Australia’s new Prime Minister, Tony Abbott, during the recent visit to Jakarta, exercised great humility and pragmatism toward a country that will play an enormous role in our region in the future. The visit had the potential to be a bilateral relations “nightmare”, but with a measured approach by the Prime Minister and guidance and planning by a very professional team at the Australian Embassy the trip is being seen broadly as a success.
But now that Abbott has formally acknowledged Australia’s mistakes in the handling of some aspects of the bilateral relationship, the issue is whether Indonesia needs to do the same?
Indonesia was right to feel very aggrieved over Australia’s handling of the live cattle export crisis, and also be annoyed at some of the more “radical” policies from their then opposition suggesting Australia could pay Indonesian village wardens to “dob-in” people smugglers, and buy back fishing boats, so it was important that Abbott acknowledged the harm that has been done.
The real challenge now is for Indonesia to acknowledge some of the key issues facing its people — at the start of what will be a very “robust” election cycle where nationalism is on the rise — and to recognize that Indonesia also has taken actions that have worked against its own best interests, including building closer relations with Australia and the region.
Indonesia with a fast growing middle-class — estimated to rise from the current level of 45 million people to 135 million in 2030 — faces enormous challenges in a number of critical areas including infrastructure, energy, education, health and in general business where there is a need to improve living standards and opportunities for its country.
There is perhaps no greater example of where a “partnership” approach with Australia could prove highly successful than within the agriculture sector.
Indonesia’s agriculture sector enjoys superb soils, abundant rainfall and plentiful labor; already employing 41 million people. The productivity of farms however, is extremely low with farmers generating around US$3,000 per year per farmer compared to $9,000 in Malaysia for example. Over 70 percent of all fresh produce found in Indonesia’s major supermarkets is imported.
A recent McKinsey Report showed that Indonesia, on current projections, would produce around 185 million ton of food by 2030. Yet with improved productivity that figure could be 310 million tons each year, providing not only enough food for Indonesia’s growing and increasingly wealthy population but also — and this is the key point — being able (with Australian partners and branding) to add-value and export “surplus” foods to third-party countries in the Middle-East and Northern Asia.
But to do this, Indonesia must acknowledge that government red-tape and bureaucracy, including a policy of increasing tariffs designed to protect poor agriculture practices, will only hold back the huge and necessary structural change that must be implemented in this sector.
So why is Indonesia’s food growing sector so unproductive? Indonesia lacks investment and expertise in rural infrastructure, training of farmers, cold supply chains, technology, irrigation, farm management and also access to good quality seed.
Australia is very good at all of these things; in fact Australia is arguably the best in the world, so why not put Australian knowledge and skills together with Indonesia’s soil, rainfall, abundant labor and strategic location, so that both countries win?
By working with Australia to transform its agriculture sector, the impact would be enormous for both countries. Indonesia doesn’t really have a choice if it wants to feed its growing middle-class in the future and Australia is perfectly placed to partner its neighbor in this critical area.
We should start with the cattle industry whereby Indonesia is now buying into Australian cattle stations, and Australian companies are being encouraged to take an interest in feedlots and processing companies in Indonesia. It makes good sense, and together we can meet Indonesia’s beef production needs well into the future whilst building a strong base for Australia-Indonesia “added value” produce to be exported around the region.
So following Abbott’s visit, the challenge is now not only for Australia, but for Indonesia to open-up this critical and large — but poor, over regulated and unproductive — agriculture sector, and in doing so create opportunities for business to form highly valuable partnerships.
The agriculture model can also apply to other critical areas facing Indonesia, including the resources sector, financial services, and manufacturing. It won’t be easy. Doing business here is not simple with, according to McKinsey, at least nine ‘procedures’ and an average of 33 days just to establish a commercial entity.
It will also need Indonesia to address the other “barriers-to-entry” that often act as a significant deterrent to doing business in Indonesia, including protectionist policies, inconsistent regulations and an unwieldy bureaucracy.
This will be the challenge for the incoming president and government over the next 12 months at a time when the indications are that politics in Indonesia is being influenced by “economic nationalism”.
My comments are not meant to present an opinion that is sombong (arrogant) towards this country that — as a young man — stole my heart, but rather as constructive suggestion as to how Indonesia can build on its truly amazing transformation, since the end of the Soeharto reign, and realize the dreams and aspirations of its people.
The writer is chairman of the Indonesia Institute (Inc.) and a former national vice-president of the Australia-Indonesia Business Council.