Indonesia-Australia Comprehensive Economic Partnership Agreement

A partnership 10-years in the making.

The formation of the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) is an opportunity for both countries to complement each other’s economic capability and form an “Economic Powerhouse”. The basic principle of AI-CEPA is an industrial collaboration, combining Australia’s advanced manufacturing capability and Indonesia’s industrial capacity. This agreement is not only expected to serve the market of both countries but also contribute to the global value chain. This agreement has been formulated for a decade-long, and the current situation makes the signing more beneficial to the economic recovery due to the Covid-19 pandemic for both countries.

This agreement was first discussed on November 2nd, 2010. A discussion between the then President of Indonesia and the Prime Minister of Australia started the formulation of IA-CEPA. Then, the first two negotiations between the two countries were held in 2012. Six years later, both countries successfully completed the negotiation substantially and therefore the IA-CEPA was signed by the Ministry of Trade of Indonesia, and the Ministry of Trade, Tourism and Investment of Australia in 2019. However, the IA-CEPA has just been passed on February 28th, 2020 by the House of Representatives and the Government through Law no. 1 of 2020.

Indonesia Maju Program and the Important Role of IA-CEPA

The Indonesian government, under the presidency of President Joko Widodo, has set a growth target called the Indonesia Maju program. Indonesia has set a GDP growth rate for a period of 2015–2045 of 5,7% growth. While the GDP per capita growth rate is expected to reach 5,0%. The country is targeting to be a developed country with the fifth largest GDP by 2045. The priorities of this program are economic transformation, human capital development, infrastructure development, regulations simplification, and bureaucratic simplification.

IA-CEPA has an important role in supporting the achievements of Indonesia Maju 2045 vision, according to the Indonesian Chief of Presidential Staff, General Moeldoko. Here is how IA-CEPA could really support this:

• IA-CEPA opens opportunities for Indonesia and Australia as an “Economic Powerhouse”. Both countries can mutually benefit from each other’s strengths and therefore increase the contribution to the global value chain.
• IA-CEPA could boost exports in several Indonesian products to Australia, such as automobile (electric and hybrid), woods and its derivatives (furniture), textile, rubber, machinery, drugs, food and beverages, electronic tools and therefore could boost the development of e-commerce and creative industry.
• IA-CEPA promotes an increase in investment flow in both countries.
• IA-CEPA could facilitate Australian investors to invest in Indonesia in many sectors, specifically infrastructure, energy, tourism development, food processing, and the development of e-commerce.

Current Trade Situation

According to the Minister Counselor of the Australian Embassy for Indonesia, Alison Duncan, there are already many collaborations between the two countries. Specifically, Australia has been supporting Indonesia in tackling the Covid-19 pandemic and is supporting the economic recovery. The Australian government has committed an extra 21 million dollars in new initiatives on providing immediate support to Indonesian health, humanitarian, and economic response. In early November 2020, the Australian government also announced a loan of 1,5 billion dollars from Australia to assist Indonesia’s Covid-19 response and economic recovery after the pandemic.

Duncan has also stated that the economies of Indonesia and Australia are broadly complementary. She stated that most of Indonesia’s imports from Australia are used as intermediate goods in Indonesia’s manufacturing sectors. Those products will then be exported to many countries, and some are exported back to Australia.

An educational collaboration has been signed this year, as one of the most prestigious universities in Australia, Monash University, will build a branch campus in Indonesia. There is also a 1,3 billion dollars agreement between several Australian medical organizations and an Indonesian company to build healthcare services and facilities in West Java. Another collaboration is the development studies for hydropower and geothermal projects.

Prominent Opportunities from IA-CEPA

IA-CEPA delivers significant new trade and investment opportunities for businesses in both countries. IA-CEPA lowers tariffs and therefore lowers the cost of inputs for Indonesian manufacturers. The agreement also delivers more certainties for investors regarding the rules and regulations that will apply to them. This is expected to create a good environment for commercial collaborations. Specifically, the encouraged collaborations are in these important sectors: education, tourism, communication, health, and mining services. Not only these large investment opportunities but MSMEs from both countries will also benefit from this agreement.

Encouraging more collaboration from the two countries is in need of encouraging the people-to-people leads simultaneously, according to Duncan. IA-CEPA has three programs that help in encouraging this. The programs are:

• Reciprocal skill exchange program. Businesses can send people with treasury qualifications to work for up to six months in financial and insurance services, mining engineering and related technical services, information media, and telecommunication services.
• Workplace skill training program. Up to 200 Indonesian per year will be eligible to undertake workplace skill training programs in Australia in sectors such as education, telecommunication, tourism, infrastructure development, health, energy, mining, financial services, and ICT.
• Work and holiday arrangement. Increases the number of Indonesian that could access Australia’s working holiday visa. Up to 5,000 people per year by 2025, the largest quota Australian has given to any country.

There are many opportunities for many sectors that this agreement could bring. However, one sector that is being vastly developed and pioneered is the automobile and electric vehicle sector, as stated by General Moeldoko. Indonesia has a huge vehicle market. The opportunities for EVs and its battery in Indonesia are also huge. 40% of the world’s nickel is in Indonesia (US Geological Survey). Our next article will discuss the market of EVs and its battery in Indonesia thoroughly.

Philip Turtle, the President of Australia Indonesia Business Council, has also stated that the development of EVs and its battery has a huge growth opportunity and could benefit from the IA-CEPA. He also stated several other opportunities in other sectors, such as shipbuilding and floating ports and industrial parks, and special economic zones.

Partnering through BRIGHT Indonesia

The agreement is designed to unlock the vast potential of the bilateral economic relationship between Australia and Indonesia. The agreement aims to maximize the benefits of IA-CEPA, improve market access, support two-way trade and investment, and promote inclusive economic growth in Indonesia for the mutual benefit of both countries.

With many benefits that the agreement has to offer for both Australian and Indonesian businesses it is undeniable that in the next ten years many investments from Australia will enter Indonesia. Thus, it is important to find the right local partner that will foster the growth of Australian businesses interested in entering Indonesia’s market.

BRIGHT Indonesia will help Australian businesses in entering Indonesia’s market through services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, Business Registration and Establishment, and Foreign Direct Investment Promotion. The services will help your business to:

1. Analyze the opportunities and obstacles of your desirable industry on the Indonesian market through desk research, in-depth interviews, and onsite observation.
2. Secure the agreement between Australian companies and future Indonesian business partners by providing a list of potentially suitable partners, arrange business meetings, and act as a liaison.
3. Supporting Australian companies from the private sector with the development of corporate or business unit strategies or helping your company from public sector organizations with public policy.
4. Help Australian companies obtain the work and stay permit for your foreign employee in the Indonesian office: expatriates utilization plan (RPTKA), expatriates utilization permit (IMTA), and limited stay permit (KITAS).
5. Link Australian companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.

For more information, email info@brightindonesia.net.