Indonesia in the AEC: A European Perspective
    Category: Issues & Ideas By : Theodoor Bakker Read : 1062 Date : Tuesday, March 15, 2016 - 06:02:09

    As ASEAN’s single market is poised to take effect this year, Europe can forge strong ties with an emerging economic powerhouse. At the ASEAN Leaders’s Summit in Kuala Lumpur in November 2015, ASEAN declared the inauguration of the ASEAN Economic Community (AEC), and Indonesia sits at the heart of ASEAN. Indonesia can be a key driver of region growth as it is ASEAN’s biggest economy, with 40% of ASEAN’s total GDP and has its biggest population of over 250 million. European businesses, and the Brussels authorities, should therefore work more with Indonesia to assist with its development and invest in its future. The EU is Indonesia’s third largest export market and in 2014 total trade in goods was just under €24 billion and trade in services in 2013 was around €5.6 billion. 

    The EU-ASEAN Business Council is a strong supporter of the AEC, and as such we have regular consultations with ASEAN and its members, including Indonesia, on the development of the AEC. When implemented the AEC will be a game-changer for the region’s economic, social and industrial development. Several European bilateral chambers in Indonesia and EU business facilitation ICI+ projects in the region have been helping to develop the AEC.

    For many, ASEAN is seen as a hot bed of innovation and investment opportunities. The region is a potential key growth driver not just in Asia but also the global economy. Average growth across the region is predicted to be above 5% for the next few years, surpassing that of the developed world. Inflation is generally low, governments stable and generally have forward-looking trade policies. ASEAN is a major consumer market, with 625 million, and rising, with an estimated 250 million middle class by 2030, with rising urbanization, improving education and relative youthfulness.

    But shaping the AEC will not be easy: ASEAN economies are at different development stages. To build true economic integration, ASEAN must overcome obstacles such as nationalism and resistance to foreign-owned industries. Europe and European businesses support ASEAN: Europe remains the prime source of FDI funds for ASEAN with inflows in 2014 more than twice the next largest investor in the region, Japan, and accounting for over 20% of the region’s inward investments. FDI flows from the EU to Indonesia in 2013 were around €1.5 billion, around 10% of the total FDI inflows to the country, with total FDI held by EU entities in Indonesia amounting to nearly €23 billion.

    Indonesia is one of the three most attractive destinations for multinationals for 2014-2016, ahead of India and Brazil, according to the UNCTAD 2014 World Investment Report. For FDI, Indonesia ranks fourth among East Asian countries, after China, Hong Kong and Singapore. There is a clear and mutually beneficial trading and diplomatic relationship between Europe and ASEAN and between Europe and Indonesia; a relationship that the EU-ASEAN Business Council will seek to develop and grow as the AEC is implemented, given the growing importance of ASEAN to the world economy, and as Indonesia continues to open up to trade and investment.