Perspectives

The relationship between the European Union and Indonesia is one of growing importance, with trade and economic cooperation serving as a cornerstone of this partnership. The EU was Indonesia's fifth-largest trading partner in 2022 and among the main foreign investors and the two entities have a shared interest in promoting sustainable economic growth and development. With the current global economic challenges, the EU and Indonesia are exploring new ways to deepen cooperation.

We have the privilege to talk to Mr Thibaut Portevin, the Head of Cooperation for the European Union Delegation to Indonesia and Brunei Darussalam, about the current state of EU-Indonesia trade and economic cooperation, as well as the EU's policy priorities on sustainable development, the EU Green Deal and Global Gateway.

 

Here is the excerpt from our interview.

Q: Could you please provide an overview of the current state of bilateral economic cooperation between the European Union and Indonesia?

TP: The EU and Indonesia have had a strong partnership for over 30 years, which has evolved to encompass a wide range of areas. In 2014, Indonesia became the first ASEAN country to enter into a Partnership and Cooperation Agreement (PCA) with the EU, which provides a framework for cooperation and dialogue between both parties.

Some of the key priorities under the PCA include trade and investment, environment and climate change, as well as democracy and human rights. The Government of Indonesia is the primary counterpart of EU cooperation in the country, but we also collaborate closely with the private sector and civil society. For example, we support small and medium-sized enterprises (SMEs) in adopting better standards and becoming more competitive, and we promote civil society participation in policy development and implementation.

The portfolio of current EU bilateral cooperation projects with Indonesia is valued at more than EUR 80 million. This includes various initiatives, such as technical assistance, capacity building, and blending programmes with EU development financial institutions such as KfW from Germany and AFD from France, that combine loans with grants or technical assistance to maximise the impact. These projects focus on critical areas, such as infrastructure development, which can have a significant impact on the country's economic growth and development. Moreover, Indonesia also benefits from regional cooperation between the EU and ASEAN.

We look forward to strengthening our economic ties through the conclusion of the EU-Indonesia Comprehensive Economic Partnership Agreement (CEPA). The agreement is a means to reinforce and build on the existing important trade and investment flows. Indonesia's exports to the EU reached EUR 23.5 billion in 2022. EU Foreign Direct Investment (FDI) stocks in Indonesia reached EUR 20.4 billion in 2021, contributing to new, high-quality jobs and helping Indonesia climb up the production chain.

Our cooperation programmes with Indonesia aim to reinforce our trade relations. One example is our flagship trade cooperation programme, ARISE+ Indonesia, which aims to support the country's efforts to strengthen its trade competitiveness and integration with the global economy.

 

Q: In your opinion, which sectors present more potential for collaboration? How will the EU promote cooperation in those areas?

TP: We see numerous investment and cooperation opportunities between the EU and Indonesia in areas that align with Indonesia and with EU's policy priorities, notably the European Green Deal and Global Gateway. As a public institution, we are committed to promoting the green and digital transition, which is also a priority for the Indonesian Government.

The green transition offers many investment opportunities, particularly in the energy sector, through initiatives like the Just Energy Transition Partnership, which was announced last year during the G20 Summit in Bali. With the European Investment Bank, the EU has offered to contribute EUR 1 billion through this initiative, and together with several member states' contribution as Team Europe offered EUR 2.4 billion.

We also see opportunities in the blue economy and oceans, where Indonesia has ambitions to develop its maritime sectors. We are currently supporting strategic planning in this area through the ARISE+ Indonesia programme and exploring potential partnerships with EU member states. The Agence Française de Développement (AFD) is now starting new loans to improve fishing ports infrastructure, and this is an area where we will contribute with EU grants as well.

Sustainable cities is another cooperation area between the EU and Indonesia. For example, we have established partnerships between cities in Europe and Indonesia, such as the Jakarta-Berlin partnership, demonstrating our commitment to supporting sustainable urban development in Indonesia. We have ongoing projects supporting investments at city level, in partnership with PT SMI, to accelerate infrastructure development in areas such as water and energy. These are important areas with great potential for new investments from the EU in Indonesia.

 

Q: Could you please tell us about the EU's new policies, namely the EU Green Deal and Global Gateway initiatives, and their implications for Indonesia?

TP: The EU Green Deal is EU growth strategy, aimed at transforming the EU economy to make it more competitive and sustainable. While the focus is on the EU, it also has a significant external dimension, and we are striving to integrate environmental sustainability aspects into our cooperation, to ensure consistency, as well as in our trade relations, for example through the negotiations of sustainable development chapters in new trade agreements.

The Global Gateway provides the updated framework for our external action. It aims to scale up EU investments worldwide in key sectors such as energy, digitalisation, transport, education, research, and health. These are sectors where we seek quality investments that meet quality standards, sustainability and good governance principles. This is one of our top priorities and gives the momentum to scale up our cooperation with Indonesia on investments.

We have several initiatives contributing to the Global Gateway already, using a blending approach that combines our resources, including for technical assistance, with investments from financial institutions. For example we support PT SMI for investments in local infrastructure. We also have a project with KfW where we provide a EUR 17 million grant complementing KfW loan to improve University Teaching Hospitals for pandemic prevention and management.

We expect new projects like this in the coming years under the Global Gateway framework. We are currently in the process of allocating guarantees to de-risk investments from financial institutions from the Member States in sectors such as energy and infrastructures.

 

Q: How do you see the investment landscape in Indonesia evolving, and what role do you think the EU can play in supporting it?

TP: Indonesian investment landscape is changing rapidly due to recent developments, new policies, and regulations from the Government aimed at attracting FDIs to develop downstream industries and infrastructure, including for the new capital.

The EU offers various tools and resources to support Indonesia's investment agenda. One of the critical resources that the EU offers is capital for investments through EU financial institutions like the European Investment Bank (EIB) and development financial institutions (DFIs) from Member States.

The EU also offers various risk-sharing mechanisms to further support investment in Indonesia, including guarantees and blending. These tools are designed to de-risk investments and provide investors with the necessary support to confidently enter new markets.

The EU also provides technical assistance in areas such as project preparation and evaluation, environmental and social safeguards, and financial management to support investment in Indonesia. This assistance ensures that investment projects are well-designed and can attract investment from various sources.

Experience sharing is another critical tool the EU offers to support investment in Indonesia. For example, the Jakarta-Berlin city partnership provides a platform to support start-ups and exchange ideas and experiences to support sustainable urban development.

The EU recognises the importance of regulatory frameworks in supporting sustainable investment and has proposed the Government to explore cooperation on sustainable finance policies. In the EU, we have established a taxonomy to identify green or environmentally friendly investments and tools such as green bonds to support them. We believe that exploring this area of regulatory cooperation and exchanging experiences on frameworks can create opportunities for sustainable investment in Indonesia.

Lastly, the EU provides strategic planning support through initiatives such as the ARISE+ Indonesia Trade Support Facility Programme. In partnership with the Ministry of Investment/BKPM, the Programme is developing an investment plan to attract EU new investments in "future-oriented" sectors related to the green transition, sustainable cities, and digitalisation. This activity is crucial as many potential investors need more information and are concerned about regulatory frameworks. The project supports this initiative by identifying opportunities and challenges and mapping potential investors in priority sectors, providing a vital tool to complement financial instruments.

 

Q: How do you see the ARISE+ Indonesia programme contributing to strengthening economic cooperation between the EU and Indonesia?

TP:  ARISE+ Indonesia Trade Support Facility is an operational arm of the EU-Indonesia economic cooperation framework. It aims to support the Government of Indonesia in enhancing trade and investment competitiveness to foster sustainable and inclusive economic development. ARISE+ Indonesia provides technical assistance to strengthen the capacity of Indonesian institutions across several areas.

A key area of assistance is improving the capacity to develop investment plans and mobilise investments in Indonesia that align with the common priorities of the EU and Indonesia.
Another one is to improve export quality infrastructure and competitiveness to enhance trade between the EU and Indonesia. This is being achieved by improving the standards of agri-food and fisheries products.

The Programme has already delivered significant success by supporting Geographical Indication (GI) associations in improving the institutional capacity to develop GI. GI certification is important in the EU market and gives customers confidence in the quality of the products they use. During a visit to the GI salt producer in Amed, North East Bali, the Head of the Amed Bali Salt GI Association (MPIG Garam Amed Bali) confirmed that the GI certification has increased selling prices, sales, and revenues, contributing to improved salt farmers' income and welfare. This is concrete evidence of the success and opportunities of Indonesian GI products.

Another area is improving the technical capacity for negotiating and implementing the EU-Indonesia Comprehensive Economic Partnership Agreement (CEPA). Our common ambition with Indonesia is to conclude the CEPA negotiation this year.

The programme also supports improved capacity for policy development, for example through support to Bappenas in developing economic modelling that integrates energy and emission to help plan economic policies and priorities for transitioning into the green economy. The Programme also supported the development of the blue economy roadmap, contributing to medium-term development planning and achieving Sustainable Development Goals (SDGs).

Overall, ARISE+ Indonesia has played an instrumental role in improving Indonesian institutions' capacity in various areas, ultimately benefiting Indonesia and EU economic relations.

 

Q: Indonesia holds ASEAN Chairmanship this year. How does the EU support Indonesia's priorities as ASEAN Chair, particularly in areas such as regional connectivity and economic integration?

TP: The EU combines regional cooperation with the ASEAN and bilateral cooperation with Indonesia, for example with complementary ARISE+ programmes for ASEAN and for Indonesia, allowing us to support both the development of frameworks at regional level and their Implementation at country level.

A concrete example of our support to Indonesia's priorities as ASEAN chair is sustainable consumption and production (SCP): Indonesia has the ambition to accelerate the implementation of the regional plan on SCP in the context of its chairmanship, and we are now developing activities jointly with Indonesia's Ministry of Environment and Forestry to accelerate the implementation of the plan.

Indonesia has ambitions in other areas of interest to the EU such as sustainable finance. Indonesia already made significant progress in sustainable finance policies during its recent G20 Presidency. We are keen to explore this area of cooperation further, in light of existing EU-ASEAN cooperation and of recent developments such as the adoption of the updated ASEAN taxonomy to classify and encourage green investments.

We are also committed to contributing to some of the key milestones of Indonesia's chairmanship, such as the September summits hosted by Indonesia on infrastructure, investments, and business, which are all areas where we have a strong interest and ongoing cooperation.

I also want to mention that we have just allocated a new contribution of EUR 60 million to improve connectivity and trade cooperation at the regional level. While ARISE+ ASEAN is closing and ARISE+ Indonesia is reaching its final stage of implementation, we will have new opportunities to pursue and improve our trade and economic cooperation.

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