“We're in the habit of looking north," an Indonesian might say. “China is a bigger and better opportunity."
" Australia and Indonesia working together presents an $A3 trillion opportunity over the next decade."
Leonie Lethbridge, Regional Chief Operating Officer at ANZ
In Sydney or Melbourne, you hear the same thing from a slightly different perspective.
Australian business is put off by Indonesia's "known unknowns" - unpredictable politics, changeable investment policies, currency volatility and ability to source sufficient skilled staff. China is seen as the bigger opportunity.
Yet neither assessment is adequate reason to ignore the imperative of looking to each other and to act together, quickly.
For Australian business, developing the ability to deal with ambiguity and uncertainty is a key success factor almost anywhere in Asia - moreover such resilience and flexibility promotes profitability at home. Embracing Indonesia will enable both the capability and the benefit.
There are also strong economic imperatives. As China re-orients it's economy, neither Indonesia nor Australia will derive growth from commodity mainstays. And world economic growth is expected to be slow for the next five years. Both factors will require new ways of competing and engagement with new frontiers.
Most importantly, as China rebalances away from investment and industrial production and towards tertiary activity and consumption, 'Factory Asia' is likely to drift south into the relatively youthful and cheaper labour forces of the ASEAN.
This will in fact bring global value chains to Australia and Indonesia's front door for the very first time. It is Australia and Indonesia's choice whether to open that door, but the opportunity cost of leaving it closed is huge.
Andrew Robb, Australia's Minister for Trade and Investment Minister, together with his Indonesian Investment counterpart have launched “Succeeding Together" a joint ANZ and PwC report written on behalf of the Australia-Indonesia Centre.
It highlights rich and, more critically, feasible opportunities:
The joint opportunity for Australia and Indonesia to more closely align their economies greatly amplifies the individual outlook. Whilst Asia is the dominant global economic hub, smart North Asian, US and European organisations are moving their supply chains, and the centre of activity, south and east. This is happening at unprecedented speed.
In less than a decade, for instance, Vietnam has become the third largest producer of shoes globally, with the European Union being its largest market.
Global supply chains are a fundamental dynamic of international trade. However as a percentage of exports, both Indonesia's and Australia's participation in regional and global supply chains is the lowest in developed ASEAN. Both countries are leaving opportunity on the table by operating outside these.
Source: “Succeeding together”
Reza Syathir / Shutterstock.com
Australia and Indonesia should accelerate and conclude the stalled Indonesia-Australia Comprehensive Economic Partnership Agreement discussions. This would address some of the challenges in accessing each other's markets and, importantly, make the competitive advantages of each available to the other.
CEPA would enable faster capacity building by Australian companies in Indonesia while opening additional opportunities for Australia via its major Free Trade Agreement with ASEAN. CEPA negotiations should also aspire to address visa constraints in both countries for business and barriers to investment.
Australian business, including SMEs, should look to Indonesia and its lower cost but creative workforce to enter these globally competitive, dynamic and specialised supply chains.
In fashion, for instance, Indonesia has a large pool of talented designers and a unique range of fabrics. Australian and Indonesian designers could collaborate on designs that suit wider Western preferences, and service demand for Original Design Manufacturing. Warm receptions at Melbourne Fashion Festival, and Jakarta Fashion Week are a proof point.
Similarly, use of advanced processing and cold-storage technologies in Indonesian food production would expand earnings from intellectual property rights for Australian technology and know-how and would increase Indonesian food processing capability to meet rigorous international standards.
Indonesia and Australia are surrounded by opportunity now. Quick action is required to capture these before they are whittled away by others. But succeeding together is attainable.
Leonie Lethbridge is Regional Chief Operating Officer at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.