Abu Dhabi and Jakarta implemented their free-trade agreement this month, harboring important implications for the Gulf nation. The UAE economy is about one-fifth the size of Indonesia. The announcement is also noteworthy because it emphasizes a type of South-South business corridor that is independent of global heavyweights.
One notable feature of this relationship is the complementary role that each nation plays in the global economy. While the UAE is prominent in finance and other service-related industries, such as hospitality and logistics, Indonesia offers strengths in the primary sector, including farming and fishing, as well as manufacturing industries. The deal will help both nations to diversify their economies beyond traditional trading partners, while supporting domestic policy efforts to bolster halal-centered commercial activity.
According to official sources, the UAE expects to more-than-triple its trade with Indonesia from about $3 billion currently to near $10 billion in three years, with a focus on non-oil sectors. Unconventionally, Indonesia imports oil, but it also exports more expensive, domestically-sourced crude, to help manage its current account deficit. Fossil fuels are incidental to the bilateral accord.
Fresh trade arrangements can take years to materially impact industry flows. In-the-trenches activity includes trade conferences, business-to-business negotiations, manufacturing strategy, and manpower allocation, among other components in the international-business mix. The protocols associated with this bilateral deal, however, provide a sense of at-hand action:
Pharmaceuticals. The two nations initialed a memorandum to cooperate in drug and vaccine monitoring. This exchange harkens to Indonesian constraints in manufacturing a Covid-19 vaccine. It potentially opens broader areas for bilateral pharmaceutical-related cooperation, including shared concerns about universal access to Shariah-compliant drugs.
Agriculture. Officials further agreed to emphasize joint mangrove projects. That feature may sound esoteric to some, but mangroves are essential to strengthening biodiversity through their carbon-hoarding and fish-cultivation features. Indonesia has the largest mangrove coverage in the world; brackish UAE waters are ideal for mangrove development.
The UAE has been intensifying trade priorities, offering a type of economic insurance policy against a global slowdown. Earlier this year, Abu Dhabi rolled out a new arrangement with India, already a key trading partner, and formalized a trade deal with Israel. Authorities are now negotiating a pact with Colombia. We note that all of these nations have vibrant venture-capital ecosystems, reinforcing the UAE’s own tech-related efforts.
Two-way agreements are usually more efficient to negotiate than sweeping multilateral ones. The UAE-Indonesia deal was hammered out over a 10-month period, despite pandemic pressures. Swift diplomacy suggests concerted attention on non-traditional opportunities by both nations. ■
Our Vantage Point: The UAE-Indonesia deal spotlights the changing character of the global economy. Multilateral initiatives make less sense in a fragmented world. In their efficiency and focus, bilateral accords will become even more routine.
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