Indonesia: disappointing the optimists and disappointing the pessimists….

Australian Ambassador to Indonesia – Greg Moriarty Addressed the Australian Indonesian Business Council in Sydney to describe the opportunities on offer to Australian Business….a message that was not yet clearly understood.

On Tuesday I had the good fortune to be in Sydney for the Australia Indonesia Business Council (www.aibc.com.au) business luncheon with Australian Ambassador to Indonesia His Excellency Greg Moriarty.  The event was another great example of the ability of the AIBC to bring high profile business and government leaders to the Australian business community to detail the latest information, opportunities and challenges that confront Australian business when they look to Indonesia. I have been a member of the AIBC for the past four years, and a National Director and Chairman in South Australia for the past two years, and over this period of time I have seen the business, investment and trade situation in Indonesia transform. This was exactly the message that Ambassador Moriarty was here to tell the Australian Business Community in Sydney. The Event was attended close to 100 of Sydney’s elite business community attended this luncheon to hear the good news story Ambassador Moriarty had to tell about Indonesia. The question and answer session after the speech was an indication of the increasing interest in Indonesia as a trade and investment destination for Australian business, however it was a joke that Ambassador Moriarty relayed about Indonesia in the early stages of the speech which tells the real story about the opportunities in Indonesia.

Coca Cola Amatil have succeeded in Indonesia where many corporates have failed to tread.

Ambassador Moriarty started his keynote address with a joke about Indonesia being both a disappointment to optimists and a disappointment to pessimists. He put this down to the solid improvement and advancements that have been made in the Indonesia, that have exceeded many expectations and failed to meet the best case scenario. Anyone who has done business in Indonesia, will attest to this challenge. Indonesia is indeed a great opportunity, but it has its challenges. The message however from Ambassador Moriarty was that Indonesia was a great opportunity for Australian business, and that there were indeed many businesses that were succeeding in a large way. The point was made that Australian businesses should be broadcasting their involvement in Indonesia, and specifically the Corporate Social Responsibility programs that many companies are engaged in as part of their Indonesian Investment. This particularly point was picked up later in the presentation by a representative of Coca-Cola Amatil (CCA), who described how their investment in Indonesia over the past couple of decades had been effectively ignored by Australian investors until very recently. Coca-Cola Amatil have of course in recent years made large investments in excess of $100 million into Indonesia and have attributed these investments as a key driver of corporate profitability. The representative at this event lamented the ignorance of the stock market, and hoped that the message to the Australian investor community was indeed to open their eyes to the Indonesian potential.

Indonesia is Australia’s closest neighbour, and the business opportunities are immense. The time is right to take the opportunity at hand and be ready for the Indonesian Century.

Indonesia is indeed widely misunderstood by Australian business, and indeed by many western business and the Ambassador described the strength of the economy, and the rapidly emerging middle class, which was actively engaged in social media, consumerism and business. The often mentioned Indonesian social media numbers were once again raised as an illustration of the advanced state of the Indonesian market, third largest facebook population amongst others. The overall message was that Indonesia is here, and Australia has a direct interest in the future of Indonesia. Australian business needs to increase its awareness of the Indonesian market, and change its outdated perspective of Indonesia as a backward and third world economy. As many of the people in the room would have known, the challenges of establishing, and running a business in Indonesia can be substantial. However, the emergence of Indonesia as a market of opportunity for Australian business means that if corporate Australia does not realise the opportunities presented, they will miss one of the best opportunities to emerge from the Asian Century. Failure to change our perception of Indonesia, will be a failure of our politics, our business and our perceptions. As Ambassador Moriarty reinforced during the AIBC event in Sydney, the time is right for corporate Australia to make the most of the Indonesian opportunity and grasp it with both hands. It is up to Australian business to re-asses Indonesia as an investment, trade and business destination to ensure that in the future the disappointments are not that we let the greatest opportunity of our generation slip through our fingers. The Indonesian Century is indeed upon us.

The Indonesian Wine Market: Exploring Wine Export Opportunities Beyond China

There is an emerging export opportunity in Indonesia for Australian Premium Wine.

The Australian wine industry was for many years concerned about export markets eroding in the traditional wine markets in Europe and North America, particularly as a combination of rising Australian Dollar, Increased competition from other “New World” wines from South Africa, South America and North America started to compete at the lower price point with which Australian wines had been successfully marketed in the UK and Europe.  This challenge for shelf space, market share and profits was further impacted by the growth in grape output, and consolidation of wine companies in Australia through companies such as Treasury Wines (Formerly Southcorp, and Fosters) and Constellation Wines which standardised the Australian wine industry, and helping to entrench Australian wine industry perception of international export markets as low-end consumers. This industry perception and attitude was a short-sighted and a recipe for disaster. Something had to change, to snap the thinking of the Australian Wine industry.

The Indonesian Wine Market is open for business. Ignore this market to your detriment. The time is ripe for a new investigation of the wine export opportunities in Indonesia

In recent years there has been an explosion of wine sales/exports/ and investments in China. There is undoubtedly a great opportunity in China as the 1.3 billion people start to develop a taste for wine. This is not to say however that wine is saleable to all of the 1.3 billion people, as the favoured alcoholic drinks are still beer and spirits ( rice and barley wine drinks such as MaoTai, Beiju etc). Wine consumption is rising, and taping into the 5% of the population that currently drink wine is a boon for the Australian wine industry, and many successful Australian wineries are now exporting good and profitable volumes into China. There is of course a growing Chinese Wine industry, which is increasing in quality and exposure throughout China. This will likely become a competitive force in the future, for which Australian Wine Companies will need to strategically prepare. So what alternatives are out there in Asia?

There are obvious opportunities throughout South East Asia, in markets such as Vietnam, Thailand, and Singapore. These markets are in the main receptive to wine, and Australian Wine companies should be looking to export into these markets. However there is another market that Australian and other Western Wine companies overlook – Indonesia. There is  broad perception that Indonesia as a predominantly Muslim country holds no opportunities for Australian wine. This is a short-sighted view in my opinion and Wine Companies need to broaden their perspective.

A Wine Store in Jakarta is not uncommon, and increasingly provide premium wine to a rapidly developing domestic wine market.

Indonesia is a challenging place to sell wine, not least because of the Muslim cultural influence. There is however, a large opportunity emerging in Indonesia for wine sales in the right market segment. Opportunities in bulk wine and low-cost wine sales to Indonesia are non-existent. These price points do not work politically for Indonesia. This is not the same for premium wine  sales, for the US$15-50 price point on an Australian wine shelf . In Indonesia these wines would be sold at an added premium of between $40-150. People pay for these wines, and they are consumed by the emergent middle class in cities like Jakarta, and are sought after in restaurants and Hotels across Indonesia. It must be remembered that Indonesia is a moderate Muslim country, and there is no ban on alcohol sales. There is however some restrictions on the number of importers allowed to bring in wine. My main message here is that, Indonesia is a market of opportunity for the Australian wine industry, and it should not be ignored out of hand.

If your company is looking to tap into the increasing demand for wine in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, to learn more about the opportunities for food exporters in Indonesia.

Opportunities for Australian Business in the Indonesian Market

This speech was presented to the “Australia Indonesia Business Council: Creating Opportunities for The Future” Business Forum by Mr Nathan H. Gray – Chairman of the AIBC – SA, in Adelaide on Friday 8th April 2011

INTRODUCTION

Today I would like to talk about the outlook for Indonesia, in the context of the broader Asian market, and the implications for South Australian business and how we can deepen the economic partnership between South Australia and Indonesia. Many of you in the room today have extensive experience in the Indonesian market, and I am conscious that many others here today are only at the early stages of considering Indonesia as a potential market opportunity. Today I would like to help bridge this gap in experience and tell the positive story of Indonesia today in the twenty first century. Firstly, let me tell you some of the key facts about Indonesia and why Australian business should be taking a closer look at the opportunities that are emerging in our closest international neighbour. The 21st century is very likely to be orientated around Asia, away from the traditional markets in North America and Europe. If you are not part of the Asian story then your future business outlook could well be limited. But it is important to be reminded that Asia does not just comprise China and India. There are other markets in Asia that offer many of the same opportunities. With a population of approximately 240 million people, Indonesia has a strong and vibrant internal market. Indeed recent estimates put the middle class population in Indonesia at between 30-50 million people……that is potentially more than double Australia’s population. Coupled with increasingly effective economic management, Indonesia has largely avoided the economic downturns recently experienced by other countries. Indonesia is one of the few countries in the past two years that has produced greater than 5% economic growth. However, despite the attractiveness of Indonesia as a target for both trade and investment, it still only ranks as Australia’s 13th Largest Trading partner. And yet as neighbours with complementary skills, resources and markets, why is this? And what can we do about it? How can we deepen the economic partnership between Australia and Indonesia? Indeed South Australia and Indonesia? In this presentation, I would like to give an update on the current outlook for Indonesia and the opportunities and challenges for Australian business. I will also propose some ideas on how we can deepen the business to business relationship.

BUSINESS OUTLOOK

Indonesia posted 4.5% GDP growth for 2009 and achieved a +6% GDP increase in 2010. As we have just heard from His Excellency the Ambassador, the future growth outlook for Indonesia is robust…… and importantly sustainable. Analysts are now talking about “ChinIndonesia”. or as the second “I” in “BRIIC”. Indeed, Indonesia’s stock market has been one of the best performing in the past few years. In a strong signal of foreign investor confidence, Orica recently announced an US$550million investment in the construction of an industrial grade ammonium nitrate plant in Indonesia (East Kalimantan) with PT Kaltim Nitrate Indonesia. The NewYork Times Recently had a headline:

“After Years of Inefficency, Indonesia Emerges as an Economic Model”.

In glowing praise it stated:

“After years of being known for inefficency, corruption and instability, Indonesia is emerging from the global financial crisis with a surprising new reputation – economic golden child”

Fauzi Ichsan, Senior Economist at Standard Chartered in Indonesia is quoted in the article saying:

In Asia there is a feeling that after you invest in China and after you invest in India, where are you going to invest? It’ll have to be Indonesia. It’s a natural destination.”

But whilst some share Fauzi’s enthusiasm and I am one to share this enthusiasm,  many people have a different perspective. There is a view amongst some Australian companies that the reticence to invest in Indonesia is due to the difficulties posed through the bureaucracy and regulation. International investors have chosen in many cases to try other markets. This is born out in the investment figures. Indonesia is not getting the level of foreign direct investment (FDI) commensurate with an economy of its size (US$8.3bn last year). And according to the World Bank Ease of Doing Business Report, Indonesia ranks 122 out of 181 countries (up from 129 in 2009). We need to acknowledge the challenges and opportunities to entering the Indonesian market.

On the negative side Indonesia has to deal with:

• Poor infrastructure (social and physical)

• Poor Utilities (electricity, water, sewerage telephony)

• Legal Enforcement • Regulation/decentralisation (which can lead to contradictory regulation)

• Security issues • and of course Corruption (however I would point out that the incidence of corruption although still bad, it is on the improve according to Transparency International who measure corruption perception around the world)

On the Positive Side Indonesia provides opportunities through:

• Good economic leadership

• political stability

• Large internal market

• Large Labour Market (Quality and Quantity)

• High performing service culture

• Strategic position in the Asian Shipping Routes (remember Singapore is really part of the Indonesian archipelago)

• Abundance of natural resources

There are about 450 Australian companies with investments in Indonesia – including CBA, ANZ, Coca Cola Amatil, Ramsey Health, Theiss and Santos. There are also many SME’s that have invested in the Indonesian Market. There are 46 companies represented in this room today, and I know that not all of you are invested in the Indonesian market. Your presence here today is a reflection of the emerging opportunities presented in Indonesia. Government/Business Relationship The re-election of President SBY has been very positively received by the business community.

A good showing by President Yudhoyono (SBY)’s party and a clear result (60.8%) in the first round of voting in the presidential elections sent a clear signal about the political stability in Indonesia to foreign investors. SBY visited Australia in early 2010 and addressed the Australian parliament and business groups such as the AIBC. The president made the simple observation that Australia has more “Indonesianists” and Indonesian language students than anywhere else in the world. And yet our business to business relationships significantly lag the outstanding government to government relationships. The President also made the point that we are not just neighbours but friends and strategic partners, but more importantly SBY delivered a clear and unequivocal message to the Australian Business community that the Indonesian government was serious about encouraging greater foreign investment.

In October last year I had the good fortune of being part of the Australia business delegation that travelled to the Indonesian International Trade Expo in Jakarta where I met and discussed with the Indonesian Trade Minister Dr Marie Pengestu, about not just the importance of the Australian trade relationship, but indeed about the importance of the relationship between South Australia and Indonesia. Trade corridors such as the Adelaide to Darwin railway now provide an opportunity for South Australian products to be transported to Jakarta in just over a week. But how many South Australian companies take advantage of this trade corridor? So when is the Australian business community going to take advantage of the opportunities in Indonesia? And when are South Australian companies going to take advantage of the freight corridor that links Adelaide with Jakarta and beyond?

THE AIBC

The Australia Indonesia Business Council is the key business networking and advocacy organisation that promotes trade and investment between Australia and Indonesia. And We can view the success and profile of the AIBC as a “barometer” of the level of business activity between Australia and Indonesia. An active and vibrant AIBC reflects a growing economic partnership. However, in recent years, the AIBC has been relatively low profile. But in the past two years, the AIBC has become more active, and undergone resurgence. I believe this is because of the vibrancy of the Indonesian economy, which like Australia survived the Global Financial Crisis and has become an increasingly attractive market in which to do business. A good indicator of the interest in Indonesia through the AIBC was at our recent national conference held in Sydney, where we had over 200 of Australia’s business leaders attend, and we heard speeches from senior Australian and Indonesian government, and business leaders about the importance of the trade relationship. The attendance at today’s event is an equal indication of the interest in the Indonesian market.

In the coming year the AIBC will be leading the way in both South Australia and more broadly across Australia to help showcase the business opportunities that are emerging in Indonesia, and so if you continue to see us out here running successful functions such as this, and our recently held national conference, then you can be sure Indonesia is well and truly back upon the Australian business radar. The AIBC is also involved in advocacy work, and part of this advocacy is around ensuring that Australian and Indonesian companies can maximise these trade opportunities. As I have already raised, one of the challenges to business in Indonesia is the regulatory and bureaucratic hurdles that must be overcome. And this is why we have been advocating for an Economic Partnership Agreement between Australia and Indonesia, a partnership that can help eliminate some or all of these non-tariff barriers to trade and investment.

DEEPENING THE BUSINESS RELATIONSHIP

We should see Australian and Indonesian companies not as competitors, but instead as partners in the global supply chain, and this is indeed a role, I hope we can promote and develop in the relationship between South Australia and Indonesia. What is wrong with Surf Wear being designed on the Gold Coast, manufactured in Bundung and then sold in department stores around the world? What’s wrong with South Australian high technology companies designing products in Adelaide, manufacturing the bulk components in Indonesia and then assembling the high technology components in Adelaide for export the global market? Rather than just looking at the barriers let’s start looking at the opportunities. Indonesia is not only Australia’s closest neighbour, but it is one of the most attractive business destinations in the global economy at the moment.

Whilst several Australian companies have successfully invested in the Indonesian market, the trade and investment statistics show that our current economic relationship is “underweight”. There is a critical need for a different approach to trade investment promotion and facilitation. Despite the recent favourable media coverage, Indonesia is still not on the radar for many Australian businesses…and if it is the perception does not match the reality. We should encourage greater resourcing by both Governments so as to engage in more sophisticated market development and promotion. This should start by identifying the key opportunities in the global supply chain and identifying where the specific Australian and Indonesian industry sectors and companies can partner to capitalise on these opportunities.

If we consider the large middle class population in Indonesia, then we can be reminded of the potential market opportunities that exist. In Jakarta there are seven Luis Vutton stores, and when you go out to buy your Mercedes Benz, you won’t find it on the side of the road in car yards….you will need to visit the state of the art shopping malls, where you can shop for your Mercedes, next to your Jag, Bentley, BMW, Ferrari and Lamborghini. You only need to choose between Black and Silver for the colour in many cases, and your purchase decision is made on the comfort of the back seats…. When you travel the streets of the Jakarta CBD you are confronted by state of the art architecture and design. Indonesia is not a backwater…it is a market of opportunity.

Finally, one of the fundamental ingredients to deepening the business relationship is education of our business leaders. As I have already discussed the AIBC has hosted a number of business forums and corporate events for Australian and Indonesian managers over the past two years. We want to tell the “good story” and provide opportunities for Australian companies considering investment in Indonesia to meet and get mentoring advice from Australian companies who have succeeded in their Indonesian Investments. These events such as today are about promoting Indonesia as a Business destination, encouraging Australian Investment and most importantly, educating senior Australian business leaders about the market sitting right on their doorstop.

CONCLUSION

To summarise, the business outlook for Indonesia is very positive. Indonesia has weathered the GFC well and the growth prospects are good, with more work needed to be done on infrastructure and skills development to capitalise on the current momentum. But the current economic relationship between Indonesia and Australia as measured in the trade and investment statistics is “underdone”. Recent interest in Indonesia by Australian corporations does augur well, but there is more that can we can do to encourage greater business engagement. I am very optimistic about the prospects for both Indonesian and Australia business, but most importantly I am optimistic about developing a deeper partnership. Because we should not be under the illusion that the economic and trade opportunities that are in Indonesia today will last forever. If Australian Companies don’t take advantage of these opportunities then someone else will: American, British, Dutch, German, Russian….and Chinese. I would again like to thank you all for spending the time to come to this event this evening and listening to the opportunities for the future that are emerging in Indonesia.

For further information on Joining the Australia Indonesia Business Council please have a look at www.aibc.com.au

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