The opportunity that is Indonesia
Indonesia's Minister of Trade, Thomas Lembong, is in Australia this week to discuss concrete ways to expand and strengthen our economic relationship. During our discussions yesterday, we formally agreed to relaunch negotiations on the Indonesia-Australia Comprehensive Economic Partnership Agreement–a broad based FTA. Relaunch of these negotiations underscores the combined mutual interest of both of our nations. This trade agreement is an opportunity that is consistent with the Prime Minister's vision to drive jobs and to drive growth. It is part of the Government's ongoing commitment to ensure the transition from a resources and energy economy to an economy focused more on services and innovative business.
The opportunity I see, and the enthusiasm I have for this agreement, is shared by my Indonesian counterpart, Minister Tom Lembong. Yesterday, he said, and I quote: 'I certainly share your excitement and optimism about the process we're now recommencing. I would like to add that this is a direct result of the excellent chemistry between President Jokowi and Prime Minister Turnbull. I think we're all benefiting from having two very business-minded leaders leading our two countries, and, I would add, that I'm struck by the vibrancy and the freshness that I think both leaders and so far both sides in this negotiation have brought to the table.'
I believe an FTA with Indonesia can mark a radical shift in our trade and investment ties. This shift will result from a realisation of the opportunities Indonesia represents for Australian business. Comparing our business links with New Zealand to those with Indonesia throws a stark light on these opportunities. Indonesia is geographically closer to Australia than New Zealand. Indonesia is a thriving democracy with a multicultural society. Indonesia's population of 255 million is over 50 times larger than New Zealand's population. Indonesia is the world's 16th largest economy, while New Zealand is ranked at 55.
What strikes me about the differences between these economies is that our trade and investment relationship is the inverse of what the statistics would suggest. In 2014, Australia's total investment in New Zealand was $99.9 billion, while New Zealand's total investment in Australia was $38.5 billion. In comparison, Australian total investment in Indonesia was $8.1 billion and Indonesian investment in Australia was just $1.5 billion. Trans-Tasman goods and services trade in 2014-15 was valued at around $23.7 billion. Two-way trade in services was around $7.5 billion. Our two-way trade with Indonesia, on the other hand, was just $14.8 billion. Two-way trade in services was at $3.8 billion, half our services trade with New Zealand. 460 Australian businesses have operations in New Zealand but only 250 Australian businesses have operations in Indonesia.
These disparities are particularly striking in light of the strong complementarities that exist between our economies. Our major exports to Indonesia are agricultural products: wheat, live animals and sugar. We also are a major provider of education services for Indonesian students. Australia's strengths in agriculture and services directly cater to Indonesia's demand for quality food and specialised services. Indonesia's exports to us are petroleum, light manufactured products and tourism services. Australia's strengths are in niche manufacturing, not the simple manufacturing that Indonesia does well.
Opportunities to expand our economic relationship with Indonesia exist now. Indonesian consumers are looking for the premium, clean and green food and beverages that Australian farmers are renowned for. Indonesians want quality education for their children. As the third largest global provider of education services, Australia's reputation for providing these services is proven.
Australian healthcare providers can help Indonesia develop world-class healthcare services. Similarly, Australian financial services companies, professionals and ICT service providers have the expertise to help grow Indonesia's own services sectors. Australians love visiting Bali but we also have a lot to offer in building Indonesia's hospitality and tourism services. The Indonesian government, like the Australian Government, is pursuing an ambitious infrastructure investment agenda. Australia's infrastructure sector is well-placed to help Indonesia meet its infrastructure objectives, and Australia's expertise in resources and energy is playing a leading role in expanding Indonesia's resources and energy sectors.
Minister Lembong shares my view on the strong complementarities that exist between our economies. Like the Australian Government, he understands how building on economic complementarities can create new jobs. I quote, again, his remarks from yesterday: 'The first thing that springs to mind in terms of this agreement is how good for jobs in both countries is what I regard as the frankly stunning complementarity between the two economies. Australia, in my view, is to be congratulated on the extremely high standards and the sophistication that you've achieved. Indonesia needs expertise and training and teaching, and Australians have excelled in the education space, the polytechnic space, in systems and quality control and discipline. And conversely of course Indonesia offers a very large market and a very large economy, but to progress it, to develop it, we need exactly all the things that Australia has to offer, and of course Australia will make a pretty penny, as you might say, providing those services to us I think.'
Just as important as realising opportunities today is positioning ourselves to meet the needs of Indonesia's burgeoning middle class in the near future. In 2014, McKinsey estimated Indonesia's middle class was 45 million strong but would grow to 135 million by 2020–a little under five years away. These opportunities will not be delivered to us on a platter, though. Our competitors are increasingly aware of the opportunities and active in appealing to Indonesian consumers. The Coalition is helping Australian business realise the massive opportunities that sit on our northern doorstep.
For my part, I will be working with my counterpart, Minister Lembong, to achieve an ambitious agreement as soon as possible. It is an objective I know that Minister Lembong shares. He said yesterday: 'I'm hopeful that we can go beyond last generation trade talks and really be very forward-looking to 21st Century issues like the digital economy, the services sector, which as you and Prime Minister Turnbull have pointed out, results in the highest quality jobs for both Australians and Indonesians.'
Both countries share the ambition that this agreement be more than a traditional FTA. It will be, by both name and desire, a broadening and deepening of the economic relationship. It will focus on areas such as services trade, e-commerce, investment and capacity building. These opportunities will be integral and in addition to our discussions on traditional FTA issues such as tariffs on agricultural and merchandise trade.
Agriculture is a key Australian strength and will be an important part of these negotiations. We will work through these traditional issues, but the agreement will not be exclusively about them. One of the additional measures that we have launched is reactivation of the Indonesia-Australia Business Partnership Group. In 2012, the group drafted an excellent report including 53 recommendations on areas where Australia and Indonesia could strengthen their economic relationship. We have asked the group to revisit and update their recommendations to feed into the negotiations, which have recommenced. The business partnership group will be a key driver of the ambition that both countries share for the high level of business engagement that we want for these negotiations.
Minister Lembong and I have also agreed to work towards some early outcomes. In view of the non-traditional nature of this agreement, early work will look at outcomes in the design and culinary areas, as well as possible outcomes in agriculture and skills exchange. We have agreed to try and conclude the negotiations in 12 to 18 months. It is an ambitious timetable for an ambitious agreement. There is a very strong sense of goodwill and a high degree of focus and priority given to these negotiations on both sides. We are close neighbours, and we are good friends. We have a real opportunity here to reach a broad based agreement that meaningfully strengthens and deepens the economic relationship that we have with Indonesia.
I present a copy of my ministerial statement.