Part 1-An Introduction to Indonesia & its Economy
Part 2 – Canada-Indonesia Trade Relationship
Trade between the two countries totalled CAD$3.7 billion in 2019 while Canadian foreign direct investment in Indonesia during the year was CAD$3 billion. Indonesia also remains the second largest destination for Canadian investment in the ASEAN region.
Despite the huge bilateral trade potential, overall trade has been relatively flat with Canadian exports up just 6% from 2015 to 2020. While the sheer distance between the two countries may be a reason for the lack of growing exports, one factor that may be holding back increased trade between Canada and Indonesia is the lack of any form of trade or investment agreement. That is why the announcement that Canada and Indonesia have launched negotiations towards a potential free trade agreement is important news for Canadian companies.
Opportunities for Canada
With its large population, increasing incomes, and its strong projected growth, Indonesia offers many opportunities for Canadian companies and investors.
At the same time, Canada has the expertise in areas such as agri-foods, financial services, infrastructure, education, energy, and natural resource development that Indonesia needs to reach its full potential.
With a widely accepted estimate that Indonesia needs to invest US$500 billion in infrastructure over the next five years to support continued growth, the Indonesian government has made infrastructure development a national priority as it looks to upgrade roads, ports, electrical systems, and water systems.
To finance this massive infrastructure need, Indonesia is looking to work with the private sector to help offset the financial costs and risks. Canadian companies that are experienced in Public Private Partnerships projects or have developed specialized solutions can find incredible opportunities in Indonesia. A recent example of Canadian company doing business in Indonesia was the Caisse de Dépôt et Placement du Québec’s recent investment partnership of US$1 billion in an infrastructure initiative.
As Indonesia’s population and incomes grow, there will be an increase in the demand for agricultural products. The agri-food and seafood sector are an area of major potential growth for Canadian companies. Canada is already Indonesia’s top supplier of wheat while Indonesia’s increasing demand for seafood, soy and pulses means that Canadian companies could be well positioned to grow their sales and take advantage of this growing market. Companies should be aware there are halal certifications requirements on many products in Indonesia as part of their pre-market research.
One area that Canada is well positioned to help the Indonesian meet its national priorities is the area of human resources development, specifically in the field of education. Canadian universities and colleges have a strong international reputation and experience integrating international students into their schools. Canada is now the world’s third-leading destination of international students with the majority of international students coming from Asia. Indonesia sends only 2,200 students to study in Canada, a number that could be much higher. Vocational skills are also in high demand in Indonesia, and Canadian companies in the vocational sector who are looking to expand their operations overseas to new markets would find Indonesia to be an excellent new market.
Much has been made about the rise of Asia or the shift of power from West to East with most of this focus being on China or India while countries such as Indonesia are often overlooked or forgotten. This is a mistake and one that Canada appears to be avoiding. With its immense size, growing population and economy, strategic location and its regional importance, Indonesia is a country that Canada should be deepening its ties with, especially as we continue to see exports as key to improving the quality of life for Canadians.
This article is part of the Canada-Indonesia Blog Series.
- Geoff Donald: Advocacy Chair, CABC, and Managing Director at Asia Engagement Consulting Group