Why Indonesia, why now? Graeme Harrison, NZIBF – 28 September 2012

Address to the Indonesia Forum, Auckland, 28 September 2012 by Graeme Harrison, Chairman, NZIBF

Selamat pagi. Tena kouotu katoa. Good morning. Thanks for the opportunity to be here today.

I extend my congratulations and thanks to the ASEAN NZ Business Council and other organisers and sponsors of today’s event for bringing us together in this way.

Mr Gusmardi Bustami, Director General for Export Trade, it is an honour for me to be sharing this podium with you and with other distinguished speakers and delegates from both countries.

Why Indonesia? Why now?

Indonesia is bursting on to the world stage, it is poised to celebrate its increasing regional power and growing wealth, it will be leading APEC in 2013.

Indonesia’s emergence as a pole of regional economic activity has many implications for New Zealand which will be discussed throughout our conference.

It’s clear that New Zealand has to do better to position itself to become a trusted partner in Indonesia’s continuing development.

Now is the time for us to be thinking about how we contribute a chapter to Indonesia’s story and how Indonesia ? its rich culture, its talented people and its dynamic businesses ? can be more widely known and welcomed here in New Zealand.

Today’s agenda

This morning I’d like to cover three themes:

First, I’d like to give some context to our discussion today by recalling some of the factors impacting on the relationship between the two countries.

Second, I’d like to share some insights from a New Zealand meat industry perspective, and in particular my own company, ANZCO Foods, which has been exporting to Indonesia for some time.

And third, I’d like to spend some time thinking about how the relationship could be developed in the future.

About NZIBF

Over the last decade Indonesia has rapidly grown to become one of the New Zealand meat industry’s major markets for beef and related products but I am speaking today primarily from the perspective of the NZ International Business Forum.

We are a group of leading companies and peak business organisations. We are interested in the way New Zealand connects and integrates with the rest of the world.

We are not a membership body like the Business Council ? our aim is to define some key priorities for international business engagement and develop specific projects that can assist, particularly in relation to trade negotiations or strategic relationship development.

We are particularly keen on developing partnerships in key areas with the Government ? such as the role we play in providing policy advice and support for the New Zealand members of the APEC Business Advisory Council (ABAC).

We are certainly pleased to be able to co-sponsor initiatives like this conference which support the expansion of New Zealand’s relationship with Indonesia.

Indonesia in context

The founding President of Indonesia, the great Soekarno, once urged his people to reach for the stars.

Some sixty seven years since independence Indonesia is doing just that.

I’m grateful to Ambassador David Taylor in Jakarta for some facts which he presented recently which point to just how far Indonesia has come in this time and more importantly where it is headed.

Today Indonesia sits within the grouping of the world’s twenty largest economies but by 2030 it is expected to be the world’s sixth largest economy ? that’s the place held by Russia or the United Kingdom today ahead of economies like France and Italy.

Indonesia’s rise in economic importance reflects a trend towards the developing world as a whole and it is the developing world which has kept us all afloat in the doom and gloom of the last few years.

As we know, Indonesia’s large and growing population of 240 million is growing by about the size of New Zealand each year!

Per capita GDP is also growing at a rate exceeding that of China and Indonesia boasts a sizeable and increasingly affluent middle class, one which is significantly larger than India.

As a reflection of this Indonesia sends each year over 5 million tourists overseas, and still only relatively few here to New Zealand.

There are almost 70,000 Indonesians studying overseas but again relatively few here in New Zealand.

Indonesians increasingly can afford and are wanting to buy the sorts of products New Zealand has to sell, particularly from the food and beverage sector.

And its needs for development in energy and infrastructure are ones with which New Zealand can provide expert assistance.

All this points to significant scope for development and we will be discussing this later on today.

It’s worth remembering too that Indonesia’s economy continues to perform well in the aftermath of the financial crisis.

Indonesia’s economy grew 6.4 percent in the second quarter of 2012 ahead of forecasts.

While the fall-out of the European financial crisis continues to hit Indonesia’s exports, domestic demand is strong, business confidence high and interest rates are low.

The Indonesian Government also has some ambitious plans to boost spending on infrastructure in 2013 ? up to US$20 billion, or an increase of 15 percent.

This is particularly good news for the citizens of Indonesia and for the Indonesian Government’s desire to improve economic performance and productivity, boost employment especially for the young, and deliver better outcomes for people.

Indonesia is also seeking to expand its integration in the wider Asia Pacific region.

Indonesia has always played a key role with ASEAN.

We are delighted that in January Indonesia ratified the ASEAN-Australia-New Zealand FTA; and Indonesia’s hosting of APEC in 2013 will help focus interest on the strength of the Indonesian economy as a motor for regional economic growth.

The picture we see therefore is of a country with high hopes for development, a solid basis on which to grow, obvious challenges in ensuring that growth delivers, and a willingness to engage with partners internationally.

New Zealand Beef in Indonesia

My own company ANZCO Foods is New Zealand’s second largest beef exporter. We, along with others in the meat industry, have benefitted from rapid growth in shipments to Indonesia during the decade to June, 2010. Indonesia had by then become New Zealand’s third largest export market by volume for beef and secondary cuts behind the United States and South Korea.

Unfortunately trade has since been impeded by the introduction of import quotas. Beef and secondary cuts in 2010 were added to a list of foods for which the Indonesian Government decided the country should seek self-sufficiency.

While Indonesia has in the past made similar declarations for other foods and achieved the objective, beef has particular challenges. One comparative example has been poultry.

The Indonesian Government maintains the local cattle herd now numbers 14.8 million head. This number, it believes, should ensure self-sufficiency. Independent industry sources believe the actual number is below 10 million.

Unlike poultry, with a short production cycle of around 45 days, beef production is a long cycle of up to two years. Such a period makes it difficult for small holders to sustain themselves.

In the absence of continuous supplies of imported product and growing consumer demand, beef shortages have had unintended consequences in Indonesia. Farmers have been selling large numbers of female cattle to abattoirs. This in turn has worked against the Government’s goal of achieving self-sufficiency.

The beef import issue highlights some important elements of international trade, including the principle of comparative advantage.

New Zealand is an efficient beef producing country, with 80 per cent of annual production exported to a range of markets around the world. Yet in a global context New Zealand is a small producer.

We account for just one percent of world beef production and seven percent of world beef exports. New Zealand is not a threat to Indonesian agriculture, yet we do have production expertise we can offer Indonesia.

ANZCO Foods, through the Five Star Beef cattle feedlot in Mid Canterbury, operates the only large scale cattle feedlot in New Zealand. The production systems on this feedlot are more akin to the future cattle finishing methods Indonesia is likely to adopt.

We are happy to share our knowledge with Indonesian decision makers. However, this should be part of a total relationship where beef and secondary cuts from New Zealand’s predominantly grass fed beef production is afforded continuous access to Indonesia.

Looking to the future

While trade access, along with investment in relationships and the availability of technical expertise, lie at the centre of the future positioning of New Zealand beef and related products in Indonesia, the question for all of us is whether collectively we are doing enough to ensure New Zealand as a whole understands the Indonesian opportunity.

I think there are least six things we can do to take the relationship to a new level.

First, at the broadest level, there is more to be done to foster a greater awareness both of the depth of the timeless Indonesian culture as well as a more sophisticated understanding of the situation of Indonesia today.

We are certainly grateful for the efforts in this regard of Ambassador Sriyono in Wellington and the newly established Indonesian Friendship Council. The Asia NZ Foundation also has a key role to play and deserves all our support.

At the political level, we are fortunate that the relationship is strong. Prime Minister Key’s visit to Jakarta earlier this year has served to develop some new momentum in high level political contact.

I gather Trade Minister Gita will visit New Zealand shortly and there will be scope during Indonesia’s APEC year to expand the frequency of contact across the board.

This is all necessary and helpful and should be continued.

Indonesia’s ratification of the ASEAN Australia New Zealand FTA has put our economic and commercial relations on a sound footing.

More than just the phase out of tariffs and other barriers the FTA gives us a rules-bound framework for the development of trade and investment and a springboard on which to build.

The FTA is high quality and comprehensive, stimulates business interest in each other’s markets and makes a strong contribution to the broader goal for freer trade and investment in the region.

Jakarta wasn’t built in a day, as they say, and the FTA does not address all issues over-night ? we certainly need to keep working to develop the scope of the FTA to cover all sectors and issues and to address new issues as they arise, particularly behind the border issues.

As you remember too, it was in Bogor, Indonesia, back in 1994, when Indonesia was again in the chair, that APEC adopted the goal of free and open trade and investment for all economies by 2020.

How the Bogor goals can be achieved is still not entirely clear but there are at least two pathways ? the Trans Pacific Partnership currently under negotiation by eleven economies and the Regional Comprehensive Economic Partnership which may enter the negotiation phase later this year between the members of ASEAN and its six dialogue partners.

New Zealand is included in both these initiatives which need to be seen as mutually supportive.

Our FTA with ASEAN puts us in a good position to work closely with our ASEAN partners including Indonesia to ensure that the vision for regional integration remains open and inclusive as well as being ambitious and comprehensive.

That can only be good for business in the region.

Lastly, as I have said already several times Indonesia’s year as APEC Chair gives a host of opportunities to get to know each other better.

This applies as much to business as it does to government: President Yudhoyono has already signalled Indonesia intends to set a strong focus on regional economic cooperation.

The theme of the APEC CEO Summit to be held in Bali in October 2013 will be “Resilient Asia Pacific : The Engine of Global Growth”. As in previous years NZIBF will put up its hand to lead a strong New Zealand business delegation to the Bali meeting.

Fostering business contacts is the daily job of the ASEAN NZ Business Council and Export NZ and I encourage all of you to participate in seminars, missions and inwards visits that are offered.

Do use the support and assistance that is available from Ambassador David Taylor and his team in Jakarta, soon to be boosted, I understand, by a Trade Commissioner from NZTE.

It is vitally important that you go to Indonesia and see for yourself the nature of the country’s transformation and how you and your expertise can assist.

Can we deliver?

Ladies and Gentlemen,

I believe the time is right for a major expansion of relations between New Zealand and Indonesia.

The economics make sense, the willingness is there, the times demand it ? but whether this can be achieved depends largely on us, the people in this room.

The Government clearly has a key role to play in providing the right framework and in setting the agenda, but ultimately business is done by business.

As we pursue respective commercial goals, we need to find ways to come together to ensure the sum is more than the parts and we are making a first attempt at this in today’s meeting.

I look forward to the discussion, I urge the widest possible participation and I am looking forward, in Soekarno’s words to reaching for the stars in the relationship between our two countries.