The resurgence of trade and investment

The resurgence of trade and investment

This is the first of a two-part article presented to the
Indonesia Australia Business Council in Jakarta on Aug. 29 by
Mark Vaile, Australia's Trade Minister.

JAKARTA: After several difficult years for the Indonesian
economy, I believe we are now at the point where we can look
forward to strong growth in trade and investment between our two
countries in the years ahead.

I want to outline why I believe the outlook is bright, and
also to discuss ways in which the Australian and Indonesian
governments and the business communities of our two countries can
work together to achieve this.

There are six key factors that will drive future trade and
investment between our two countries.

The first is that we are already starting from a solid base.
Before the impact of the Asian monetary crisis, the first seven
years of the 1990s saw total two-way trade grow by 350 percent.

Since then, Indonesian exports to Australia have grown
strongly, reflecting the increased price competitiveness of
Indonesian goods in the Australian market following the
depreciation of the rupiah. In the three years since 1996-97,
Indonesian exports to Australia are up 50 percent.

The sharp downturn in the Indonesian economy led to a fall in
Australian exports in 1997-98 and 1998-99, but our exports are
now also trending upwards, increasing by 8 per cent in 1999-2000.

Overall, the total two way trade in goods and services between
Australia and Indonesia was $A6.58 billion in 1999-2000, with
Indonesian enjoying a small surplus in its favour.

Second, the bilateral investment relationship is also very
substantial. More than 400 Australian firms maintain a presence
in Indonesia.

Indonesia has been a major destination for Australian
investment, with Australia the 9th largest investor in Indonesia
on an investment approvals basis. Australian mining companies in
particular have major investments in Indonesia.

Even in recent difficult economic times, Australian companies
like P&O and the ANZ Bank have made large investments in
Indonesia.

The Commonwealth Bank has also just moved to operating in its
own right in the Indonesian market following the takeover of its
joint venture partner's interests, showing the confidence the
Australian banking sector has in the local market.

Third, the prospects for growth in trade and investment are
improving.

The task of economic restructuring in Indonesia has begun,
although there is still much work to be done before this is
completed. However, economic recovery is underway, with forecasts
of growth of between 3-4 per cent this year and possibly higher
next year.

The Australian economy continues to perform strongly with
strong growth, low unemployment and mild inflation.

And there continues to be a favorable international growth
outlook that is promising for exports from both of our countries.

There is also a good fit between what Australia is good at and
what Indonesia is good at -- which means trade and investment
between our two countries makes good sense.

Let me give you a few examples of this. Australia's second
largest export to Indonesia is cotton, which totaled just under
$A 400 million in 1999-2000. This is used by Indonesian clothing
manufacturers and is supporting a thriving clothing export
business, including back to Australia.

Another example is live cattle exports, which again are key
inputs into Indonesia's meat processing industry.

Yet another example is Australia exports to Indonesia of
aluminum slab, which in 1999-2000 totaled $A 170 million. These
imports are value added in Indonesia with the construction of
finished aluminum products.

Fifth, there are strong people to people ties between our two
communities, both in business and more broadly.

Indonesia is our largest source of overseas students, with
nearly 18,000 young Indonesians studying in Australia. This is
significant in terms of business, but even more so in terms of
the long-term links of mutual respect and understanding that this
contact creates. There is no better investment in the future of
the bilateral relationship.

From the warmth of my reception in Indonesia I can also say
that the government to government relationship is also on the
path to recovery.