Helping Indonesia Make the Most of US Investment
The United States Chamber of Commerce and its member companies place great importance on Indonesia. With a population of 240 million, a GDP hovering around $1 trillion, and consistently high economic growth, the market is vast, as is its potential for future growth. However, we are concerned that the US-Indonesia commercial relationship is falling short. We will meet with government and business leaders in Jakarta this week to see how we can turn this around.
Take trade for example. US exports to Indonesia last year were $7.4 billion. That may sound impressive, but that is behind countries such as Peru ($8.3 billion) and Panama ($8.2 billion). Yes, the United States exports more to Panama — population 3.5 million — than to Indonesia.
Take the investment side of the ledger. Of the $19.5 billion in 2011 investment approvals reported by the Indonesia Investment Coordinating Board (BKPM), $1.5 billion originated from the United States. In 2010, US investment was only $1.1 billion. And the trend continues.
Contrary to perceptions of US aloofness, American companies are committed to the Indonesian market. But as the numbers above indicate, we could, and should, be doing better. To do so, we need Indonesia’s help.
Part of the challenge has been a series of measures over the past couple of years that have restricted access to the Indonesian market and made doing business in Indonesia more difficult for US companies. US investors have been forced to scramble to interpret and comply with a series of rulings, decrees, and regulations that increase the cost and uncertainty of doing business. Companies that are already on the ground will stay the course, but the deterrent effect on new US investment is real.
Most of the available energy in our bilateral dialogue is being directed toward combating such measures, leaving little or no opportunity for promoting, building, and investing in a longer-term commercial relationship from which both our countries could benefit greatly.
For Indonesia, its ambitious economic development goals require it to make vast investments in infrastructure. According to an analysis by Morgan Stanley, Indonesia’s infrastructure spending is likely to reach 5.9 percent of GDP in 2015, from 3.9 percent in 2009. This will add up to a total of roughly $250 billion in infrastructure spending for the 2011-2015 period. Mobilizing capital on that scale requires an environment of certainty and transparency, and a much higher level of commercial engagement, if American companies are to effectively contribute to Indonesia’s growth.
For their part, US companies have the technology, expertise, skills, and experience to meet these needs. US investment can catalyze knowledge transfer and help Indonesia meet a primary economic goal — moving its manufacturing sector and exports up the value chain. But are US companies being aggressive and proactive enough? How can we do a better job matching up US and Indonesian partners in light of the tough policy environment?
We can start by opening up new channels to promote increased trade and investment. Indonesia’s chairmanship of Asia-Pacific Economic Cooperation next year gives it an important platform from which to advance a robust agenda of regional trade and investment liberalization, and we look forward to working with Indonesia in that effort. Bilaterally, the US-Indonesia Commercial Dialogue, announced last year as part of the US-Indonesia Comprehensive Partnership, is an important step, but much more can be done.
Our commercial relationship can be a catalyst for growth in both countries, but it is falling short. The gap between the actual and the potential is large, growing, and needs to be addressed. Business leaders in both our countries need to develop new, innovative channels through which to broaden engagement, and to rebuild the once-vibrant commercial relationship. The opportunities are vast, and private-sector leadership is needed to ensure that the potential is realized.
Myron Brilliant is the senior vice president of international affairs at the US Chamber of Commerce.