Saudi Arabia is Indonesia’s largest trade partner in the Middle East and the Gulf country is seeking to increase its investments in Indonesia in a number of sectors, such as upstream and downstream commodities and electric vehicle battery production.
By Ayman Falak Medina, ASEAN Briefing
Oil Still Dominates Trade
Oil still dominates trade between Indonesia and Saudi Arabia with the Gulf country being Indonesia’s largest supplier of crude oil and its products. In 2019, some 40 percent of Indonesia’s crude oil imports were from Saudi Arabia.
Indonesia’s oil fields have been in a state of decline due to aging oil fields coupled with a lack of investments in exploration and production. The country imports the equivalent of 400,000 barrels of oil per day, making it the 19th largest importer of refined petroleum in the world. Indonesia has invited the Saudis to invest in several downstream oil projects namely for refineries.
There are also opportunities for Saudi investors in Indonesia’s renewable energy sector. Indonesia’s location in the ‘ring of fire’ has resulted in having some 40 percent of the world’s geothermal energy stores, and its vast maritime area can generate 75,000 MW of power. In total, Indonesia has the potential to generate over 700,000 MW of energy from renewable resources like geothermal, wind, tidal, and solar.
A meeting between Indonesia’s Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan and Saudi Crown Prince Muhammad bin Salman in March 2022 revealed that Saudi Arabia was interested in investing in Indonesia’s electric battery industry. Indonesia is set to build its first electric vehicle (EV) battery plant and aims to begin production by 2023.
Indonesia wants to increase production to reach a battery capacity of 140 GWh by 2030 from which 50 GWh will be allocated for export. The remainder will be used for Indonesia’s domestic electric vehicle industry — mainly for motorbikes rather than cars. With Indonesia looking to boost investment in its EV battery sector to US$33 billion by 2033, the country presents ample opportunities for foreign EV manufacturers.
A key material in the production of electric vehicle batteries is nickel, and Indonesia has one of the world’s largest reserves for these commodities. Indonesia accounted for roughly 30 percent of the world’s nickel production and is home to 22 percent of the world’s known nickel reserves.
Capital City Investments
Indonesia has also sought Saudi investments for the development of its new capital city, in East Kalimantan province. The new city, set to be called Nusantara (Archipelago), will cost an estimated US$32 billion to build with Saudi Arabia willing to commit its investment through Indonesia’s newly established US$10 billion sovereign wealth fund.
The government will transform the new capital into a low-carbon superhub that will support healthcare and technology sectors as well as promote sustainable growth beyond the island of Java.
Nusantara will require soft and hard infrastructure, such as for the development of urban utilities, toll manufacturing, seaports and airports, and network and communications, among others.
Indonesia’s Access To The RCEP
On August 30, 2022, Indonesia’s parliament approved the country’s membership in the Regional Comprehensive Economic Partnership (RCEP) trade pact and became the latest country in ASEAN to join in what is the world’s largest free trade agreement.
Through Indonesia, Saudi investors can access this vast market, which is estimated to cover 30 percent of the global GDP (about US$25.8 trillion) and 30 percent of the world’s population.
Further, the RCEP presents ample opportunities for Saudi businesses to better integrate into regional value chains and attract investments.
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