A

ustralian Prime Minister Julia Gillard’s decision to name Indonesia as one of the country’s five strategic partners is expected to boost investment and trade between Indonesia and Australia, given the fact that economic cooperation between the two close neighbors has huge potential to develop, officials from both countries say.

Azhar Lubis, the deputy chairman of investment implementation control at the Investment Coordinating Board (BKPM), is upbeat that more investment from Australia will come to Indonesia following the release of the white paper, entitled “Australia in the Asian Century”.

“We are optimistic that Australian investments to Indonesia will rise in the upcoming years, considering the fact that there are numerous investment opportunities in Indonesia that are suitable for Australian investors,” he told The Jakarta Post.

Among the investment sectors in Indonesia that Azhar identified as lucrative for Australian investors were live cattle, agribusiness and mining.

The mining sector, especially in its mineral-processing industry, is especially lucrative for companies originating from Australia, which has a developed mining industry, as Indonesia has committed to prohibit the export of selected raw minerals starting 2014, added Azhar.

Indonesia has been the new honey pot among overseas investors, attracting US$17.06 billion in foreign direct investment (FDI) realizations in the January-September period, thanks to the country’s stable economic growth and strong macroeconomic fundamentals.

However, realized investments from Australia in the period accounted for only $654 million, or 3.8 percent of Indonesia’s total FDI, according to BKPM data.

The figure ranks Australia eighth on the list of Indonesia’s FDI realization, lagging behind Singapore, Japan and South Korea, UK and the United States, all of which are ranked in the list’s top five.

Kym Hewett, senior trade commissioner of the Australian Embassy in Indonesia, acknowledged that many Australians at the moment were “certainly unaware of the incredible process of economic
development that is underway in Indonesia”.

The Australian investors, instead, preferred to “fly over” past Indonesia to place their investments in other countries such as Singapore, China, India and Hong Kong, he added.

“I think it [Indonesia-Australia trade relationship] is the one that, both sides may agree, has great upsize growth potential,” Hewett said in a recent interview at the Australian Embassy in Jakarta.

Indonesia is among Australia’s closest neighbors, while Australia is Indonesia’s second-closest non-ASEAN neighbor after Timor Leste. Despite the two countries’ nearness, however, both Indonesia and Australia are listed only No. 9 in each other’s list of trading partners with annual trade numbers valued at US$16.93 billion last year, according to a data from the Australian Embassy in Indonesia.

Australia, Indonesia and New Zealand were among the countries that in 2009 signed the ASEAN-Australia-New Zealand Free Trade Area (AAZNFTA), which aimed to progressively promote the reduction of trade barriers and enhance investment opportunities in the region.

However, trade relations between Indonesia and Australia was strained last year, when Australia suspended its live cattle trade with Indonesia following the revelation of “gruesome” killing methods of Indonesia’s slaughterhouses.

Indonesia is Australia’s biggest market for live cattle, with the archipelago buying 60 percent of
Australia’s live cattle exports. Australia’s live cattle exports to Indonesia were valued at approximately $350 million.

President Susilo Bambang Yu-dhoyono has repeatedly lobbied the Australian government to establish livestock farms in Indonesia to the expand cattle industry in Indonesia.

In the last Asia-Pacific Economic Cooperation (APEC) summit held in Vladivostok, Russia, last September, Yudhoyono described the current cooperation model with Australia on live cattle business as “not entirely beneficial for Indonesia”, highlighting the need to develop a new model for joint investment in the cattle business.

“We are certainly aware of the president’s comment,” said Hewett. He explained that the unwillingness among Australian companies to establish livestock farms in Indonesia were merely due to economic reasons, as they already deemed Australia, with its ideal climate and abundance in beef supply, an efficient place to grow live cattle. (sat)