The Indonesia section of the ASEAN-Hong Kong Free Trade Agreement (FTA) entered into force in July, marking a new chapter for Indonesia-Hong Kong business relations. 

Consul General of Indonesia Ricky Suhendar updated members on the latest developments in the country at a Chamber webinar on 17 September. He was joined by Yudi Triantoro, Director for ASEAN Negotiations at the Indonesian Ministry of Trade, and Francois de Maricourt, Country Manager of HSBC Indonesia, who shared their insights into the business environment and investment opportunities.

Consul General Suhendar said that it was more important than ever for economies in Asia to enhance regional cooperation, as international geopolitical disputes were heating up.

“Prior to the global pandemic, economic relations between Hong Kong and Indonesia were growing steadily, and we celebrated 70 years of bilateral relations,” he said. “Hong Kong was the third largest source of foreign direct investment last year, reaching nearly US$3 billion.”

Consul General Suhendar said that cooperation between the two regions should not only become deeper, but also more diverse, especially in the technology, e-commerce and start-up sectors. 

“The 4.5 million square-metre China-Indonesia Economic and Trade Cooperation Zone in Greater Jakarta, which is the first and only one of its kind in the country, will further enhance economic cooperation with Hong Kong and Mainland China,” he added.

The ASEAN-Hong Kong FTA will progressively reduce and eliminate customs duties on goods originating from Hong Kong, including jewellery, apparel, accessories, watches, clocks and toys. Hong Kong service providers in sectors including business services, construction, engineering and tourism, will also benefit from better business opportunities and greater legal certainty.

Triantoro said that Hong Kong was becoming an increasingly important trading partner for Indonesia, and that trade between the two economies was projected to increase by almost 7% annually. 

“There is still a lot of growth potential for Indonesia’s exports to Hong Kong,” he said. “In some areas, such as electronics and related equipment, we only account for a small percentage of Hong Kong’s imports from the world, while our exports to the world of similar commodities is quite large.

“We hope that the ASEAN-Hong Kong FTA will improve our export competitiveness and performance to Hong Kong.”

The path ahead for the country was not without challenges, he added, as Indonesian products faced strong competition from other ASEAN countries, and there was room to improve the quality to meet Hong Kong’s high product standards.

HSBC’s de Maricourt said that the world was increasingly aware of the potential of the nation, which has a population of 270 million and growing. “Indonesia is a country that is just too big to ignore, in terms of economic potential and demographics,” he said. 

Indonesia’s GDP has been growing at a consistent pace of around 5% in recent years, while interest rates have also remained low and domestic consumption has risen.

“With a nominal GDP of over US$1 trillion and a young workforce with a median age just below 30, Indonesia is projected to become the fourth largest economy in the world by 2030,” de Maricourt explained.

He said one of the main issues in Indonesia was the lack of transparency and the large volume of bureaucracy. However, he noted that the government had recognized these issues and was actively pushing reforms to cut red tape and improve its ease of doing business. This has seen results, with Indonesia improving its ranking from 120th in 2014 to 73rd last year.

“One example of such reforms is the Omnibus Law, which should simplify no less than 73 laws concerning taxation, labour and the financial sector under a single law,” he explained.

While Indonesia was in the past focused on primary industries and exporting commodities, the focus now is more on value-added products. 

“One of Indonesia’s priorities is to attract multinational companies to invest and set up manufacturing plants in the country,” de Maricourt said. “The government has announced that over 140 companies have committed to invest in Indonesia, with figures reaching US$40 billion.”

In order to boost the country’s value-added industries, Indonesia has created “Making Indonesia 4.0” as a road map to usher the country into the Industry 4.0 era. “Six areas have been identified: F&B, textiles and apparel, automotive, chemicals, electronics, and medical devices and pharmaceuticals,” he said.

The country’s economy has been heavily hit by the pandemic, but opportunities should open up in 2021 as the outbreak comes under control, de Maricourt added. “Investors should consider looking at Indonesia’s tourism and hospitality, healthcare, and education sectors.”