Today
Jakarta
- 29 °C
Other Publications
Doing business, trading with Putin's Russia
The Jakarta Post , Jakarta | Wed, 09/05/2007 2:19 PM | Opinion
Pande Radja Silalahi, Jakarta
Russian President Vladimir Putin is scheduled to visit Indonesia on Sept. 6. The visit will be to reciprocate the visit by President Susilo Bambang Yudhoyono at the end of 2006.
During his Russian tour, Yudhoyono invited Russian entrepreneurs to invest in Indonesia. During his return visit, Yudhoyono's Russian counterpart is certain to also do his bit to strengthen bilateral relations, including economic ties.
According to informed sources, Russia is going to make good on its US$1 billion defense loan and seek to sell its Metis antitank armaments to Indonesia. The extent of relations between the two countries will be determined by various factors, with several economic aspects having roles to play.
The volume of Indonesia-Russia trade has been relatively low up to now and there have as yet been no signs of sustainable growth. As indicated in the accompanying table, from 2002 through 2006 Indonesian exports to Russia increased at a relatively high rate but also showed great volatility. In 2002, Indonesian non-oil/gas exports to Russia totaled US$66.3 million, rising to $272.5 million in 2006. Indonesian imports from Russia rose from $151.3 million in 2002 to $416 million last year.
With Indonesia registering deficits in bilateral trade with Russia over the last few years, one of the decisive factors in fostering trade between both nations is Indonesia's capability to expand exports to Russia. Because of this, President Vladimir Putin is also expected to include Russian importers in his entourage.
A closer look at the Indonesia-Russia trade structure suggests the presence of ample opportunities for boosting bilateral trade. To date, Russian exports to Indonesia have been largely limited to the defense field. From Indonesia, Russian imports have only comprised some agricultural commodities and processed agricultural products. Diversification will promote bilateral trade.
Both countries need to correct misperceptions of the opportunities within their economic relationship. Russia has always assumed that the goods they can export to Indonesia are mostly technology intensive products such as defense equipment. Indonesia has assumed that the commodities Russia needs are mostly agriculture-based.
With the latest progress in trade and the ongoing process of globalization, the two countries should have a better grasp of their relevant markets. Bilateral economic and trade ties can be rapidly improved if they are based on the advantages and needs of both populations. Global competition has also made it necessary for the government to develop a level playing field in the domestic market by cutting regulatory barriers.
Kommersant, a Russian online daily, on Aug. 22 reported that President Vladimir Putin's Indonesian visiting party would include delegates from the Russian Federation Chamber of Commerce, Alfa Group, the Executive Director of Altimo, Alexey Reznikovich, and the President of Alfa Bank.
According to sources quoted by the daily, Alfa Group planned to use President Putin's upcoming tour to carry out its plan to buy shares in cellular phone operators, particularly Singapore Technologies Telemedia's 41 percent stake in Indosat.
The news may simply be a rumor intended to hype up the visit, but nevertheless the reality is that the Alfa Group through its telecommunications subsidiary Altimo has shown great interest in Indonesia's cellular phone and telecommunications business.
Alfa Group's desire to participate in Indonesia's cellular phone industry is very rational. As shown in the table, the business promises big profits. It is a fast growing industry and this trend will likely continue for several years to come. With cellular phone penetration in Indonesia still low, this industry will grow rapidly in the next few years in line with rising incomes.
The question is why Alfa Group does not simply set up a new cellular phone firm in Indonesia and why it has to ""force itself"" to buy an existing company. Law No.36/1999 on telecommunications opened up a wide opportunity for those wishing to enter this sector. If Alfa Group is really interested in acquiring Indosat shares why don't they simply buy them on the stock market or the New York stock exchange? The company seems strong enough to do that.
The Indonesian government itself has no intention whatsoever to sell its stakes in Indosat and Telkomsel, given the bright future of the telecommunications industry and its strategic importance.
It would be improper and unethical if the Russian delegation were to ask the Indonesian government to lobby Singapore Technologies Telemedia to sell its shares in Indosat. If that happened, the whole world would blame Indonesia for making a discriminatory decision and violating the basic principles of cooperation with other countries, as well as the rules of the World Trade Organization.
The era has passed when government influence could be used to advance or win business deals. In the current democratic era, with its high standards of transparency, such a ""hostile"" takeover would even be embarrassing for the Russian companies themselves.
Although we strongly believe that the Indonesian government would not readily serve as the instrument of a company, we do still need to be alert to the possibility of Russian eagerness to disproportionately rely on the influence of government.
Economic and Corporate Indicators
2002 2003 2004 2005 2006
Exports to Russia (US$ million) 66.3 110.1 153.5 244.4 272.5
Export share 0.15% 0.23% 0.27% 0.37% 0.34%
Imports from Russia (US$ million)151.3 99.8 233.4 431.5 416
Import share 0.61% 0.40% 0.67% 1.07% 0.99%
Deficit/surplus (US$ million) -85.0 10.3 -79.9 -187.1 -143.5
Net profits (Rp billion)
Indosat 336.3 6,082.0 1,663.2 1,623.5 1,410.1
Telkomsel 2,787.2 4,236.9 5,473.0 8,646.7 11,182.3
Excelcomindo 743.3 400.7 -45.3 -224.1 651.9
Total assets (Rp billion)
Indosat 22,002.5 26,059.2 27,872.5 32,787.1 34,228.7
Telkomsel 10,939.4 15,409.9 19,548.8 25,747.1 37,300.8
Excelcomindo 4,746.6 5,514.1 6,474.5 9,353.9 12,636.6
Net profits/Total equity (%)
Indosat 3.17 50.52 12.39 11.34 9.28
Telkomsel 37.77 41.09 39.44 48.74 47.47
Excelcomindo 108.05 36.81 -4.40 -6.17 15.23
Source: Processed data from the Ministry of Trade and the annual reports of relevant companies.
The writer is an economist at the Centre for Strategic and International Studies (CSIS), Jakarta.
