THINK TANK | Canada & Indonesia: Moving Ahead, But Is Enough Being Done?
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THINK TANK | Canada & Indonesia: Moving Ahead, But Is Enough Being Done?

THINK TANK | Canada and Indonesia: Moving Ahead, But Is Enough Being Done?

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The Canada-Indonesia bilateral relationship has long been a positive one. Indonesia credits Canadian diplomats with helping pave the way for its entry into the United Nations following independence. Canadians and Indonesians have worked productively together under the Colombo Plan, and thereafter in such institutions as the Asian Development Bank (ADB), the  Association of Southeast Asian Nations (ASEAN) Post Ministerial Conference and Regional Forum, and Asia-Pacific Economic Cooperation (APEC), as well as in a number of tripartite or “track two” processes on economic and security matters. They now work together in the G20 at the leaders’ level.

Canadian election observers and peacekeepers played a significant role in easing the transition to independence in East Timor. A series of modest military cooperation programs and training-related initiatives as well as human rights dialogues have continued over the years — now joined by exchanges on religious freedom.[1]

Canada’s development cooperation has been a major long-term component in relations between the two nations, contributing positively to Canada’s image in Indonesia, while evolving significantly in recent years toward a strong accent on governance enhancement and social inclusion, and matching up with Canada’s areas of value-added capability and economic engagement. Indonesia was confirmed as a country of focus for Canada’s international development efforts in 2014, with disbursements of close to CDN$30  million in 2012-2013 (Global Affairs Canada 2015). 

However, in terms of economic relations, the pace of growth was stalled from the late 1990s until very recently. Canada’s share of the Indonesian import market, while never higher than two percent during the 1970s and 1980s, now hovers around one percent. With the exception of some agricultural and related sectors, Canada has found it hard to sustain its profile in Indonesia in the face of regional economic integration — or relative to Indonesia’s other trade partners such as Australia and some European Union nations.

In 2014, Indonesia’s share of Canadian investment to Asia was only about seven percent. In terms of business presence, and noting important company exceptions, the overall image is one of Canada drifting to the margins of the new Asian reality. 

This picture is not completely bleak, however. Merchandise trade has been expanding, reaching a respectable CDN$3.5 billion in both directions in 2014 (Asia Pacific Foundation 2015a) and trade in services has also risen in recent years. 

While Canadian investment in Indonesia was relatively flat through most of the past decade as project setbacks and instances of corruption in the mining sector chilled business confidence, there are now signs it may be recovering, especially in the energy sector. Canadian direct investment recovered to CDN$4.3 billion in 2014 (Asia Pacific Foundation 2015b). 

Indonesian investment in Canada remains very small, estimated by the Canadian Socio-Economic Information Management System database at approximately CDN$4 million. Growth will likely depend on the degree of success in its current resource related investments in natural gas and wood pulp, and to the extent there is follow-on activity, as Indonesia becomes a more outward-looking economy. 

The growth of two-way investment is critical for the future. It will have a positive impact, not only by enriching the quality and depth of Canada’s economic engagement, but also in building greater mutual awareness and longer-term commitment. 

Overall, the current picture of Canada’s economic interchange is mixed and clearly not reaching its potential. Growth has been mainly incremental and, until recently, in a fairly narrow range of sectors. Its character has been mainly transactional. 

Longer-term and more complex Canadian business relationships with Indonesia involving investment, innovation and value chain-based commerce have been the exception. With the exception of some service sectors, Canada and Indonesia, for the most part, participate only at the first stages of each other’s value chains. The knowledge industry’s engagement in Indonesia renewable energy and information and communications technology , in, for instance, while noteworthy, has been limited in scope until recently. The depth of economic integration is still very modest, in particular compared to Canada and Northeast Asia.

In the security domain, the ending of the high-profile Canada and Indonesia-led South China Sea workshop process [2]  — particularly as it was not replaced by any other mechanism — was widely seen, in conjunction with a period of minimal visibility in ASEAN-based dialogue processes, as evidence of a diminished Canadian interest in partnering with Indonesia on critical regional issues and as a sign of lessened commitment to the peace and security of Southeast Asia. 

This is notwithstanding the region’s emerging strategic and economic importance in the world, and the further consolidation of the Asia-Pacific “community” in which Canada had hitherto professed itself to be a member, but was now on the outside looking in as new key institutional mechanisms such as the East Asia Summit and the ASEAN Defence Ministers-Plus (ADMM+) took shape.

Indeed, regional security issues in Southeast Asia have taken on a new profile, due to concerns over terrorism, migration, resource competition and territorial disputes. The latter includes episodes of confrontation in the South China Sea between a more assertive and force projection-capable China and Indonesia’s ASEAN partners. With recent escalations in rhetoric, island building and even some incidents involving the United States, regional tensions and fears of actual conflict are increasing.

In people-to-people terms, the record has also been mixed at best. Exchanges and partnerships in the education sector did not grow nearly as quickly or deeply with Indonesia as they did with some East and Southeast Asian nations. However, there were a few successful endeavours that have left lasting positive impressions, such as the collaboration between the Institute of Islamic Studies at McGill University in Canada and the State Institute of Islamic Studies in Indonesia, as well as Humber College’s partnership with seven universities in North and South Sulawesi in the field of entrepreneurship education.

Fortunately, some tentative steps forward in the relationship have been taken since 2010. This has been enabled by the fresh and positive attention that Indonesia’s rapid economic growth has attracted in Canada, as well as its very successful transition to the world’s third-largest multi-party democracy. While growth has slowed down in 2015 with the downturn in China, long-term prospects are still bright.

The main political development reflecting this improved outlook for Canada-Indonesia relations has been the creation of a ministerial forum and the consolidation of a broad-based agenda under the “Indonesia-Canada Plan of Action 2014– 2019,” [3]  signed by the two countries’ foreign ministers in the summer of 2014. Although the model put in place is fairly conventional and the Plan of Action agenda is rather general and incremental in style and substance, the initiative and the associated ministerial involvement provide an opening for new momentum in Canada-Indonesia ties.

A clear and concrete strategy to build on this Plan of Action is needed now. In order to create momentum, enhance awareness and engage broader participation, this strategy must be well communicated and punctuated by some major events.

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[1]  Building on the 2014 Bilateral Plan of Action, Andrew Bennett, Canada’s Ambassador for Religious Freedom, made an official visit to Indonesia in May 2015.

[2] These workshops, funded by the Canadian International Development Agency (CIDA), took place from 1990 to 2001, involving scholars, experts and government officials in their personal capacity. One novel aspect was the presence of participants from both China and Taiwan in several of the workshops. Territorial disputes and confidence-building measures designed to manage them were looked at, as were options for joint resource development and functional cooperation at a technical level. CIDA funding ended in 2002.

[3]  The Plan of Action is a broad road map for enhancing bilateral relations between Canada and Indonesia through cooperation on political, defence, economic, socio-cultural, scientific, technological, educational and other issues.