Indonesia and Saudi Arabia have maintained a centuries-old history of trade and diplomatic relations and are now focusing on increasing bilateral trade in the modern era. Saudi Arabia is Indonesia's largest trading partner in the Middle East, and the Gulf state intends to increase investment in Indonesia in various sectors, including upstream and downstream goods and the production of electric car batteries.
Although formal diplomatic relations between Saudi Arabia and Indonesia date back to the 1950s, historical ties between the two regions date back centuries through the religion of Islam. In addition, Indonesia, the country with the largest Muslim population in the world, receives the highest number of pilgrims (over 212,000) during the Hajj season than any other country.
Saudi Arabia is Indonesia's largest trading partner in the Middle East. Bilateral trade is expected to reach nearly $5.5 billion in 2021, up 40 percent from a year earlier. The trade balance is largely in favor of Saudi Arabia, as its main exports are oil and its products, which will exceed $3 billion by 2021.The two countries led by Saudi King Salman bin Abdulaziz and Indonesian President Joko Widodo are interested in increasing trade and investment, particularly in Indonesia's manufacturing industry. The king's last visit to Indonesia was in 2017, and he brought a delegation of 1,500 people. A number of memorandums were signed in the fields of trade, education, defense, civil aviation, securities, science and technology, tourism and health.
On the security front, Saudi Arabia and Indonesia signed a defense cooperation agreement in 2014, the first between the two countries and the first for Indonesia and a country in the Middle East.
Where are the investment opportunities in Indonesia for Saudi companies? Oil still dominates businessOil continues to dominate trade between Indonesia and Saudi Arabia, the Gulf country's biggest supplier of crude and products. In 2019, around 40 percent of Indonesia's crude oil imports came from Saudi Arabia.
Indonesia's oil fields are in decline due to aging oil fields and a lack of investment in exploration and production. The country imports 400,000 barrels of oil equivalent per day, making it the 19th largest importer of refined oil in the world. Indonesia invited Saudi Arabia to invest in several oil projects, particularly oil refineries.
Renewable energyThere are also opportunities for Saudi investors in Indonesia's renewable energy sector. Indonesia's location on the "Ring of Fire" means it has about 40 percent of the world's geothermal reserves, and its vast expanse of sea can generate 75,000 megawatts of electricity. Overall, Indonesia has the capacity to generate more than 700,000 megawatts of electricity from renewable sources such as geothermal, wind, tidal and solar energy.
electric batteryIn a meeting held in March 2022 between the Indonesian Minister of Communications Luhut Binsar Pandjitan and Saudi Crown Prince Mohammed bin Salman, it was revealed that Saudi Arabia is interested in investing in the electric battery industry in Indonesia. Indonesia plans to build its first electric vehicle (EV) battery factory and plans to start production in 2023.
Indonesia plans to increase its production to 140 gigawatts of battery capacity by 2030, and export 50 gigawatts. The remainder is used in the electric car industry in Indonesia – mostly for motorcycles, not cars. With Indonesia's target to invest 33 billion US dollars in the electric car battery sector by 2033, the country offers great opportunities for foreign electric car manufacturers.
Nickel is a major component in the electric car battery industry, and Indonesia has the largest raw material reserves in the world.
Indonesia accounts for about 30 percent of global nickel production and holds 22 percent of the world's known nickel reserves.
capital investmentIndonesia is also seeking investment from Saudi Arabia to develop its new capital city in East Kalimantan Province. The construction of a new city called Nusantara (the Archipelago) will cost around $32 billion, as Saudi Arabia manages its investments through Indonesia's newly created $10 billion sovereign wealth fund.
The government will turn the new capital city into a giant low-carbon hub that supports the health and technology sectors and promotes sustainable development outside Java.
The archipelago will need both soft and hard infrastructure, including urban planning, contract manufacturing, seaports, airports, networks and communications.
Indonesia's Accession to RCEPOn August 30, 2022, Indonesia's parliament approved membership in the Comprehensive Economic Partnership Regional Trade Agreement (RCEP), becoming the smallest country in the Association of Southeast Asian Nations to join the world's largest free trade agreement.
Through Indonesia, Saudi investors gain access to this huge market, which accounts for about 30 percent of global GDP (about $25.8 trillion) and 30 percent of the world's population.
In addition, RCEP provides many opportunities for Saudi companies to better integrate into regional value chains and attract investment.
information about us
The ASEAN briefing was issued by Dejan Shera and Associates. The company supports foreign investors throughout Asia and has offices throughout ASEAN including Singapore, Hanoi, Ho Chi Minh City and Da Nang in Vietnam, Munich and Essen in Germany, Boston and Salt Lake City in the United States, and Milan, Kongliano and Udine. Jakarta and Batam in Italy and Indonesia. We also have partner organizations in Malaysia, Bangladesh, Philippines and Thailand, and offices in China and India. Please contact us at asia@dezshira.com or visit our website at www.dezshira.com.
