Why Indonesia Matters to the World: British Ambassador Moazzam Malik's Economic Perspectives

Indonesia must increase investment on research and innovation to increase its competitiveness in the future and tap its economic potential, British ambassador Moazzam Malik said during an event in Jakarta last week. (JG Photo/Yudhi Sukma Wijaya)

By : Muhamad Al Azhari | on 12:27 PM May 18, 2016
Category : Business, Featured, Profile

Jakarta. It has been one and a half year since Moazzam Malik started serving his country as the British Ambassador to Indonesia, ASEAN and Timor-Leste.

During a visit last week to the BeritaSatu Media Holdings' main office in Jakarta, the Ambassador showed off his skills in speaking the Indonesian language.

"I have no problem with the formal language, but when I hear the Jakarta slang it takes time for me to digest it," Moazzam, who loves Indonesian food lotek (a spicy vegetable salad) and tongseng (goat curry), said with laugh.

The first Muslim British ambassador to Indonesia claimed he learned Indonesian for five months in London before taking over his post in October 2014, and then spent a month in Yogyakarta to polish it.

During his term, Moazzam has already assisted a number of high-profile official state visits.

That included the visits of former mayor of London Boris Johnson in November 2014, the UK Foreign Secretary Philip Hammond in February 2015 and the Prime Minister David Cameron later that year in July.

The ambassador also assisted Indonesia's president Joko Widodo in his visit to London in April 19 this year, as part of a longer European tour.

"From the UK side, we are committed to deepening our relationship with Indonesia. From the Indonesian side, there is a reciprocity, there is an openness and readiness to work closely with the UK," he said.

Indonesia, Asia's Third Leg

Quizzed about his opinion on Southeast Asia's biggest economy, Moazzam said he often told British businessmen and politicians that they need to think of Indonesia the same way as they think of China. and India

"The future of Asia and the future of the world's economy doesn't have just two legs, but three legs," he said, referring to Indonesia as the third leg after the two Asian giants of China and India.

Moazzam said he expected Indonesia to play a bigger role in the world economy in the future.

"It is the 16th largest economy today, it is projected to become somewhere between 7th or the 9th largest by 2030. It is already a G20 country, it has a geostrategic location, it is one of the world's biggest democracy, it has the world's largest muslim population," he said.

Moazzam was refering to a report by the McKinsey Global Institute released in 2012 that predicted Indonesia, the most populous nation in Southeast Asia and the world's fourth, to become the world's 7th largest economy by 2030, beating the developed nations of Germany and the UK.

He was also referring to predictions by many world economists that the world's economic pendulum will shift to Asia thanks to the giant economies of China and India, taking over the old Western domination—a trend often called as the "Asia-centric" perspective.

Still, those predictions are now still on papers, Moazzam reflected, and like many analysts have said, Indonesia needs to improve itself to ensure the country is going to the right path to claim its place among the top 10 of the world's biggest economy.

"When I talk to British investors and Indonesian investors, they complain mostly about the same things: first, regulatory burden. Regulations that are inconsistent, unpredictable," Moazzam, who previously served as Acting Director General of the UK Department for International Development, said.

He went on to point out that the second most-complained factor in doing business in Indonesia is the sky-high logistics cost, as infrastructure around the country remains poor. Next in the list of complaints is the poorly-skilled local workers.

Analysts and investors have long been citing these three issues as the main obstacles to Indonesia's growth prospects.

"Indonesian businesses and foreign businesses, they talk about the same thing. They want deregulation to go beyond announcement to implementation, they want to see the president's infrastructure plans succeed," he said.

According to Moazzam, businesses hope Indonesia can reduce logistics costs in the country closer to those in its neighbors.

Moazzam referred to various reports from international agencies, including the World Bank, which consistently show Indonesia's logistics costs are much higher than its regional peers', standing at about 25-27 percent of the country's gross domestic product. Compare that to about 13 percent in Malaysia, or even 25 percent in Vietnam, another of its rivals in the region.

Moazzam also said that while Indonesia is blessed with a large workforce and bountiful supply of natural resources, the country's "long run competitiveness" will depend on its people's skill level.

Moazzam Malik, the British Ambassador to Indonesia, ASEAN and Timor-Leste, during his visit to BeritaSatu Media Holdings' main office in Jakarta. (JG Photo/Yudhi Sukma Wijaya) Moazzam Malik, the British Ambassador to Indonesia, ASEAN and Timor-Leste, during his visit to BeritaSatu Media Holdings' main office in Jakarta. (JG Photo/Yudhi Sukma Wijaya)

Immigration Puzzle

Moazzam expressed his unhappiness at the Indonesian government's policy to toughen up immigration rules on expatriates, at the time when the President Joko Widodo is actively promoting its country overseas to draw investment.

Joko's administration, continuing the policy of his predecessor, has made it tougher for foreigners to secure their work permits, amid a bigger plan to reduce the number of expatriates in the country and provide more jobs to the country's citizens. Recent government data show the number of expatriates working in the country has decreased to just about 60,000, a smaller number compared to about 68,500 in 2014 and more than 72,000 in 2012.

"Work permits. This is a very inetresting issue. In a country the size of Indonesia, 250 million people, you have 60,000 foreign workers. That's nothing! Businesses tell us, they need skills," Moazzam said.

The amount of effort that is required to secure work permits in Indonesia and the short-term nature of that permit and the regularity of renewals, among other things, all are driven by the law and a thinking that Indonesians have to provide jobs for fellow Indonesians. "This just makes no sense," Moazzam said.

The tougher immigration policy has been noticeable since 2014, when Indonesia started to make KITAS, or the temporary residence permit for foreigners, become harder to get.

Foreigners feel the squeeze after the Indonesian government reduced the amount of time recommended for a working visa in the country from one year to six months, especially for expatriates in advisory positions in sectors like services, trading and consulting.

Such a tough approach, Moazzam said, would hamper transfer of knowledge and slow Indonesian companies' effort to plug the talent gaps, often complained by managers and investors when they do business in Indonesia.

"British companies in Indonesia are the fifth largest investors, responsible for millions of jobs. How may British people are working in those companies? [The number is] nothing. Why does Indonesia have to be super restrictive?" Moazzam said.

"To my mind, we want the world's best talent to come and work in our country, we want them to work with Indonesians so our people can learn and become globally competitive," he added.

The UK, made up of England, Scotland, Wales and Northern Ireland, is Indonesia's fifth largest investor. Major UK investors in Indonesia include BP, HSBC, Standard Chartered Bank, Prudential, Premier Oil, Shell, Unilever and Glaxo Smith Kline, who have had a tight grip on the Indonesian market for decades, and created millions of jobs in the country.

Trade-wise, according to British Embassy data, bilateral trade between UK and Indonesia increased by 4.6 percent to £1.62 billion in 2015, with trade surplus favoring Indonesia, driven by commodity exports.

Signs of Improvements

Still, beyond the immigration hassle, Moazzam made some positive notes on the economic prospects of President Joko Widodo's administration, which has already launched a series of economic policy packages—12 at the last count—with the latest one focusing on ways to improve ease of doing business in the country, including slashing the number of procedures for companies to start a business in the country.

"Investment licensing is slightly better. Anecdotally, people tell me there is less corruption," Moazzam said with a laugh.

On infrastructure, there are some signs, "though not yet a delivery," of investment taking place, the ambassador said, adding that investors are encouraged by some of the signs they see.

The ambassador stressed that the current administration's successes have been achieved at a time where the external contexts can be "very difficult."

Moazzam—whose resume includes working as a consultant economist advising large corporate clients from the UK and the World Bank—said Indonesia's economic fundamentals are strong.

"Fiscal deficit is under control, debt-to-GDP ratio is low, foreign exchange reserves are healthy, the current account—some risks, but not too bad. Compared to many other countries in Asia, Indonesia's fundamentals are good and the long term prospect is very strong," he said.

Moazzam also revealed President Joko Widodo had told the British business community during his visit to London that his administration wants to quickly climb the ladder up to 40th place in the World Bank's Ease of Doing Business index.

"The target is very ambitious," said the Ambassador, adding that this gives clear signals of what the President wants to achieve.

"The interesting thing about that index is, it is very clear what you have to do to improve your position and everything is monitored closely by the World Bank," Moazzam said.

He said as long as the government keeps its policy on the right path, "there is no reason why Indonesia can't get more than a 6 percent growth. If external factors improve there is no reason why the Indonesian economy can't grow by 6 to 7 percent."

Indonesia still sits in 109th place in the World Bank’s ease of doing business index, out of 189 countries. The index measures ease of investing in the countries and their general investment climate.

Disappointing performance

Indonesia's recent growth data unfortunately have been rather disappointing, with the Central Statistics Agency (BPS) announcing the economy expanded at just 4.92 percent in the first three months of this year since the same period last year. Analysts had expected to see growth of more than 5 percent but with the weaker data coming out, the full year's growth figure is now still in question.

In the first quarter, while household consumption—the backbone of the nation's economy—maintained a steady growth, investment realization growth had slowed, dragging down the country's overall economic performance.

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