Bangkok Wearing a white hard hat and a violet high-visibility vest, Indonesia’s President Joko Widodo appears in front of the cameras at the new express train station in West Java. It is an outfit in which the head of state likes to show himself. The 61-year-old maintains the reputation of the chief architect in the country of 275 million people, which under his leadership has become the largest construction site in Southeast Asia.
This time “Jokowi” – as the president is usually called in his home country – has come to present one of the highlights of his infrastructure offensive: the country’s first high-speed train, which is soon to speed over the main island of Java at 350 kilometers per hour.
The travel time between Jakarta and the metropolis of Bandung, 150 kilometers away, is to be reduced from three hours to 40 minutes with the new rail connection from June 2023. He hopes the project will further boost his country’s competitiveness, Widodo said.
Judging by his previous record, he is capable of that: while large parts of the world are fighting against the economic downturn, Indonesia’s economy is running at full speed under Widodo.
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A few weeks after appearing on the platform, the politician can present his country on the big world political stage on Tuesday and Wednesday. As host of the summit of the 20 largest industrialized and emerging countries (G20), he has resolved to provide impetus for an end to the global crises. The astonishing upswing in his home country can serve as a model for other emerging countries in particular.
As recently as 2013 – a year before Widodo took office – economists at the US investment bank Morgan Stanley classified Indonesia among the “Fragile Five” of the global economy. What was meant at the time were states that were threatened with a massive crisis due to the flight of capital from the emerging countries.
New capital for 34 billion dollars
In the meantime, there is no longer any sign of fragility. Instead, the country can expect to rise from its current rank of 17 among the world’s largest economies to join the global top ten by the end of the decade.
Widodo sees an efficient infrastructure as the most important basis for economic success. He wants to build a new capital on the island of Kalimantan for 34 billion dollars. In the former capital Jakarta, the investment boom is noticeable in the form of noisy construction machines working on the expansion of the subway system.
In the rest of the country, too, hardly a stone is left unturned. Since Widodo took office, more than 2,000 kilometers of new toll roads, 38 dams, 18 ports and 16 new airports have been built. Indonesia has never experienced such a massive construction program as in the Widodo years.
Masses of private investors are drawn to the tropical country. In the third quarter, Indonesia recorded a 64 percent increase in foreign direct investments to a new record high of the equivalent of almost eleven billion dollars. According to government forecasts, the export volume will rise to a high of 280 billion dollars this year – significantly more than in the previous year, which also brought a record of around 230 billion dollars.
Indonesia actually manages to draw a growing part of the added value into its own country. Jan Rönnfeld, Head of the German Chamber of Commerce Abroad (AHK) in Indonesia
The good business is also reflected in economic growth: at the beginning of November, the country’s statistical authority reported a growth rate of 5.7 percent in the third quarter. The International Monetary Fund expects growth of 5.3 percent for the year as a whole. Among the G20 countries, only India and Saudi Arabia are doing better.
Part of the success can be explained by Indonesia’s role as a crisis winner. The country is rich in raw materials: It is the world’s largest exporter of thermal coal, palm oil and refined tin. The increased world market prices as a result of Russia’s war of aggression in Ukraine caused foreign trade revenues to rise sharply.
Export Restrictions to Strengthen Industry
But the business model of pure commodity sales is no longer enough for Indonesia. Instead, President Widodo wants to process the materials in his own country into higher-quality products and thereby strengthen the domestic industry. He relies on massive market interventions.
The export of nickel ore from Indonesia has been banned since 2020. The raw material is used, among other things, in the production of stainless steel and batteries – Indonesia has the world’s largest reserves. Anyone who wants nickel ore must now invest in Indonesia.
The calculation works: The previous buyers, many from China, have built new smelting plants in Indonesia on a large scale. One of the largest industrial parks in the nickel-mining region of Sulawesi expects investments to increase to around $18 billion this year – almost three times as much as three years ago.
“Indonesia actually manages to draw a growing part of the added value into its own country,” says Jan Rönnfeld, head of the German Chamber of Commerce Abroad (AHK) in Indonesia. “In terms of industrial policy, I can understand the approach. If the measures are in line with international trade rules, then this is the right way to go.”
EU accuses Indonesia of protectionism
At the request of the EU, the extent to which Indonesia’s export restrictions are compatible with the rules of the World Trade Organization is currently being examined. The government in Jakarta does not consider a defeat unlikely. From Widodo’s point of view, however, the strategy has definitely paid off – the investors attracted will not suddenly disappear again. At the same time, the President has similar measures prepared to bring the further processing of bauxite, copper and tin into the country.
Widodo rejects the accusation of protectionism. “We don’t close ourselves off, we are open to everyone,” he said in an interview with the Handelsblatt. “We invite companies from all over the world to invest here and participate in the supply chains.”
His staff have prepared fried rice, chicken skewers and fried fish. The goats that Widodo keeps in the palace garden can be heard again and again through the open doors. The head of state takes around an hour for the interview – with the declared aim of reaching potential investors from Germany via the German business press. He is particularly impressed by the automotive industry, which he would like to persuade to manufacture batteries for electric cars in Indonesia using Indonesian raw materials.
First Chancellor’s trip to Southeast Asia in more than a decade
There is a lot of catching up to do in the business relations between the two countries. Among the most important export markets for the German economy, Indonesia – the fourth largest country in the world in terms of population – only ranks 51st.
The scope of German direct investments in the country is around 2.5 billion euros – the significantly smaller neighboring country Malaysia has twice the amount. “For small and medium-sized companies from Germany, Indonesia is often just too far away to set up a production facility here,” says AHK boss Rönnfeld. “That could perhaps change if the pressure increases to find alternatives to China.”
Eleven rounds of negotiations have so far been unsuccessful
The federal government sees Southeast Asia as an important partner for reducing dependence on China. If you don’t want to put all your eggs in one basket, it’s a matter of looking at “big countries like Indonesia”, said Chancellor Olaf Scholz at the end of October. His trip to the G20 summit in Bali is part of the first visit to Southeast Asia by a German head of government in more than a decade – Angela Merkel’s last visit to Indonesia was in July 2012.
But despite the desire for closer cooperation, it is difficult to deepen economic relations. The EU and Indonesia have been negotiating a free trade agreement for more than six years. The eleven rounds of negotiations have so far been unsuccessful.
While the Europeans are bothered by Indonesia’s restrictions on nickel exports, the government in Jakarta sees itself at a disadvantage when it comes to palm oil exports to the EU. The topic should also be on the agenda of the EU summit with the heads of state of Southeast Asia planned for December, which Widodo wants to attend.
Reaching concessions from the EU would be an important success for the president in order to cushion upcoming economic problems: In view of the weak economies in Europe, America and China, the government in Jakarta expects that the recent export boom could soon slow down.
Inflation is also weighing on sentiment in the country – Widodo’s decision to raise subsidized fuel prices earned him weeks of street protests. He defended the measure as being without alternative in order to prevent the subsidy costs from getting out of hand.
Despite the growing challenges, the politician, whose term of office ends in 2024, is extremely optimistic. “We have huge opportunities ahead of us,” he says. “The time to invest in Indonesia is now.”
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