BLOG
Jul 2, 2021
Powerhouse potential
Indonesia and Australia offer each other areas of untapped mutual interest growth.
Trade and investment ties between Australia and Indonesia are strong. But they could be stronger still. The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) creates new and exciting opportunities for businesses in both countries to build on bilateral ties and expand markets. Katalis is established under the Agreement to support and develop businesses to take advantage of these opportunities. Here’s a snapshot of just some of the areas for powerhouse partnership and growth.
INDONESIA
With a population of more than 270 million, Indonesia is the fourth-largest country in the world and the largest economy in Southeast Asia. It is a young country: half of its people are aged under 30. Its annual GDP of more than US$1 trillion is twice the size of Thailand, three times the size of Malaysia, and four times the size of Vietnam. Despite the impact of COVID-19, Indonesia is widely expected to become one of the world’s 10 largest economies by 2030.
Prior to COVID-19, Indonesia’s economy was growing at a steady pace of 5% a year. During the past decade income per person has doubled in US dollar terms and today the country is home to a large aspirational middle-income population with money to spend on international goods and services. In fact, Indonesian consumers spend the equivalent of US$650 billion a year. Many Indonesians travel abroad for holidays and higher education, with Australia the number one destination for tertiary education.
Historically, Indonesia’s economy centred around its plentiful natural resources, including oil, gas, coal and palm oil. But that is slowly changing. Recent years have seen the growth of a new generation of Indonesian technology companies, each valued at more than US$1 billion. The automotive sector, for example, is expanding rapidly and pushing into the fast-growing market for electric vehicles. Government is eager to attract investment, announcing some 245 “priority sectors”, covering everything from agriculture to electronics and pharmaceuticals.
COVID-19 has dented Indonesia’s development ambitions. But the economic shock has also spurred the government towards pro-market reforms intended to secure a speedy recovery. Legislation last year abolished the “negative investment list” (DNI), which has limited foreigner investment in large parts of the economy since it was introduced in 1987. Foreign investors are now free to enter many more sectors of the economy. There were also significant changes to licensing and labour laws to make it simpler to start and operate a business. Further reforms are planned.
AUSTRALIA
Australia is an advanced high-income economy. Prior to COVID-19, it had avoided recession for almost 30 years and its growth rate has been more stable than that of the G7 countries. Since the last recession in 1991, the Australian economy has expanded three times more than Germany’s.
Services dominate the Australian economy, accounting for around 80% of gross domestic product. Australia is a world leader in higher education and its schools, colleges and universities attracted almost 1 million overseas students mostly from China and India in 2019. Seven Australian universities make it into the top 100 global rankings. Financial services are strong, too. Australia manages the world’s fourth-largest pool of pension funds—an example of the country performing well above its population size.
Australia is a leading producer of agricultural products and exports large volumes of cattle and wheat. Australia is also an important exporter of resources, notably coal and iron ore. In the domestic market, investment in clean renewable energy such as solar and wind is soaring.
