as well as the United States and Europe – amid the backdrop of Beijing’s trade war with Washington. The tariff dispute has led some firms to choose Southeast Asian nations over China as a base for their operations, but few have opted for Indonesia, causing Jakarta to look to the Gulf.

Strengthening business ties with the Arab world may appear a new strategy, but in fact has historical precedent. Contact between Jakarta and the Middle East dates back to the first big wave of Arab immigration to the archipelago during the 13th century. The majority of these early migrants were merchants and religious teachers from the Yemeni region of Hadhramaut.

However, ties grew weaker in the 1950s and early 1960s because of growing extremism in Indonesia and the country’s “Cairo-centric” Middle East policy, which characterised the tenure of the nation’s first president, Sukarno.

Widodo distinguished himself from his forerunners by visiting several Gulf countries in his first term, looking to build on the existing natural synergy between the two sides. Indonesia is home to the world’s largest Muslim population, but exemplifies religious and ethno-cultural tolerance, according to Bahraini specialist on Asian affairs Abdulla al-Madani. He argues this could make the nation a centre for dialogue between the Islamic world and other civilisations, and boost its allure as an investment destination for Gulf states, particularly in agriculture, banking, and infrastructure.

For the Middle East, Indonesia offers a huge export market of 250 million people. So far, Qatar, the UAE and Oman have taken the lead by boosting trade, but a free-trade agreement remains elusive.

Residents of Jakarta walk around a busy market street in the Indonesian capital. Photo: AFP
Residents of Jakarta walk around a busy market street in the Indonesian capital. Photo: AFP

More than money

However, the benefits for Arab states go wider than economics. Indonesia’s strategic location offers Gulf governments a way to strengthen their diplomatic presence in the region. Many have pursued a Look East policy in recent years, and Indonesia could serve as a hub for the Gulf to expand that strategy in Asia and the Pacific both politically and economically. With no sign of an end to instability in the Middle East, it should be no surprise that the Gulf countries see the growing economies of Southeast Asia as prudent alternatives for prosperity.

No less important is that Indonesia could also be viewed as a large potential market for their petroleum exports. With demand in the developed world having tumbled following the 2008 global financial crisis and the prospects remaining grim, the oil-producing Gulf states have turned their attention towards Asia, which remains, and will continue to be, one of the world’s fastest growing energy markets.

Once a major oil exporter, Indonesia now consumes as much energy as it produces, and the Gulf states are expected to be the major suppliers meeting Indonesia’s increasing demand.

Employees at online retailer Lazada fill orders at the company’s warehouse in Jakarta. Photo: Reuters
Employees at online retailer Lazada fill orders at the company’s warehouse in Jakarta. Photo: Reuters

Counterterrorism cooperation also beckons, since the two sides are often targeted by violent groups pursuing similar goals. And elsewhere in the political sphere, Jakarta’s stance on several major issues, including the Syrian conflict and the Palestinian cause, largely corresponds with Gulf governments.

Indonesia could even be considered a potential partner for mediating some of the Middle East’s ongoing conflicts. As a Muslim-majority nation, Jakarta enjoys relatively positive ties with all countries entangled in conflicts in the region, including Syria, Saudi Arabia, Iran, and Yemen. Indonesia could be a source of both prosperity and peace.

Muhammad Zulfikar Rakhmat is a lecturer at the Islamic University of Indonesia and research associate at the Institute for Development of Economics and Finance in Jakarta

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