Finance minister Sri Mulyani says foreign investment is crucial to the economic ambitions of Southeast Asia’s biggest economy because the amount coming from domestic sources is limited and largely hindered by the country’s poor savings ratio. The government and state-owned enterprises are only able to stump up about a quarter of the funds needed to meet targets, so a large portion of cash will need to come from overseas.
Latest figures from the Investment Coordinating Board showed that investments from mainland China and Hong Kong totalled US$3.6 billion in the first half of this year, followed by US$3.4 billion from Singapore and US$2.4 billion from Japan.
Long-standing anti-Chinese sentiment has been building in Indonesia, making life difficult for investors from the Middle Kingdom. Some Chinese businesses could be dissuaded from placing their capital in the country. Consequently, bolstering relations with fellow Muslim-majority countries in the Middle East is seen as a safer option by the Jakarta government. It also allows Indonesia to hedge its bets against any economic downturn in China – as well as the United States and Europe – amid the backdrop of Beijing’s trade war with Washington. The tariff dispute has led some firms to choose Southeast Asian nations over China as a base for their operations, but few have opted for Indonesia, causing Jakarta to look to the Gulf.
Strengthening business ties with the Arab world may appear a new strategy, but in fact has historical precedent. Contact between Jakarta and the Middle East dates back to the first big wave of Arab immigration to the archipelago during the 13th century.
No less important is that Indonesia could also be viewed as a large potential market for their petroleum exports. With demand in the developed world having tumbled following the 2008 global financial crisis and the prospects remaining grim, the oil-producing Gulf states have turned their attention towards Asia, which remains, and will continue to be, one of the world’s fastest growing energy markets.