Indonesia still wants Chinese investments, but Jokowi is also wooing Middle East money
- Jakarta needs to drum up foreign direct investment to boost lacklustre economic growth, and its recent favourite partner has been Beijing
- But the world’s most populous Muslim nation is now building on deep-rooted historical ties with the Middle East to lessen dependency on China
But securing capital remains a big challenge.
According to government figures, investment grew 11.4 per cent a year in Widodo’s first term, but that number was significantly smaller than in Susilo Bambang Yudhoyono’s second term between 2009 and 2014, when it hit 22.2 per cent.
Last year foreign direct investment fell 8.8 per cent, the worst performance since 2010, and figures for this year look similarly unsatisfactory – in the second quarter, growth stood at 5.01 per cent compared with 5.85 in the same period last year.
Latest figures from the Investment Coordinating Board showed that investments from mainland China and Hong Kong totalled US$3.6 billion in the first half of this year, followed by US$3.4 billion from Singapore and US$2.4 billion from Japan.
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Treats from the Middle East
While Jokowi’s administration has actively wooed Chinese investments, Indonesia is also diversifying its sources of funds and has looked to the oil-rich countries of the Gulf.
His trip is the first state visit to the country by a UAE leader in almost three decades. The agreements were mostly business-to-business deals, including a US$2.5 billion partnership between state-owned energy giant Pertamina and Abu Dhabi National Oil Company.
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Widodo distinguished himself from his forerunners by visiting several Gulf countries in his first term, looking to build on the existing natural synergy between the two sides. Indonesia is home to the world’s largest Muslim population, but exemplifies religious and ethno-cultural tolerance, according to Bahraini specialist on Asian affairs Abdulla al-Madani. He argues this could make the nation a centre for dialogue between the Islamic world and other civilisations, and boost its allure as an investment destination for Gulf states, particularly in agriculture, banking, and infrastructure.
More than money
However, the benefits for Arab states go wider than economics. Indonesia’s strategic location offers Gulf governments a way to strengthen their diplomatic presence in the region. Many have pursued a Look East policy in recent years, and Indonesia could serve as a hub for the Gulf to expand that strategy in Asia and the Pacific both politically and economically. With no sign of an end to instability in the Middle East, it should be no surprise that the Gulf countries see the growing economies of Southeast Asia as prudent alternatives for prosperity.
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No less important is that Indonesia could also be viewed as a large potential market for their petroleum exports. With demand in the developed world having tumbled following the 2008 global financial crisis and the prospects remaining grim, the oil-producing Gulf states have turned their attention towards Asia, which remains, and will continue to be, one of the world’s fastest growing energy markets.
Once a major oil exporter, Indonesia now consumes as much energy as it produces, and the Gulf states are expected to be the major suppliers meeting Indonesia’s increasing demand.
Muhammad Zulfikar Rakhmat is a lecturer at the Islamic University of Indonesia and research associate at the Institute for Development of Economics and Finance in Jakarta