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Economy

Indonesia doubles trade missions to Muslim markets in export push

Widodo promotes textiles, footwear and train cars, competing with Chinese goods

A man shops for grocery items at a store in Peshawar, Pakistan. Indonesia is tapping Muslim markets such as Pakistan as export destinations.   © Reuters

JAKARTA -- Indonesia is accelerating a strategy to utilize its connections with the Muslim world to tap new export markets and boost trade amid downward pressure from U.S.-China trade tensions.

President Joko Widodo embarked on a mission to the Muslim world with a string of visits to countries including Turkey, Pakistan, Bangladesh and Saudi Arabia over the past year. While the political objective of the visits -- to cement his Muslim credentials amid a bid for re-election -- was obvious, the economic aspect only became apparent later.

Several Muslim-majority countries, from the Middle East to Africa, now represent half of Indonesia's trade missions and negotiations. Major Indonesian commodities like textiles, footwear and crude palm oil are now also being shipped to these countries and Jakarta is lobbying for increased exports of other items such as processed food and train carriages to compete with Chinese products flooding into many of these countries.

"The Middle Eastern and African nations are potential markets that have been filled by other countries, why shouldn't we be there too?" Trade Minister Engartiasto Lukita told reporters on Thursday.

Indonesia dispatched trade missions to 13 countries last year, double the figure in 2017, with half of these nations predominantly Muslim -- namely Algeria, Bangladesh, Morocco, Pakistan, Saudi Arabia and Tunisia. This year, five out of nine bilateral trade negotiations Indonesia wishes to conclude are with Muslim-majority nations, including Iran and Turkey.

Indonesia's President Joko Widodo, center, embarked on a mission to the Muslim world over the past year.  He met with Bangladeshi Prime Minister Sheikh Hasina, right, and President Abdul Hamid, left, in Dhaka, Bangladesh in January 2018.   © AP

There are 1.8 billion Muslims in the world, accounting for 24% of the global population, with a growing purchasing power. The Islamic economy is expected to grow to be worth $3,007 billion by 2023, an increase of 42.7% from 2017, according to the State of the Global Islamic Economy Report 2018/19 developed by Thomson Reuters and DinarStandard.

Indonesia's pivot to Muslim trade has been unprecedented. The Widodo administration did not exactly build it from zero, but trade volumes with fellow Muslim-majority nations -- except for close neighbor Malaysia -- were very small. Southeast Asia's largest economy had been largely focusing on trade with traditional partners such as China, the U.S., Japan, South Korea and some Southeast Asian neighbors. But with spillover from the U.S.-China trade war putting downward pressure on Indonesia's exports, the country has been forced to look beyond its major partners.

"The trade war doesn't have direct impacts on us," Lukita said. "But indirect impacts are huge -- from slowing global economic growth and countries' declining purchasing powers."

Indonesia's exports grew 7.7% in January-November last year to $165.8 billion -- falling short of the trade ministry's target of 11%. Imports, meanwhile, rose 22% to $173.3 billion -- mainly driven by the purchase of capital goods and raw materials. The $7.5 billion deficit is a sharp decline from $12 billion in surplus posted in the same period of 2017.

Oke Nurwan, the trade ministry's director general for foreign trade, said Indonesia's status as home to the world's largest Muslim population was "an advantage" as it lobbies fellow Muslim-majority nations to buy its products.

"For example, in competing with China, we appeal to our shared identity as Muslim [majority] nations acquiescing to similar guidelines," Nurwan said. "We have halal requirements here and they also have such things [in the target countries]."

The tactic was working, he said, citing Indonesia's exports to Pakistan, which have "dramatically risen" to $2 billion per year from around $200 million before a preferential trade agreement between the two countries was signed in 2013. Indonesia aims to complete talks to further expand and deepen the deal with Pakistan this year. Indonesia also has enjoyed a more than doubling in trade volumes with Muslim-majority Central Asian countries such as Kazakhstan and Uzbekistan over the past year, Foreign Minister Retno Marsudi said separately.

Indonesian companies are welcoming the move. State-owned train manufacturer Inka said it had shipped 400 train cars to Bangladesh over the past year and had secured a deal to send more to the country. The success with Bangladesh appears to have boosted Inka's reputation, leading to similar deals with Sri Lanka and the Philippines last year. Inka President Budi Novantoro recently said the company was looking to enter African nations including Botswana, Cameroon and Senegal -- in spite of competition with China.

"It's not easy to enter these markets. Wherever and whenever we go, we meet China," Novantoro said. "To secure deals, there are three keywords: [our products] must be cheaper, better, and with faster delivery."

Lukita said trade deals with Muslim-majority African countries like Morocco and Tunisia could be an "entry point" to the rest of Africa -- and even to Europe due to their proximity to the European mainland. Apart from Inka, other Indonesian state-owned enterprises including construction company Wijaya Karya and port operator Pelindo are either increasing their presence or have revealed plans to immediately enter Africa.

During his South Asia tour in January last year, Widodo did not hide his use of the Muslim card. In his meeting with Pakistani President Mamnoon Hussain in Islamabad, Widodo referred to Indonesia and Pakistan as "longtime friends". He said their "similar backgrounds can help us work together to encourage cooperation in the Muslim world, to promote moderate Islam and the Islamic people's unity, to help the fight of the Palestinians, to improve the Islamic economy."

In his meeting with Bangladeshi Prime Minister Sheikh Hasina, Widodo said, "We have to help each other in improving the welfare of Muslims around the world."

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