More than meets the eye in Gulf–Indonesia ties

Author: Gyorgy Busztin, NUS

The G20 summit has symbolically elevated Indonesia’s status in the Asia Pacific region. Bali 2022 confirmed Jakarta’s role as political stabiliser and economic heavyweight for ASEAN. As the seventh-largest economy globally, with a huge workforce and ample natural resources, Indonesia has it all — but it is still striving to harness its full potential.

Following years of political turbulence — as Indonesia saw four presidents grapple with terrorism, natural disasters and the fallout of the 2008 global financial crisis — Indonesian President Joko ‘Jokowi’ Widodo’s program aims at propelling the country into the ranks of the region’s advanced economies.

Jokowi set to work resolutely to drum up support for his ambitious development plans. Indonesia faces several major development challenges. Indonesia lags woefully behind the region in infrastructure. Upgrades are necessary to support the internal market of the sprawling island nation. Roads, ports, airports, telecom — all need to be expanded. Jakarta, home to 30 million people, is inexorably sinking. A new capital is needed soon. But this relies on foreign direct investment (FDI), which Indonesia has sought to mobilise. Jokowi measured up potential investors — and then headed straight for the Gulf.

Arab connections to Indonesia go back centuries. The arrival of seafarers from southern Arabia to trade spices contributed to the spread of Islam in the archipelago. Islam soon became the dominant religion, nurturing strong ties between the Indonesian islands and Arabia as pilgrims swarmed to Mecca. This affinity remains a strong link as many Indonesians have found employment in the Gulf countries.

Beyond economic complementarities, common religion, culture and shared heritage have helped make the Gulf states natural partners for Indonesia. Jokowi visited Qatar, Saudi Arabia, the United Arab Emirates (UAE) and Bahrain seeking investment, resulting in a flurry of agreements, with energy and agriculture high on the agenda.

Yet implementation has brought varied results. An ambitious plan by Saudi Arabia to partner in building a major oil refinery in Central Java was mired in wrangling over details until the Saudi partner quit. This episode suspended large-scale Saudi investment in Indonesia for the time being.

Approaching the UAE brought better dividends. During a state visit to Indonesia, Crown Prince Mohammed bin Zayed went to unexpected lengths to accommodate Jokowi’s request for the UAE to partner in development.

After mutual visits, the UAE earmarked some US$42 billion worth of investment commitment in a wide range of areas including energy, healthcare, digitalisation road infrastructure, agriculture and port infrastructure. A commitment to partnering in financing Indonesia’s planned new capital, Nusantara, is a further bonus.

The UAE is now Indonesia’s chief Gulf investor by far. The burgeoning relationship has been sealed by the personal chemistry between the countries’ two leaders. Abu Dhabi even admitted Indonesia into its circle of closest economic partners when it signed a Comprehensive Economic Partnership Agreement (CEPA) with Jakarta. Coupled with an FTA, the CEPA provides for preferential access to Emirati exports into the huge Indonesian market.

Jokowi is not averse to any Gulf money flowing into the state coffers. Aside from the UAE, he made forays into Qatar and Bahrain to try to secure FDI from their sovereign wealth funds. The two Gulf states may partner in Indonesian projects.

Overall, Jakarta’s Gulf offensive was productive even though some promises have been left unfulfilled. The UAE stands out with its solid commitment to Indonesia’s development. It remains to be seen if the Abraham Accords will help bring Israel into the mix. Jokowi has resisted calls from the United States to normalise bilateral relations with Israel, fearing that public opinion is not yet ready for even covert business ties.

Indonesia does not only figure as fertile ground for project-oriented Gulf FDI. As the most populous Muslim majority nation, it has a unique political, demographic and cultural weight in the Islamic world. Always a master of its own fate, Indonesia has resolutely pushed back on outside attempts to turn it into a hotbed of extremist proselytisation of the Wahhabi variety.

The founding ideology of the Indonesian state, Pancasila, sees its diverse citizens equal in rights and duties regardless of ethnicity or religion. This is not lost on the UAE, which hosts a foreign community ten times the size of its citizenry. UAE reforms and Indonesian law are moving in opposite directions. How Indonesia’s draconian new penal code, which bans, among other things, cohabitation of unmarried couples, will impact the relationship, remains to be seen.

Still, it would be a mistake to read too much into ideology and religion in the Gulf–Indonesia relationship. Indonesia will pursue its own course irrespective of where FDI comes from. It will also avoid relying too heavily on any one source of investment. As an important partner to the Gulf, Indonesia will continue to utilise its relative advantages to compete with others in the area for Gulf largesse, while also diversifying economic ties.

Gyorgy Busztin is Visiting Research Professor at the Middle East Institute, National University of Singapore.

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