Abbott's pragmatism in Jakarta has set the scene; now it's Indonesia's turn

By Ross B. Taylor AM 

Tony Abbott has, depending on which way you look at it, simply capitulated to his Indonesian hosts during his recent visit to Jakarta, or exercised great humility and pragmatism towards a country that will play an enormous role in our region in the future. 

Within Indonesia it is being seen as the latter, and that can only be a good thing for both countries. But now that our prime minister has formally acknowledged Australia’s mistakes in the handling aspects of the bi-lateral relationship, the issue is whether Indonesia needs to do the same. 

Indonesia was right to feel very aggrieved over Australia's handling of the live cattle export crisis, and also annoyed at some of the more 'radical' policies from our then Opposition suggesting Australia could pay Indonesian village wardens to 'dob-in' people smugglers, and buy back fishing boats, so it was important that Prime Minister Abbott acknowledged the harm that has been done. 

The real challenge now is for Indonesia to acknowledge some of the key issues facing its people - at the start of what will be a very 'robust' election cycle where nationalism is on the rise – and to recognise that Indonesia also has taken actions that have worked against its own best interests, including building closer relations with Australia and the region. 

Indonesia with a fast growing middle-class – estimated to rise from the current level of 45 million people to 135 million in 2030 – faces enormous challenges in a number of critical areas including infrastructure, energy, education, health and in general business where Indonesia could 'partnership' with Australian companies to improve living standards and opportunities for their country. 

There is perhaps no greater example of where a partnership approach with Australia could prove highly successful than within the agriculture sector. 

Indonesia's agriculture sector enjoys superb soils, abundant rainfall of plenty of labour; already employing 41 million people. The productivity of farms however, is extremely low with farmers generating around $3,000 per year per farmer compared to $9,000 in Malaysia for example. Over 70% of all fresh produce found in Indonesia’s major supermarkets is imported. 

A recent McKinsey Report showed that Indonesia, on current projections, would produce around 185 million tonne of food by 2030. Yet with improved productivity that figure could be 310 million tonnes each year, providing not only enough food for Indonesia's growing and increasingly wealthy population but also - and this is the key point - being able (with Australian partners and branding) to add-value and export ‘surplus’ foods to third-party countries in the Middle-East and Asia.

 

But to do this, Indonesia has to acknowledge that government red-tape and bureaucracy, including a policy of increasing tariffs designed to protect poor agriculture practices, will only hold back the huge and necessary structural change that must be implemented in this sector.  

So why is Indonesia’s food growing sector so unproductive? Indonesia lacks investment and expertise in rural infrastructure, training of farmers, cold supply chains, technology, irrigation, farm management and also access to good quality seed. Australia is  very good at all of these things; in fact Australia is arguably the best in the world, so why not put our knowledge and skills together with Indonesia's soil, rainfall, abundant labour and strategic location, so that both countries win? 

If Indonesia can work with Australia to transform their agriculture sector, the impact will be enormous for both countries. Indonesia doesn't really have a choice if it wants to feed its growing middle-class in the future and Australia is perfectly placed to partner our neighbour in this critical area.  

We should start with the cattle industry whereby Indonesia is now buying into our breeding cattle stations, and Australian companies are being encouraged to take an interest in feedlots and processing companies in Indonesia. It makes good sense, and together we can meet Indonesia’s beef production needs well into the future whilst building a strong base for Australia-Indonesia ‘added value’ produce to be exported around the region. 

So following Mr Abbott's visit, the 'challenge' is now only for Australia, but with Indonesia to open-up this critical and large – but poor, over regulated and unproductive – agriculture sector, and in doing so create opportunities for business to form highly valuable partnerships. 

The agriculture ‘model’ can also apply to other critical areas facing Indonesia including the resources sector, financial services, and manufacturing. It won’t be easy. Doing business in Indonesia is not simple with at least nine ‘procedures’ and an average of 33 days just to establish a commercial entity in Indonesia.  

The opportunities for Australia and our northern neighbour to substantially increase two-way trade and investment are enormous, but it will need Australian companies to recognise and act on these opportunities that exist on our doorstep. 

 It will however, need Indonesia to address the ‘barriers-to-entry’ that often act as a significant deterrent to doing business in Indonesia, including protectionist policies, inconsistent regulations and an unwieldy and an often corrupt bureaucracy.  

This will be the challenge for the incoming president and government over the next 12 months at a time when the indications are that politics in Indonesia is being dominated by ‘economic nationalism’. 

My comments are not meant to present an opinion that is ‘sombong’ towards a country that - as a young man - stole my heart, but rather as constructive suggestion as to how Indonesia can build on its truly amazing transformation, since the end of the Suharto reign, and realise the dreams and aspirations of its people. 

 

Ross Taylor AM is the chairman of the Indonesia Institute (Inc) and a former national vice-president of the Australia-Indonesia Business Council.

He was Australia's "Presidential Friend of Indonesia-2013"