Vice President Boediono says Indonesia and Southeast Asia should seek to become the center of global Islamic trade, banking on the region’s economic growth and its large Muslim population.
Islamic merchants from the Middle East once flourished in the region, opening spice trading businesses and contributing to the wealth of kingdoms in the region until the 16th century before being edged out by Western merchants with their military power, Boediono said,
“With that small note in history, and the political and economic progress in Southeast Asia, it is not impossible in the future to develop Indonesia and Southeast Asia to be the center of Islamic trade and set an economic alliance for the Islamic world,” the vice president said in his opening remarks at the Third Muslim World Biz conference and exhibition in Jakarta on Thursday.
Boediono said that momentum is with Indonesia and Southeast Asia, as the West is now struggling with its economy and Asia is becoming the driver of world finances.
“But it all requires a lot of hard and intelligent work,” he said.
Indonesia’s economy alone accounts for 13 percent of the total economy of the Organization of Islamic Cooperation, which combines the economies of 57 member states, according to data from Statistical, Economic and Social Research and Training Center for Islamic Countries (Sesric). Indonesia is also the single largest contributor to the bloc’s output.
Indonesia, Malaysia, Thailand and Brunei Darussalam account for around 28 percent of the bloc’s $8 trillion economy. The 49 OIC member countries are predominately Muslim-majority states, although Muslims are minorities in eight OIC members, such as Thailand.
Boediono noted challenges including the fact that the majority of Muslims were living in underdeveloped nations. The bloc counts wealthy nations such as the United Arab Emirates and Qatar among its members, as well as poor ones including Somalia, which has a gross domestic product per capita of around $600 — less than a fifth of Indonesia’s.
“This challenge needs to be addressed with more cooperation between countries,” Boediono said.
Still, Islamic financing in Indonesia has yet to flourish. Indonesian Islamic bank financing accounts for less than 5 percent of total lending in the country.
“We are a bit late to develop our Shariah financing, compared to Malaysia,” said Imam Teguh Saptono, business director of BNI Syariah.
Imam said that the Malaysia government has been very aggressive in attracting Middle Eastern financing, while the Indonesian government is failing to provide adequate support to the domestic Islamic finance industry.
“For example, there are concerns whether our religious court here can handle business dispute based on Shariah rules, because they usually only deal with inheritance and divorce matters,” Imam said, adding religious courts were the only courts that could legally handle Shariah-based cases.
Still, Imam said he was confident that Islamic financing could get a strong foothold in the country. “We are growing faster than conventional lending. I think in 2017 we can account for 10 percent of the country’s total lending,” he said.
The conference is expected to draw more than 300 international delegates and some 80,000 visitors to the Jakarta Convention Center to view 600 exhibitors’ products and services. Business deals are also expected during the four-day event.
Indri Liu, an Indonesian exhibitor and owner of Kei Collection, hoped that it could open up new markets for her python skin purses and handbags.
“Usually we mostly sell in the domestic market,” Indri said. “Exhibitions like this one open up new markets for me.” She exports to Europe and Singapore but is yet to receive orders from OIC member countries.
Haris Syahrudin, the director of administration and finance at fuel distributor Elnusa Petrofin, said that Indonesia’s trade with other Islamic countries required a flexible approach.
“Wealthy countries demand the very best quality from us, but others will seek a bargain,” Haris said.
Apart from the trading advantages, Haris said that Indonesia could benefit by investing in underdeveloped countries.
“It is sometimes risky, but the reward would be in line with that risk,” he said.
Haris said that the Indonesia government should lead the way to economic integration with closer government-to-government relation ties.
Indonesia also has the potential to attract large volumes of Islamic financing from wealthy Middle East countries, he said.
“They have the money and want to invest it somewhere,” Haris said. “With Europe’s and United States’ economy slowed down or even in recession, we appear very attractive.”