Exploring Australian Trade and Investment Prospects in Indonesia

Indonesia’s steady financial development, blossoming middle-class, and enhancing facilities offer a selection of opportunities for Australian financiers.

Boost under IA-CEPA trade contract

Indonesia and Australia are poised to broaden and diversify their financial collaboration after validating the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) in February 2020.

Under the IA-CEPA, 99 percent of Australian items can get in Indonesia duty-free or under substantially lowered tariffs. Indonesia has actually made it much easier to provide import licenses for important Australian items, such as live livestock, feed grains, and other farming items.

Australian business can likewise delight in bulk ownership of businesses in particular sectors in Indonesia. The sectors consist of:

• Telecommunications;
• Professional services – metropolitan preparation, architecture, engineering, and surveying;
• Construction services;
• Education – university education, occupation training;
• Energy – geothermal plants, electrical power setup, and building, power plants (more than 10 MW), oil and gas platform building;
• Wastewater management;
• Transport – highways, trains, bridges, tunnel concessions;
• Mining services – agreement mining, mine website preparation;
• Healthcare – big healthcare facilities, pathology, paramedic, and oral professional services; and
• Tourism – bulk ownership of 3, 4, and first-class hotels, dining establishments, coffee shops and bars, tourist consultancy, and trip operators.

Background

Diplomatic relations in between Indonesia and Australia started in 1949. Although the relationship went through a number of stretched durations (especially the Indonesia-Malaysia fight and the East Timor crisis), bilateral trade reached A$18.3 billion (US$12.4 billion) throughout 2021-2022, a boost from A$17.8 billion (US$12.1 billion) in 2018-2019.

Australia’s trade surplus

Australia records a trade surplus of over US$3 billion. In 2022, Australia exported simply over US$7 billion of items to Indonesia. More than US$3 billion of this was credited to the exports of cereals and mineral fuels and items of their distillation. Further, the nation likewise exported more than US$700 countless pearls and jewels, US$660 countless mineral ores, US$410 countless meat items, in addition to near to US$400 countless live animals.

Source: Trading Economics

Australia imported more than US$430 million worth of electronic equipment from Indonesia in 2022. This was followed by US$317 million for equipment and atomic power plants, mineral fuels (US$300 million), and fertilizers (US$289 million).

Source: Trading Economics

New opportunities for Australian financiers

With the IA-CEPA in force and as one of the fastest-growing economies in the Asia-Pacific, Indonesia uses a number of opportunities for Australian financiers, especially considering that the island chain is forecasted to be the world’s fifth-largest economy by 2030.

Collaboration on electrical vehicle battery supply chain

Indonesia intends to end up being an electrical vehicle (EV) battery production center. The nation has actually an approximated 21 million lots of nickel reserves — thought about to be the biggest on the planet — and the federal government has actually established a robust downstream market to recognize Indonesia’s target of turning into one of the leading 3 EV battery manufacturers on the planet.

Moreover, to match its nickel-based battery market, the nation is likewise establishing lithium refineries and anode product production centers. However, Indonesia does not have abundant deposits of lithium.

Australia products roughly half the world’s lithium and can export this mineral to Indonesia. Most of Australia’s lithium exports presently head to China.

Indonesia’s Minister for Maritime Affairs and Investment, Luhut Binsar Pandjaitan, mentioned that the federal government prepared to import 60,000 lots of lithium from Australia beginning in 2024. The lithium will be processed at the Morowali Industrial Park in Morowali, Central Sulawesi province, where the federal government inaugurated a hydrometallurgical nickel laterite production center in October 2022. The plant has the capability to produce 50,000 lots of pure nickel every year.

Further, Australia’s close geographical place to Indonesia puts it at a benefit compared to other markets, such as China or the United States.

Halal food

The IA-CEPA supplies preferential tariff treatments for live livestock and beef. For 2022, Indonesia provided Australia a quota of 621,920 head of male livestock at an absolutely no percent tariff rate. On average, Indonesia imports over 500,000 heads of livestock from Australia every year, or 62 percent of Australia’s overall livestock and beef exports.

For the 2021-22 fiscal year, Australian red meat and animals exports to Indonesia amounted to A$1.1 billion (US$748 million), or 7 percent of Australia’s overall exports.

Australia’s farming items, especially its livestock, and beef, are very important product exports to Indonesia. Indonesia is the biggest export market for Australian feeder livestock and frozen beef and the 5th biggest market for boxed beef. This is despite the fact that beef usage per capita is just 2.23kg in Indonesia, compared to the world average of 6.4kg per capita.

Australia likewise represents 63 percent of Indonesia’s overall beef offal imports. After a decrease in imports of the item in 2020-21 due to the pandemic, Indonesia imported its second-largest volume of Australian beef offal in 2021-22, amounting to over 59,000 loads.

An increasing and broadening Indonesian middle class with a growing choice for beef is anticipated to continue to drive need for Australian red meat. Further, this likewise provides opportunities for Australian Halal food exports to the world’s biggest Halal grocery store – Indonesia’s Muslim customers are anticipated to spend US$247 billion on Halal food and drink by 2025.

Australia is the fourth-largest exporter of Halal food and drinks to Organization of Islamic (OIC) nations and exports are anticipated to double to A$14.6 billion (US$10.9 billion) over the next years. There is likewise growing prospective to broaden beyond meat and into other services and products varying from banking and financing to drinks to pharmaceuticals to style.

Healthcare

Given its big market size, Indonesia’s health care sector provides a rewarding chance for Australian financiers.

The federal government’s yearly spending on health care has actually escalated considering that the execution of the universal health care program (BPJS) in 2014, which has actually now grown to be the world’s biggest, covering some 200 million individuals. Every resident and migrant is mandated to sign up with, and business need to register their staff members to the program, paying a portion of the premiums.

Increasing spending on health care will affect crucial sub-sectors, such as the medical gadgets market, which was valued at US$4.5 billion in 2019. The bulk of this, US$2.8 billion, was from imports. Indonesia primarily imports advanced medical instruments, such as PET-CT scanners and ICU equipment, and exports low-tech equipment, such as gloves and syringes.

Approximately 2 million Indonesians spend approximately 100 trillion rupiah (US$6.67 billion) on medical services abroad. The federal government is attempting to decrease this pattern by making it much easier for foreign financiers to build and own medical centers in the nation. Australian doctor Docta and Aspen Medical signed a US$1 billion contract with Indonesian business PT Jasa Sarana in 2020 to begin building 23 healthcare facilities and 650 brand-new centers in the nation over the next twenty years.

What can Australian financiers do?

• Evaluate market capacity: Conduct an extensive market analysis of Indonesia to comprehend the financial investment opportunities, market patterns, and customer need in different sectors such as telecoms, expert services, building, education, energy, health care, tourist, and more.
• Develop collaborations: Establish tactical collaborations with regional Indonesian business to browse the marketplace successfully, utilize their know-how, and abide by regional guidelines. Collaborate with Indonesian companies to check out joint endeavors, innovation transfers, or circulation contracts.
• Leverage IA-CEPA advantages: Capitalize on the benefits offered by the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). Understand the duty-free or reduced-tariff entry for Australian items and services and make use of these favoritisms to boost market gain access to and competitiveness.
• Understand cultural subtleties: Recognize the significance of cultural understanding and flexibility when doing business in Indonesia. Familiarize yourself with Indonesian custom-mades, business rules, and regional standards to build strong relationships and foster effective collaborations.
• Establish regional existence: Consider developing a regional existence in Indonesia through agent workplaces, subsidiaries, or joint endeavors to acquire a much deeper understanding of the marketplace, boost business relationships, and offer much better consumer assistance.
• Seek federal government assistance: Engage with appropriate federal government companies, such as the Australian Trade and Investment Commission (Austrade) and the Indonesian Investment Coordinating Board (BKPM), to look for assistance, rewards, and assistance for your financial investment endeavors. Stay notified about any policy modifications or rewards for foreign financiers.
• Continuously screen and adjust: Keep a close eye on market characteristics, regulative modifications, and customer choices in Indonesia. Continuously adjust your techniques and offerings to satisfy progressing market needs and preserve an one-upmanship.

By following these action steps, Australian businesses can take the financial investment opportunities in Indonesia and develop a strong existence in among the fastest-growing economies in the Asia-Pacific area.

For more in-depth insights and to go over Australian financial investment opportunities in the Indonesian market, please schedule a discussion with Ines Liu at [email protected].