In pursuit of emerging as one of the biggest economies in the world, Indonesia has been actively seeking new opportunities and stronger relations with other developing economies. The African continent represents a wealth of opportunities.
Last April, the Indonesian government hosted the first Indonesia-Africa forum (IAF) in Bali. Senior delegates and business people from both entities gathered to explore investment opportunities to strengthen economic ties. The forum resulted in business deals totalling more than US$1 billion.
Since President Joko Widodo took office in 2014, Indonesia’s Africa policy has prioritised economic engagement and cooperation. According to the Trade Ministry, in 2017 the country’s total exports to African countries stood at US$4.86 billion, a marked increase from US$4.16 billion in 2016. With the positive trends continuing, the country is ready to take further steps to enhance economic ties with Africa.
Indonesia’s main exports to the continent include palm oil, garments, processed foods and beverages. From Africa, imports are mainly crude oil, cocoa beans, cotton, and chemicals for fertilizers and industries.
Stronger cooperation benefits both sides
The time is right for ASEAN nations to deepen economic ties with the African continent. Africa currently has a middle-class population of 330 million. It is also a young population, with 62% under the age of 25. This young population will equip the workforce with innovative minds, giving it a competitive edge, and increasing efficiency, all of which are crucial in boosting Africa’s economic growth.
In 2016, the African region maintained its position as the second-fastest growing economy in the world, enjoying 3.5% economic growth. This growth is expected to rise to 4.3% by 2020. A third of sub-Saharan nations are projected to expand their economies by more than 5% per year over the next five years. An additional 300 million Africans will also enter the digital sphere by 2025. Africa represents a barely-tapped gold mine for consumers.
As the economies mature, there is no shortage of infrastructure projects that could entice ASEAN investors. Somalia has invited Indonesia to invest in the development of roads, ports, and agriculture. Ghana has also called on Indonesia to help on the development of its 1 million homes program.
“Indonesia wants to be part of developments in Africa and Indonesia also wants Africa to be part of developments in Indonesia,” said Retno Marsudi during the 2018 IAF forum.
Africa plays an important role in supplying energy to Indonesia. Nigeria and Angola are key suppliers of oil and gas, an important component of the country’s rapid development. Nigeria accounts for 5.4% of the nation’s total imports of mineral fuels including oils, whereas Angola accounts for 1.6%. As for the whole African continent, it holds 12% of mineral fuels and oils imports.
Indonesia and Africa are also planning to work together in the digital sector. Indonesia has become one of the hottest start-up hubs in the world, while Africa has the world’s fastest growth in internet users. Enhancing cooperation could promote partnerships between entrepreneurs and boost the development of the country’s digital economy.
The future looks promising if both sides can overcome several major hurdles
One of the obstacles to enhancing economic cooperation lies in tariffs. Indonesia does more trade with Brazil, for example than any African nation, despite the country being significantly further away than the African continent. This is because high tariffs exclude many Indonesian firms from African markets.
Earlier this year, the Indonesian government started negotiation talks with some African countries such as Morocco, Mozambique, and Tunisia in regards to the Preferential Trade Agreement (PTA). It is also in negotiations with the Southern African Customs Union, which includes South Africa, over a possible PTA designed to lower tariffs.
When it comes to reducing tariffs and bolstering trade, the African continent could learn something from Indonesia and its ASEAN colleagues. The African continent comprises 54 different governments. If the continent deepened its political and economic cooperation, countries like Indonesia would not have to negotiate for lower tariffs with each country individually. It could negotiate with a bloc, much like ASEAN, and streamline the process, unlocking business opportunities far earlier than it would by negotiating with nations one-by-one.
The African Continental Free Trade Area agreement, which seeks to give the African continent a single voice, still requires ratification from three nations to enter into force.
Corruption is another powerful obstacle to economic development. It undermines the stability of the state and creates economic uncertainty which could discourage investors.
Indonesia is projected to become the fourth largest economy in the world in 2050, but it needs to maintain economic growth to realise these projections. It needs to diversify its export base to reduce its vulnerability to global economic challenges, like the US-China trade war. Tapping into non-traditional markets, like the African continent, will be a challenge, but the rewards will be bountiful.