By Jewel Topsfield Nov. 17, 2015, 4:15 a.m.
Opportunities for both countries lie in closer co-operation, says a report which Trade Minister Andrew Robb will launch in Yogyakarta on Tuesday.
Australia and Indonesia need to rethink economic ties and work together: report
Prime Minister Malcolm Turnbull with Indonesian President Joko Widodo in Jakarta during last week's visit. Photo: Gary Ramage
The beef industry is one area where the two countries already work together.
Australia and Indonesia need to rethink their weak economic ties and work together in areas such as fashion, food-processing, animal products and logistics to seize trillion-dollar trade opportunities in southeast Asia, according to a new report.
The bilateral trade relationship between the two neighbours is consistently described as "underdone" – Indonesia is not in Australia's top 10 trade partners while Australia just scrapes into Indonesia's top 10.
The report, which Trade Minister Andrew Robb will launch in Yogyakarta on Tuesday while on the biggest ever Australian trade mission to Indonesia, says the two countries need to combine forces to sell into third markets as partners rather than competitors.
"The sense is that the economic centre of gravity within Asia is shifting south and east, thereby creating a 'Factory Asia' in our immediate region," says the report, Succeeding Together, prepared by ANZ and PwC for the Australia-Indonesia Centre.
However Australia has high wage costs, which are an impediment to growth, while Indonesia's younger, lower-cost labour force needs training.
"Australian firms can transfer their knowledge and expertise to their Indonesian counterparts in order to achieve joint competitive advantages," the report says, suggesting partnerships in vocational education and training.
(An existing example of this is commercial cookery courses run in Indonesia by private training company Careers Australia in partnership with Indonesian fast food chain Es Teler 77.)
"The challenge is urgent: Indonesia cannot cascade up value chains and avoid the middle-income trap if skills are not addressed and Australia needs to address its high wage base," the report says.
Indonesian President Joko Widodo used Prime Minister Malcolm Turnbull's visit to Jakarta last week to call for Australian investment in the digital economy, infrastructure and cattle breeding.
The beef industry is one area where the two countries already work together.
The Indonesia-Australia partnership on food security in the red meat and cattle sector encourages breeding activities to be centralised in Australia, imported Australian livestock to be fattened in Indonesia and abattoirs in Indonesia to be used for the distribution of red meat to the rest of Asia.
"The opportunities for greater integration, greater certainty, greater levels of investment from both countries into each other country is going to ensure a stronger future for the beef industry between Australia and Indonesia," Mr Turnbull said during his visit.
The report suggests a similar collaboration in the wool industry with Australian know-how used to assist Indonesian textile manufacturers to diversify wool products.
It says Indonesia has a comparative advantage over Australia in fashion and food-processing while Australia has a comparative advantage over Indonesia in logistics and animal products (beef, mutton).
Australian businesses with expertise in road/rail transportation, for example, could train Indonesian employees in using advanced manufacturing or processing equipment.
Australian small food processors, meanwhile, could benefit from Indonesian expertise in energy-efficient production, such as methane-recycling when making tofu.
"With potential trade flows of $3-4 trillion just for ASEAN trade with China, it is vital that Australia and Indonesia work together to … capture as large a slice of this prize as possible," says Glenn Maguire, ANZ chief economist, South Asia, ASEAN and Pacific.
However the report warns that while opportunities surround Indonesia and Australia they will be captured by other countries if there is no action.
More than 340 business leaders and four Australian government ministers will take part in the trade delegation to Indonesia from November 17-20.
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The story Australia and Indonesia need to rethink economic ties and work together: report first appeared on The Sydney Morning Herald.
Source: Australia and Indonesia need to rethink economic ties and work together: report
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