‘Primed for growth’: UAE and Indonesia cement trade ties

WAM

• A raft of new agreements follows free trade deal signed in July
• Deal aims to increase bilateral trade to $10 billion by 2030
• Volume of non-oil trade grew 33% in first nine months of this year

When Kaesang Pangarep, the son of President Joko Widodo of Indonesia, married this month, the guests included Sheikh Khaled Bin Mohamed Al Nahyan, chairman of the Abu Dhabi Executive Office, representing the UAE’s president, his father Sheikh Mohamed.

The invitation highlighted the growing relationship between the UAE and Indonesia, just weeks after the two countries signed agreements aimed at strengthening economic relations on the back of July’s free trade deal. 

These agreements included a partnership on climate action, several memoranda of understanding on co-operation in infrastructure development, artificial intelligence and cybersecurity, as well as a deal between the UAE’s Masdar and Pertamina Power Indonesia to develop a solar power plant.

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Sandiaga Uno, Indonesia’s minister of tourism and creative economy, has also emphasised the green economy, including clean energy, as a priority area.

Freddie Neve, senior Middle East associate at the think tank Asia House, said: “Indonesia is fast becoming an attractive investment destination for the UAE and other GCC economies. It is the world’s fourth-most populous country with 270 million people and its economy is projected to grow 5.1 percent in 2022 and 5.3 percent in 2023.

“The UAE-Indonesian bilateral relationship has improved considerably throughout 2022. The UAE-Indonesia trading relationship is primed for growth, with several recent investments focused on Indonesia’s logistics and commerce sector.” 

Etihad Airways and Garuda, Indonesia’s flag carrier, have also announced that they are expanding a codeshare agreement signed in 2012.

The airlines will nearly double the number of combined destinations beyond the Abu Dhabi and Jakarta hubs, with 42 destinations across the Indonesian archipelago, South East Asia, Middle East, US and Europe.

They also intend to explore further areas of collaboration in “light of current market opportunities and company requirements” including cargo, maintenance and pilot/crew training, they said.

Arshad Rasheed, president of the Indonesian Chamber of Commerce and Industry, has also expressed his hope that closer ties will lead to more Emirati investments.

He told the UAE news agency WAM that the volume of non-oil trade grew 33 percent during the first nine months of this year, compared to the same period in 2021. 

The Indonesia-UAE free trade agreement aims to increase bilateral trade to $10 billion by 2030, from $4 billion in 2021. UAE exports to Indonesia totalled about $2.1 billion, with imports worth $1.9 billion.

The deal with Jakarta was the third trade agreement signed by the UAE this year, after Israel and India, as it deepens ties with fast-growing economies. 

The Emirati minister of state for foreign trade, Thani Al Zeyoudi, said the trade pact with Indonesia would create 55,000 skilled job opportunities in the UAE by 2030.

Ayman Falak Medina, a Jakarta-based analyst and senior associate at Asean Briefing, said the two governments had highlighted several sectors that will benefit from the removal of trade tariffs. 

These include Indonesian palm oil, food products and apparel.

“Both countries are also expected to increase investments and co-operation in the areas of agriculture, energy, infrastructure, logistics, healthcare and tourism. Furthermore, Indonesia and the UAE will increase co-operation in emerging sectors like renewable energy, Islamic finance, the digital economy, and automation,” Medina wrote said in a research note.

In 2021, the UAE exported over $1 billion worth of petroleum and related products to Indonesia. This was followed by more than $200 million in iron and steel and over $100 million in aluminium. Next came precious stones, precious metals, sulphur, cement and pharmaceuticals.

Indonesia’s largest export to the UAE was palm oil and related products, valued at over $290 million in 2021. It also exported precious stones and metals worth over $200 million, more than $170 million in vehicles and accessories, and over $150 million in electrical machinery and equipment.

Indonesia’s trade surplus widened to $5.67 billion in October from $4.99 billion in September, according to official figures. The resource-rich Southeast Asian economy benefited from high prices of its main commodity exports, such as palm oil, coal and nickel.

According to Medina, Indonesia’s huge domestic halal economy will be at the forefront of UAE investments. Indonesian Muslims spend more than $200 billion annually on halal products. 

The two countries are also working closely on conservation. Last month, they launched the Mangrove Alliance for Climate.

Unveiled at Cop27, the alliance seeks to raise awareness about the role of mangroves as a nature-based climate change solution, and will work towards expanding and rehabilitating mangrove forests globally. Mariam Bint Mohammed AlMheiri, the UAE’s minister of climate change and the environment, said the UAE intends to plant 3 million mangroves within the next two months.

Earlier this year, the UAE also confirmed that it would commit to investing $10 billion towards Indonesia’s new capital city project via the Indonesia Investment Authority. The ambitious project is set to cost over $35 billion.