Image credit: Twitter/@JustinTrudeau
by Randolph Mank, CGAI Fellow and Luthfi Dhofier
September 2023
Table of Contents
- Canada’s Ambitious Relations with Indonesia: Hope vs. Reality
- End Notes
- About the Authors
- Canadian Global Affairs Institute
Canada's Ambitious Relations with Indonesia: Hope vs. Reality
After decades of hesitancy, the Canadian government is now vigorously pursuing relations with Indonesia, the largest member of the Association of Southeast Asian Nations (ASEAN). Officials are negotiating a bilateral comprehensive economic partnership agreement (CEPA).1
Trade talks with Indonesia were launched in 2021, with the sixth session scheduled for this fall. Canadian foreign and trade ministers’ visits to Jakarta earlier this year and Prime Minister Justin Trudeau’s visit this month have boosted the momentum. Trudeau announced the establishment of an export development office in Jakarta to be headed by a new Indo-Pacific trade representative, who will no doubt need to co-ordinate with Canada's already appointed special envoy for the Indo-Pacific.2 This is all happening in parallel with negotiations for a trade deal with ASEAN and these initiatives form a central part of Canada’s earnest Indo-Pacific Strategy, launched in 2022.3
Admittedly, most Canadians would have trouble finding Indonesia on a map. Many have heard of its most famous tourist island, Bali, and even about its tiny island neighbour, Singapore. But most are only vaguely aware of Indonesia’s 17,000 islands, with exotic names like Java, Sumatra, Sulawesi, Borneo and Papua, sprawled across the Indian and Pacific oceans, whose 279 million inhabitants make up the fourth most populous country in the world.4 Similarly, Indonesians would have scant awareness of Canada, too. They are not a major source of immigration and the diaspora is negligible, certainly dwarfed by fellow ASEAN members the Philippines and Vietnam.
So it’s worth sorting out hope versus reality in our pursuit of a comprehensive economic partnership.
With a GDP of $1.5 trillion, Indonesia is already the 16th largest economy, just behind Spain, and growing.5 Goldman Sachs projects it to become the fourth largest economy in the world by 2050.6 Unlike its aging ASEAN neighbours, over 50 per cent of Indonesia’s population is between 18 and 39 years old, which makes it one of the fastest growing consumer markets and labour forces in the world.7 It is, therefore, a potentially large market if Canadian companies wish to pursue it.
Yet current bilateral trade is a rather modest $6 billion, not quite the equivalent of two days of trade with the U.S., which totals $1.2 trillion annually.8 Indonesia imports mostly wheat, fertilizer and wood pulp from us and sells us machinery, rubber and textiles in return.9 Our wheat exports make particular sense: the world’s largest flour mill is the ever-expanding Bogasari Mill, owned by Indofood at the port of Jakarta.10
Canadian companies have invested some $5.7 billion in Indonesia. The government has also donated over $1 billion in development assistance since the year 2000 alone. Indonesian investment in Canada stands at only $126 million by comparison.11 Much smaller Malaysia actually remains Canada’s largest ASEAN investment partner. Despite being scaled back from its original $36 billion investment, its national energy company, Petronas, still holds a 25 per cent stake in LNG Canada, worth some $18 billion.12
The relatively limited nature of bilateral exchange with Indonesia means that trade negotiators must comb through trade data to look for areas where more commerce could be stimulated through tariff reductions and other regulatory changes. For those not familiar with trade negotiations, those trade data are found in the harmonized system (HS) codes compiled by the World Customs Organization (WCO), which includes some 5,300 export and import product descriptions arranged in 99 chapters and grouped in 21 sections.13 If that’s not laborious enough, negotiators must also ensure that the affected domestic industries must be thoroughly consulted on any new commitments and cohere with those already made in the Comprehensive and Progressive Transpacific Partnership (CPTPP), the World Trade Organization (WTO) and other bilateral agreements, including the Canada-U.S.-Mexico Agreement (CUSMA). It’s complex and tedious, to say the least.
Increased trade and investment are worthy goals, but broader bilateral co-operation faces headwinds.
On Indo-Pacific geopolitical strategy, it’s true that Indonesia sits across from Malaysia alongside the Malacca Strait, through which some 25 per cent of world trade, including oil, flows.14 Theoretically, it could be pivotal should a U.S.-China conflict ever lead to a shipping blockade. It’s also true that Indonesia’s “independent and active” (“bebas aktif”) foreign policy makes it a potential player in geopolitics.15 But it would take very special circumstances to make it an actual security partner in any regional conflict. Nor would Canada have much to contribute to the region’s security, besides solidarity, despite ASEAN signing on Canada as a strategic partner during Trudeau’s visit.
Like all countries, Indonesia follows its own interests. It participates in both China’s Belt and Road Initiative and the U.S.-led Indo-Pacific Economic Framework for Prosperity.16 Despite a maritime dispute, China is its largest trading partner by far at $65 billion bilaterally last year, purchasing such valuable Indonesian commodities as oil, coal and minerals. Trade with the U.S., Japan and India follows far behind in the low $20 billion range each.17 Clearly, Indonesia would be reluctant to participate willingly in any such blockade, or even to take sides, if it ever came to that. Notably, there are no U.S. military bases in Indonesia.
As a potential Indo-Pacific ally, or not, it’s good that Indonesia seems to have put its history of troubled relations with neighbouring Australia behind it. Still, Indonesian President Joko Widodo has criticized the World Bank and the IMF and called for a new international economic system focusing on emerging powers.18 Though he hasn’t yet decided on joining the growing BRICS group of countries, he seems to share its goals.
Indonesia does not appear to be an obvious partner for our progressive foreign policy agenda, either. True, it has emerged from authoritarian rule to become a vibrant democracy. But as the world’s largest Muslim country and a founder and leader of the Non-Aligned Movement (NAM),19 its socio-political culture and foreign policy are inherently distinct from ours. While most Indonesians practise a moderate form of Islam, conservative pressures have increased in recent years. Former Jakarta governor Basuki Purnama, known as Ahok, was jailed for two years on charges of blasphemy for insulting the Qur’an.20 Recently, the government has also formally banned sex outside of marriage.21
There are also uncertainties around democratic continuity. The leading candidate in next year’s presidential elections is Defence Minister Prabowo Subianto, a former general and an avowed authoritarian populist with a troubling human rights record.22 Indonesia’s still fragile democracy could face a setback if Prabowo wins.
So if trade is modest and geopolitical interests and foreign and domestic policy diverge, where might we find tangible overlapping interests? One interesting niche area relates to automobiles, our largest economic sector. The Canadian government has set a policy of ensuring that by 2035 all new light-duty vehicles sold will be electric (EVs).23 With the U.S. Inflation Reduction Act pouring billions of dollars into EV battery production, Canada has had to keep pace in the integrated North American auto sector.24 Up to $15 billion in taxpayer-funded incentives have been announced for battery plants being built by Stellantis in Windsor and Volkswagen in St. Thomas, Ontario.25
What does that have to do with Indonesia? Most EV batteries contain up to 80 per cent nickel. We mostly hear about China’s dominance in refining minerals, which is very real. But the world’s largest producer of nickel happens to be Indonesia, with 37 per cent of world market share (followed far behind by the Philippines at 14 per cent and Russia at nine per cent; Canada is sixth with five per cent of market share).26 Indonesia is also second after the Democratic Republic of the Congo as the source of cobalt, another important ingredient.27
Coincidentally, Indonesia achieved this position with the help of Canadian mining company Inco, then the world’s largest nickel mining company and the largest investor in Indonesia’s mining sector. In addition to its operations in Sudbury, Ontario, Inco has been mining nickel in Sulawesi since 1968.
Before imagining that this automatically benefits Canada, consider the complex nature of the global nickel mining business. Brazilian mining giant Vale bought Inco Canada for $19 billion in 2006. Vale now owns the Indonesian mine, as well as Canada’s largest nickel mining operation at Voisey’s Bay in Newfoundland and Labrador and the Thompson mine in Manitoba. Glencore of Switzerland actually owns the Raglan mine in Quebec and another in Sudbury, as well. Canada still has 127 of the more than 186 nickel mines in operation globally.28 We export just over $5 billion worth of nickel annually, while we import just under $1 billion as well, mostly from the U.S.29
But the most relevant issue is pricing. The Indonesian government is a potential market mover. It has also signalled its intention to export into the EV battery supply chain and has introduced a law prohibiting the export of unrefined ore, both measures aimed at attracting investment and maintaining favourable export pricing.30 Even if Canada’s domestic nickel production were to increase, the corporations involved in EV battery production would still have to pay world prices determined in large measure by Indonesia.
Whether this leaves Indonesia as a partner or a competitor is hard to assess. We do not import nickel from Indonesia and securing favourable supplies from Indonesia is not in our Indo-Pacific Strategy. Chinese investors, by contrast, are already moving in.
Again, while pondering this rather inadvertent link with Indonesia, it’s wise to maintain a realistic business perspective. Indonesia is about as far away from Canada as one can travel around the globe before starting to come back. Distance does matter for supply chains, which we are allegedly trying to bring closer to home. So does corruption. Transparency International ranks Indonesia 110th out of 180 countries on its corruption rankings. (Least corrupt at number one is Denmark; Canada ranks 14th.)31 This is a very real problem for Canadians doing business there, and Indonesian courts are not known for consistent adjudication. Occasionally, Canadians have been imprisoned for minor offences, leading to bilateral consular irritants. Before being released in 2019, Canadian teacher Neil Bantleman spent five years in prison in Indonesia for crimes he did not commit.32
On human rights, Indonesia rejected a UN motion to debate China’s persecution of Uyghur Muslims.33 Indonesia’s Chinese minorities, which tend to dominate the business sector, have also suffered violent attacks during periods of political upheaval.34 And those mining operations mentioned above have faced citizen protests over large-scale environmental damage and local human rights abuses.35 In an infamous historical footnote, it was actually protests against former Indonesian president Suharto’s government that led to the Royal Canadian Mounted Police using pepper spray to disperse demonstrators at the Asia Pacific Economic Cooperation (APEC) summit in Vancouver in November 1997.36
Last, but not least, Indonesia has severe infrastructure problems. Its capital city, Jakarta, is actually sinking so fast that in 2022, the government began work on building Nusantara, a new capital 1,000 kilometres away in East Kalimantan, Borneo. It’s scheduled to be inaugurated in August 2024 and proceed in phases.37 Like other countries, Canada will have to decide when and if to shift its embassy. As the megaproject comes to fruition, it will be highly disruptive to regular political, commercial and consular business.
None of this is meant to rain on the current bilateral parade. Far from it. Positive sentiment on both sides is most welcome. If the respective business communities respond as they should to the efforts the two governments are making, trade and investment in commodities and other products and services should grow in quantity and value. But the inevitable challenges and frustrations along the way for these two very distant and different countries could be exacerbated by inflated expectations. In navigating the way forward, wide-eyed pragmatism will provide a better foundation than naïve hope.
End Notes
1 Government of Canada, “Canada-Indonesia Comprehensive Economic Partnership Agreement – Background Information,” August 10, 2023, https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/indonesia-indonesie/cepa-apeg/background-contexte.aspx?lang=eng.
2 Canadian Press, “Canada to Open Export Development Office in Indonesia to Help Canadian Businesses Enter Region,” National Post, September 5, 2023, https://nationalpost.com/news/canada/canada-to-open-export-development-office-in-indonesia-names-indo-pacific-trade-representative.
3 Government of Canada, “Canada’s Indo-Pacific Strategy,” July 24, 2023, https://www.international.gc.ca/transparency-transparence/indo-pacific-indo-pacifique/index.aspx?lang=eng#a2_1_4.
4 Congressional Research Service, “Indonesia,” August 1, 2023, https://sgp.fas.org/crs/row/IF10247.pdf.
5 International Monetary Fund, “GDP, Current Prices,” 2023, https://www.imf.org/external/datamapper/NGDPD@WEO/OEMDC/ADVEC/WEOWORLD.
6 Kevin Daly and Tadas Gedminas, “The Path to 2075 — Slower Global Growth, But Convergence Remains Intact,” Goldman Sachs Economics Research, December 6, 2022, https://www.goldmansachs.com/intelligence/pages/gs-research/the-path-to-2075-slower-global-growth-but-convergence-remains-intact/report.pdf.
7 Guy Allison, Chloe De Schryver, Jane Goldthorpe, Emily Gunn, Claire Jansen, Tegan Morris and Mollie Nielsen, “Next Generation Indonesia,” The British Council, October 2022, doi.org/10.57884/8B8K-B514.
8 Government of Canada, “Canada-United States Relations,” June 27, 2023, https://www.international.gc.ca/country-pays/us-eu/relations.aspx?lang=eng.
9 Ibid., “Canada-Indonesia Relations,” August 24, 2023, https://www.international.gc.ca/country-pays/indonesia-indonesie/relations.aspx?lang=eng.
10 Clean Energy Ministerial, “ISO 50001 Energy Management System – Case Study: PT ISM Bogasari Flour Mills Tbk (Indonesia),” 2022.
11 Government of Canada, “Canada-Indonesia Relations.”
12 Petronas, “PETRONAS Enters Agreement to Acquire 25 Per Cent Equity in LNG Canada Project,” May 31, 2018, https://www.petronas.com/media/media-releases/petronas-enters-agreement-acquire-25-cent-equity-lng-canada-project.
13 World Customs Organization, “What is the Harmonized System (HS)?” https://www.wcoomd.org/en/topics/nomeniclature/overview/what-is-the-harmonized-system.aspx.
14 Krishnadev Calamur, “High Traffic, High Risk in the Strait of Malacca,” The Atlantic, August 21, 2017, https://www.theatlantic.com/international/archive/2017/08/strait-of-malacca-uss-john-mccain/537471/.
15 Embassy of the Republic of Indonesia in Washington D.C., “Indonesia’s Foreign Policy,” https://kemlu.go.id/washington/en/pages/kebijakan_luar_negeri_ri/716/etc-menu.
16 Hidetaka Yoshimatsu, “Indonesia's Response to the Belt and Road Initiative and the Indo-Pacific: A Pivotal State’s Hedging Strategy,” Asian Politics & Policy, April 19, 2022, https://doi.org/10.1111/aspp.12629.
17 Daniel Workman, “Indonesia’s Top Trading Partners,” World’s Top Exports, https://www.worldstopexports.com/indonesias-top-15-import-partners/?expand_article=1.
18 Ahmad Rizky M. Umar, “The ‘Jokowi Doctrine’: Indonesia’s Vision for International Order,” Lowy Institute, August 18, 2023, https://www.lowyinstitute.org/the-interpreter/jokowi-doctrine-indonesia-s-vision-international-order.
19 Ministry of Foreign Affairs of the Republic of Indonesia, “Indonesia Calls on Non-Aligned Movement to Unite and Advance the Interests of Developing Countries,” July 7, 2023, https://kemlu.go.id/portal/en/read/4911/berita/indonesia-calls-on-non-aligned-movement-to-unite-and-advance-the-interests-of-developing-countries#:~:text=Indonesia%20is%20one%20of%20the,formation%20of%20NAM%20in%201961.
20 BBC News, “Jakarta Governor Ahok Found Guilty of Blasphemy,” May 9, 2017, https://www.bbc.com/news/world-asia-39853280.
21 Associated Press, “Indonesia’s Parliament Passes Law Criminalizing Sex Outside Marriage,” CBC, December 6, 2022, https://www.cbc.ca/news/world/indonesia-parliament-criminalizes-extramarital-sex-1.6675595.
22 Joshua Kurlantzick, “Prabowo Subianto and Indonesia’s Next Presidential Election,” Blog, Council on Foreign Relations, September 13, 2022, https://www.cfr.org/blog/prabowo-subianto-and-indonesias-next-presidential-election.
23 Economist Intelligence Unit, “Canada’s Federal Government Imposes 2035 EV Mandate,” February 16, 2023, https://www.eiu.com/n/canadas-federal-government-imposes-2035-ev-mandate/#:~:text=On%20December%2021st%20the%20Liberal,a%2020%25%20requirement%20in%202026.
24 Naimul Karim, “One Year On, How America's Inflation Reduction Act Has Changed Canada,” Financial Post, August 15, 2023, https://financialpost.com/commodities/mining/how-inflation-reduction-act-changed-canada#:~:text=The%20IRA%20played%20a%20role,ion%20battery%20plant%20in%20Windsor.
25 Adam Radwanski and Laura Stone, “Stellantis, LG Reach New EV Battery Plant Deal For Up to $15-Billion in Subsidies From Ottawa, Ontario,” Globe and Mail, July 5, 2023, https://www.theglobeandmail.com/canada/article-stellantis-electric-vehicle-battery-plant-windsor-ottawa/.
26 Government of Canada, “Nickel Facts,” February 16, 2023, https://natural-resources.canada.ca/our-natural-resources/minerals-mining/minerals-metals-facts/nickel-facts/20519.
27 Ibid., “Cobalt Facts,” March 10, 2023, https://natural-resources.canada.ca/our-natural-resources/minerals-mining/minerals-metals-facts/cobalt-facts/24981.
28 Mining Technology, “The Five Largest Nickel Mines in Operation in Canada,” July 21, 2023, https://www.mining-technology.com/marketdata/five-largest-nickel-mines-canada/.
29 Trading Economics, n.d., https://tradingeconomics.com/canada/exports/nickel.
30 World Trade Organization, “Indonesia – Measures Relating to Raw Materials,” November 30, 2022, https://www.wto.org/english/tratop_e/dispu_e/592r_e.pdf.
31 Transparency International, “Corruption Perception Index,” 2022, https://www.transparency.org/en/cpi/2022?gclid=CjwKCAjwo9unBhBTEiwAipC11z0K7aMVcncEijJXtMl_Lc5nUaJ2hoI5gBPitwWsCnSqIc0JzJ93CRoCD-kQAvD_BwE.
32 Dan Taekema and Katie Simpson. “Neil Bantleman Released From Indonesian Prison, Returns to Canada,” CBC, July 2019, https://www.cbc.ca/news/politics/neil-bantleman-indonesia-sex-charges-1.5208676.
33 Staff, “Indonesia Rejects UN Motion to Scrutinize China’s Human Rights Record,” Jakarta Post, October 7, 2022, https://www.thejakartapost.com/indonesia/2022/10/07/indonesia-rejects-un-motion-to-scrutinize-chinas-human-rights-record.html#:~:text=Indonesia%20was%20among%2019%20nations,attempts%20to%20antagonize%20Beijing%20internationally.
34 Randy Mulyanto and Charlenne Kayla Roeslie, “Chinese Indonesians Reflect on Life 25 Years From Soeharto’s Fall,” Al Jazeera, May 24, 2023, https://www.aljazeera.com/news/2023/5/24/chinese-indonesians-reflect-on-life-25-years-from-soehartos-fall.
35 Peter S. Goodman, “China’s Nickel Plants in Indonesia Created Needed Jobs, and Pollution,” New York Times, August 18, 2023, https://www.nytimes.com/2023/08/18/business/indonesia-nickel-sulawesi-china.html.
36 CBC, “Former Indonesian Dictator Suharto Near Death,” January 11, 2008, https://www.cbc.ca/news/world/former-indonesian-dictator-suharto-near-death-1.722721#:~:text=In%201997%2C%20Suharto's%20presence%20at,his%20participation%20in%20the%20conference.
37 Daniel Leonhardt, “The Plan to Build a New Capital,” New York Times, May 17, 2023, https://www.nytimes.com/2023/05/17/briefing/java-jakarta-capital-move-flooding.html.
About the Authors
Randolph Mank is a former Canadian diplomat and business executive in Asia. He heads MankGlobal consulting, serves on boards and is a Fellow of the Canadian Global Affairs Institute, Triple Helix and the Balsillie School of International Affairs.
Luthfi Dhofier is the President of the Canadian International Council Vancouver Chapter. He has worked as a policy analyst for various public, private, and non-profit institutions across Canada. He holds a Masters in Public Policy and Global Affairs from the University of British Columbia specializing in global climate policy.
Canadian Global Affairs Institute
The Canadian Global Affairs Institute focuses on the entire range of Canada’s international relations in all its forms including trade investment and international capacity building. Successor to the Canadian Defence and Foreign Affairs Institute (CDFAI, which was established in 2001), the Institute works to inform Canadians about the importance of having a respected and influential voice in those parts of the globe where Canada has significant interests due to trade and investment, origins of Canada’s population, geographic security (and especially security of North America in conjunction with the United States), social development, or the peace and freedom of allied nations. The Institute aims to demonstrate to Canadians the importance of comprehensive foreign, defence and trade policies which both express our values and represent our interests.
The Institute was created to bridge the gap between what Canadians need to know about Canadian international activities and what they do know. Historically Canadians have tended to look abroad out of a search for markets because Canada depends heavily on foreign trade. In the modern post-Cold War world, however, global security and stability have become the bedrocks of global commerce and the free movement of people, goods and ideas across international boundaries. Canada has striven to open the world since the 1930s and was a driving factor behind the adoption of the main structures which underpin globalization such as the International Monetary Fund, the World Bank, the World Trade Organization and emerging free trade networks connecting dozens of international economies. The Canadian Global Affairs Institute recognizes Canada’s contribution to a globalized world and aims to inform Canadians about Canada’s role in that process and the connection between globalization and security.
In all its activities the Institute is a charitable, non-partisan, non-advocacy organization that provides a platform for a variety of viewpoints. It is supported financially by the contributions of individuals, foundations, and corporations. Conclusions or opinions expressed in Institute publications and programs are those of the author(s) and do not necessarily reflect the views of Institute staff, fellows, directors, advisors or any individuals or organizations that provide financial support to, or collaborate with, the Institute.
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