Times are changing in Indonesia, bringing fresh opportunities for trade with a neighbour that’s within swimming distance of our northern shoreline. It’s time to ignore the negative stereotypes of the past and realise the potential of the Australia–Indonesia relationship.
It’s hard to avoid the impression that Indonesia and Australia are just like a couple of bad-tempered neighbours, yelling at each other over the back fence while ‘family’ members, such as media commentators, urge them on to ever greater expressions of mutual distrust.
But speak to a bunch of exporters—especially SMEs, who make up the majority of people engaged in our bilateral trade—and you’ll discover that this is largely what it is: an impression.
No one denies that critical events have impacted on the Australia–Indonesia relationship: the Bali bombings, attacks on Australia’s Jakarta embassy, the tragic fates of young Australian drug smugglers and worrying incidents like outbreaks of avian flu. Business people are also aware that Indonesia was hammered during the Asian financial crisis, necessitating a major financial rescue operation from the International Monetary Fund. Indeed, the last 10 years have seen enough negative reports emerging from Indonesia to keep even the most demanding pessimist happy.
So, yes, Indonesia is a difficult market. But it’s also important to understand that things have been changing quickly—and sometimes radically—around that great archipelago to Australia’s north.
Indonesia’s Minister of Finance, Dr Sri Mulyani Indrawati, has exemplified this break with the past by receiving Euromoney magazine’s World Finance Minister of the Year award. His country’s economic performance has improved universally and Indonesia’s investment climate is now regarded as being quite good.
The changes go far beyond money management. The recent death of President Suharto, the military strongman who dominated Indonesia for 32 years, has highlighted the achievements of his current successor, President Dr Susilo Bambang Yudhoyono, who is credited with having turned his nation into a fully-fledged democracy.
Late last year, President Yudhoyono made an extraordinary appeal for both Indonesians and Australians to look beyond the ‘tyranny of stereotypes’ and make full use of opportunities in each other’s countries.
Australia’s Senior Trade Commissioner in Indonesia, Rod Morehouse, couldn’t agree more. He believes we all need to put a bit more effort into loving our neighbours, especially a neighbour that’s almost within swimming distance of our northern shoreline and which is home to more than 222 million people.
Distinct sounds of harmony emerged from Canberra in March when Indonesia’s Defence Minister, Dr Juwono Sudarsono, flew south for talks with his Australian counterpart, Joel Fitzgibbon, who described our mutual defence relationship as “approaching the same warmth it experienced before East Timor in 1999”. Fitzgibbon’s chat with Dr Sudarsono went beyond the niceties, exploring opportunities in building, management, science, technology and other support projects. Trade Minister Simon Crean had already chosen to make his first overseas visit to Indonesia.
And consider this: there are nearly 3,000 Australian companies currently doing business with Indonesia, 400 of them with offices inside the market, and Australia’s merchandise exports to the market in 2006-07 were worth $4.24 billion while services exports totalled $858 million. All up, our two-way trade in goods and services is worth $10.4 billion.
“It’s the fourth-fastest growing economy in Asia after China, India and Vietnam, and the biggest market on our doorstep,” says Morehouse. “Australia is already Indonesia’s seventh-largest source of imports and rising consumer demand is creating brand new markets for life-style products and services.
“Indonesia has a burgeoning middle class with approximately 22 million consumers capable of spending $1,900 a month. More than half the population is under 25.”
Even current global economic anxiety hasn’t stopped the World Bank forecasting that Indonesia is well-placed to navigate the slowdown, even if its present growth rate will ease, and then only by a modest five-to-six percent. The Bank credits this strength on Indonesia’s investments in structural reform and sound macroeconomic policies over the last 10 years.
Indonesia has long been an important market for major Australian mining companies and, in recent weeks, BHP Billiton revealed plans for a $2.2 billion-plus nickel laterite project there within three years. But it isn’t all about giant corporations. Australian SMEs are supplying products, technologies and services to major Indonesian infrastructure and mining projects while others are pursuing a broad range of other opportunities.
They include companies like Perth-based legal, commercial and training specialists Hugh Fraser International; Global Track crane components from Geelong, Victoria; video hire service Video Ezy; Ray White Real Estate and Gloria Jean’s Coffee. All have established strong footholds in the market.
And that’s far from the end of it; Australia is Indonesia’s largest supplier of live cattle, dairy products and sugar with growing opportunities in building and construction, agribusiness, food and beverage, ICT, education, and industrial machinery, processes and technologies.
Australia’s ‘top end’ has evolved its own special relationship with Indonesia through the establishment of the Australia-Indonesia Development Area (AIDA), which seeks to involve the private sector as a key player in developing relations with the eastern provinces of Indonesia.
So why does Indonesia’s image in many quarters in Australia remain so depressingly negative?
Austrade’s chief economist Tim Harcourt is perplexed about how a rumour—claiming that trade missions from Australia had been banned—ever gained any currency. “Austrade’s Jakarta office regularly organises trade missions to Indonesia,” he says.
The Department of Foreign Affairs and Trade (DFAT) says current travel warnings do warn against travel to the Indonesian archipelago, but in Canberra the attitude is that DFAT has an obligation to all Australians to warn them when problems exist and are not expressly to preclude business travel. There’s an expectation that business travellers will use common sense when dealing with the subject.
Significantly, Australia and Indonesia are now in the final stages of a feasibility study into a possible bilateral Free Trade Agreement (FTA) with a report expected in mid-2008. “One third of all Australian exporters send at least some of their products to the ASEAN (Association of Southeast Asian Nations) region,” says Harcourt. “Clearly, an FTA with Indonesia, and the possibility of a broader agreement on trade between ASEAN, Australia and New Zealand, would be tremendously important for us in terms of market access.
“We’re hoping an FTA might deliver to us three vital things: good market access with no tariffs or other barriers; good trade facilitation, taking care of issues like visas and border access; and a good investment climate and superior security. If we can get those three things sorted out we will be in a very good position.”
There’s no doubt problems exist in other areas of Indonesia’s establishment, like infrastructure and law reform in forestry and mining, while easier access for Australians is needed in the key economic growth areas of telecommunications, financial services and mining.
Our trade future
From Indonesia’s perspective, there’s hope that an FTA could deliver other benefits. Indonesia’s Trade Minister Marie Pangestu says she’d like nurses, construction workers and hospitality industry professionals to join the Australian labour market under the proposed free trade agreement. An FTA could deliver benefits in two-way commercial linkages, market competitiveness, improved business transparency, secure intellectual property rights, ease of establishment for Australian businesses in Indonesia, and the recognition of overseas professional qualifications.
“Indonesia will always be a different sort of country,” Harcourt adds. “But there are many things the Indonesians are keen to achieve that would make things easier for our exporters and investors. So, the more support their efforts attract from the Australian business sector, the better.”
A key level of support all Australian exporters can provide is in approaching the market with respect and adhering to important cultural principles, such as maintaining a commitment to the market through thick and thin.
“Australian businesses have to work hard on the quality of their business relationships in Asia,” says Harcourt. “If you are a carpetbagger who pulls out of the Indonesian market the moment that business gets a bit slack, or the going gets tough, you’re going to find there’ll be no business for you when you decide to go back in.”
What of the future? Is Indonesia’s modernisation program destined to continue uninterrupted?
Presidential elections are to be held in Indonesia in 2009 and there are expectations that Vice President Jusuf Kalla will challenge President Yudhoyono. What is likely to happen if Dr Yudhoyono loses office? The view from Canberra is that, despite all the upheavals that have affected Indonesian in the past decade, none have significantly eroded the push for modernisation and reform.
Whatever happens, goes the thinking, things are bound to keep on improving.
CASE STUDY: Reaching Export Heights
When you’re talking about small businesses, they don’t come much smaller than the Victorian lifting equipment specialists, Global Track (globaltrack.com.au). But when you get down to looking at achievements, they hardly come any bigger.
Greg McKay and his son Bruce are the sum total of Global Track’s staff at its Geelong headquarters, but this two-man operation has achieved success in Indonesia that has outclassed some of the world’s biggest operators.
With Greg doing the designing and negotiating and Bruce in charge of the company operations in Australia, the McKays subcontract much of their manufacturing to local firms. The result is a firm that currently exports some 30 percent of its production with expectations for this to grow significantly as more international crane companies pursue their expertise.
Global Track’s global push began last year when they took part in the Australian Technology Showcase expo in Melbourne. “An Indonesian guy asked us to quote on 16 two-tonne by 15-metre manual crane bridges,” Greg explains. “The biggest manual crane bridge built in the world previously was just 10 metres but, because of our design, we were able to build up to 15 metres. I won the deal, despite his chief engineer claiming the crane bridges wouldn’t work.”
The Indonesians flew their engineer to Geelong where his face fell when he saw how big the crane bridge was, but lit up when he activated it. They ordered another three cranes before he returned to Indonesia. The company has now placed a further provisional order for 38 more.
“The Indonesian factory covers 10 hectares and processes 15,000 tonnes of steel a month,” says Greg. “It employs 800 people round the clock and our cranes are being operated by women who have no trouble loading trucks with them. There’s nothing like it anywhere else.”
Greg is designing a 21-metre power driven crane for them using Global Track’s unique pivotal technology.
The biggest problem he had doing business in Indonesia related to language. Now the company has a teacher there coaching staff how to speak English. As for the nuts and bolts of business, he found Indonesians to be hard negotiators but prompt payers.
He counsels other SME exporters to do their homework to make sure they are dealing with a reputable company. “It can be hard breaking into a market dominated by strong multinationals and it takes time to establish your reputation. And there’s no magic formula for success, it’s just a matter of getting off your butt and working at it.”
Global Track says the biggest crane company in the world, Germany’s Demag, is now assessing its products with interest in the United States and Indian markets.
Greg’s enthusiasm for design is undimmed. He is currently “increasing the size of our back paddock” by building a new design curved track bridge crane at Corowa in NSW. “But you can be certain I’ll continue dealing with Indonesia,” he adds.