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.