Ref. Ares(2018)5979569 - 22/11/2018
Indonesia and the European Union: A Unique
Partnership for Prosperity
Financial Club Jakarta
Mon 27 Feb – 8.00 – 9.30
Scene Setter
This panel discussion with three key decision makers in Indonesia representing business,
employers and chamber of commerce follows the lines of the current debate on a possible
bilateral agreement with the EU and could help to get the outspoken support for EU
Indonesia Vision Group Recommendations towards a Comprehensive Economic
Partnership Agreement. Such openly declared backing from the domestic stakeholders
would support the new Trade Minister decision to start the scoping process aiming at
launching the negotiations in 2012.
A key argument here is to show that Europe is different from China and other economies
that directly compete with Indonesian domestic business: our economies are
complementary and our investors provide good labour conditions. Moreover, EU invests
in adding value to the economy. This potential could be much better utilised (only 1.6% of
EU investments to Asia going to Indonesia) and a Comprehensive Economic Partnership
Agreement CEPA would be a good way forward.
Press conference will be short event during which speakers will be asked to say a few
words regarding the Indonesia-EU commercial relations.
Speaking points for the panel discussion
o Thank you, Pak Airlangga, Pak Wanandi, Pak Emirsyah, for your remarks.
It is a real pleasure to be in Indonesia again and to hear the outspoken
support for what the European Union can contribute to Indonesia's growth
agenda.
o Indonesia's economic growth of 6.5% in 2011 is substantial – a figure
most European countries can only dream of. Meanwhile, the EU – and
more specifically the Eurozone members – are working hard to find a
solution to sovereign debt problems in a number of Member States:
Austerity packages, fiscal discipline and control structures are being put
in place and funds are being made available jointly with the IMF to
support the countries most in need.
o While media reports have indicated negative consequences of this for
Indonesian exports, figures show that trade with the EU continues to grow
substantially – by another 25% (estimate) in 2011. In other words: EU is
and will remain your second largest export partner – simply because we
value your products.
o The same applies to investments: In 2011, the EU is – as it was in 2010 –
the second largest investor in Indonesia with current stocks of around 50
billion euro and 700 companies, directly employing over 500,000 people.
The EU invests in higher end facilities that create added value to the
Indonesian economy and European companies are said to be good
employers in terms of labour standards.
o But is it enough? Of course it is not: Indonesia, besides being a market of
240 million of which many consumers are middle class, is the new BRIC
on the block. It has just reached investment grade, implemented sensible
fiscal polices and enjoys a stable political democracy. While arguably our
bigger companies already find their way to Indonesia, it is notably the
smaller and medium-sized companies who could contribute more and
invest directly in Indonesia not only in labour intensive sectors but also
bringing new technologies to upgrade the production processes.
o These economic complementarities were noted by the Indonesia – EU
joint Vision Group that has highlighted the strong commercial
relationship between Indonesia and the EU. However the joint report also
pointed out that maintaining the status quo is not a satisfactory option and
suggested that – in order to take more advantage of mutual opportunities -
Governments quickly start the process for the negotiation on
comprehensive free trade agreement.
o I fully concur with the Vision Group's recommendations: while we have a
longstanding partnership our countries do not take full benefits of this
relationship: investments and trade are relatively low compared to
neighbouring ASEAN countries and the EU could contribute much more
substantially to Indonesian policy objectives.
o So how can the EU do this? I can think of three ways that we can
contribute:
First of all, through investment. EU FDIs are already high (2.2 billion
US$ in 2011) but by far not as high as they could be. EU invests in sectors
relevant to Indonesia including those where value is added. Think of
automotives, machineries, even airplanes without forgetting the growing
services sector.
EU investments are characterized by long-term relationships, sustainable
development and fair employment conditions. European companies
present in Indonesia today largely focus on supplying the domestic market
with high-quality products, services and technological solutions.
Indonesia's stable political and economic environment, its large
population and abundance of natural resources, creates huge opportunities
for increased EU investment which would be beneficial to the Indonesian
economy.
Second, through creating the conditions for increased trade flows.
Indonesia currently is only the EU's 29th largest trading partner. This
leaves ample opportunities for substantial growth for an economy of the
size of Indonesia's, also in comparison with smaller ASEAN countries,
like Thailand or Malaysia, who currently have a larger share of the EU
trade. EU consumers already enjoy a lot of Indonesian products, such as
palm oil and timber but I am convinced that Indonesia's exports to the EU
will further boosted as Indonesian products climb up the value chain. In
this respect, EU investors contribute to Indonesian exports in sectors such
as pharmaceuticals, processed food, electronics and machineries, as well
as technologically advanced products like Airbus parts
In terms of your imports from Europe: these are mostly in areas
supporting Indonesia's industrial development, notably machineries and
products that are inputs for further production such as chemicals. Most
interesting is that – contrary to some of your other big trading partners –
our economies complement each other. Increased trade and investment
flows between us are unlikely to increase direct competition with your
local manufacturers - they would rather support their growth.
Finally and linked to the above, the EU stands ready to support Indonesia
to take the most advantage of the relationship through reinforced
trade
facilitation and capacity building. Pak Emirsyah knows the level of
cooperation that we had in order to support Garuda and other Indonesian
carriers to access again the EU-market. We have programmes to ensure
that food and fisheries fulfil the standards to enter the EU market and we
provide support to the timber sector. EU technical assistance does not
only target governments but we also work extensively with our partners
KADIN and APINDO fostering business and governmental dialogues.
Attachments:
1. Programme of event
2. CVs of Airlangga, Wanandi, Emir
3. Trade and Investment update
"Indonesia and the European Union: A Unique Partnership for Prosperity"
Location: Financial Club, Jakarta
07.00: Registration and breakfast
08.00: Panel Discussion
09.00: Press conference
1. H.E. Hon. Mr Airlangga Hartarto – Chairman of Commission VI; House of
Representative of the Republic of Indonesia
Strengthening the middle class, supporting economic development: complementary
economies contributing to prosperity
2. Mr Sofyan Wanandi – Chair The Employers' Association of Indonesia (APINDO)
How can (European) investors and employers support Indonesia's employment agenda?
3. Mr Emirsyah Satar - President & CEO, Garuda Indonesia and Vice Chairman for
International Economic Cooperation Relation, Kadin
European SMEs and their role in the Indonesian growth agenda and the Master Plan for
Development
4. Mr David O'Sullivan – Chief Operating Officer European External Action Service
Three ways Europe can contribute to Indonesia's road to prosperity
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Key Trade and Investment data
Overall, trade figures are up in 2011 – despite some of the concerns expressed in the
Indonesian media.
Trade (based on Indonesia's own statistics) – in M USD (non oil and gas) has increased
since crisis year 2009 substantially and overall Indonesian exports to EU now over USD
20 billion and being Indonesia's second largest export partner (after China)
2008
2009
2010
2011*
Imports
9,328
7,839
9,575
11,866
Exports
15,187
13,558
16,769
20,256
Total
24,515
21,397
26,344
32,121
Growth
-12.7%
23.1%
21.9%
* based on Jan-Nov data (BPS)
For investment, a similar profile, with overall EU Foreign Direct Investments peaking at
USD 2.8 billion in 2010 (figures for first half of 2011 at USD 1.4 billion continuing this
positive trend – making EU the second largest investor in Indonesia (after Singapore)
FDI to Indonesia from the EU (million USD, BKPM)
3000
2777
2500
2000
1872
1973
1500
1000
1019
821
500
0
2006
2007
2008
2009
2010
Indonesia exports mainly palm oil and other (processed) commodities, whereas the EU
exports machineries, aircraft and vehicles.
Indonesia's TOP10 export articles to EU27 in 2010
Value in million EUR
Share
1 Palm Oil
2,055
15%
2 Electrical machinery
1,507
11%
3 Rubber
1,118
8%
4 Footwear
866
6%
5 Minerals
730
5%
6 Ores, slag and ash
639
5%
7 Furniture
636
5%
8 Chemical products
626
5%
9 Clothing
593
4%
10 Wood
493
4%
Total top 10
9,261
67%
All products
13,727
100%
Source: Eurostat.
Indonesia's TOP10 import articles from EU27 in 2010
Value in million EUR
Share
1 Machinery
1,702
27%
2 Electrical machinery
775
12%
3 Aircraft
375
6%
4 Vehicles
332
5%
5 Organic chemicals
248
4%
6 Wood
211
3%
7 Articles of iron and steel
192
3%
8 Plastics
187
3%
9 Pharmaceutical products
174
3%
10 Dairy products
173
3%
Total top 10
4,368
69%
All products
6,372
100%
Source: Eurostat.
Indonesia is the largest ASEAN economy with 240 million inhabitants and an average GDP
per head of around 4.000 US$ (at PPP). The Indonesian economy has recorded positive
growth in the past five years (5.5% in 2006 and 6.1% in 2010). This level of growth has put
Indonesia as the world's fifteenth largest economies and the member of G-20.
The growth, to
some extent, has gradually translated into the improvement of prosperity indicators. The
number of poor dropped by six million to 31 million (13%), and open unemployment dropped
from 10% to 7.4%. However, the employment has been informal (69% of total employment),
and not in terms of better quality jobs in the formal sector.
2010 growth was mostly driven by strong investment (+8.5%). The economy is expected to
grow by 6.4% in 2011, largely contributed by domestic demand; external trade and direct
investment. Capital inflows are still massive and volatile, but the authorities managed this
well and Indonesia has - finally after the Asian crisis – reached again Investment Grade at the
end of 2011.
The top ten Indonesian export commodities were diverse between natural resources
commodities and manufacturing products. The largest non-oil & gas import categories for
Indonesia were capital goods and raw materials (machinery and mechanical appliances,
metals, chemicals, plastics, cotton, etc).
EU continued to be the largest destination for non-oil and gas exports at US$ 17 billion
(Indonesian figures, 2nd partner according to Eurostat figures including oil and gas). China remained the biggest import sources for Indonesia, and the EU as the fourth. Imports
from the EU (US$ 9.8 billion) increased by 13% and corresponded to 9% of total Indonesian
imports, a drop from 11% in 2009.
After declining in year 2008, the direct investment recovered in 2009, a trend that continued
in 2010. Cumulatively total investment realisation from both domestic and foreign investment
was IDR 208.5 trillion, a 54% growth compared to 2009.
Despite the increasing investment levels, Indonesia's position in the world rank of
investment climate further deteriorated. The World Bank's Doing Business Report 2011
ranked Indonesia at 121 out of 183 countries, a drop from last year's rank of 115. The legal
environment is seen as improving. However, there are still legal uncertainties. Infrastructure
investment is seen as inadequately low and rising FDI could help in this context. In addition,
Indonesia did not increase its share in FDI inflows significantly in comparison to its Asian
neighbours in recent years.