Australia and Indonesia can succeed together

In Sydney or Melbourne, you hear the same thing from a slightly different perspective.

Australian business is put off by Indonesia's "known unknowns" - unpredictable politics, changeable investment policies, currency volatility and ability to source sufficient skilled staff. China is seen as the bigger opportunity.

Yet neither assessment is adequate reason to ignore the imperative of looking to each other and to act together, quickly.

FLEXIBILITY AND RESILIENCE

For Australian business, developing the ability to deal with ambiguity and uncertainty is a key success factor almost anywhere in Asia - moreover such resilience and flexibility promotes profitability at home. Embracing Indonesia will enable both the capability and the benefit.

There are also strong economic imperatives. As China re-orients it's economy, neither Indonesia nor Australia will derive growth from commodity mainstays. And world economic growth is expected to be slow for the next five years. Both factors will require new ways of competing and engagement with new frontiers.

Most importantly, as China rebalances away from investment and industrial production and towards tertiary activity and consumption, 'Factory Asia' is likely to drift south into the relatively youthful and cheaper labour forces of the ASEAN.

This will in fact bring global value chains to Australia and Indonesia's front door for the very first time. It is Australia and Indonesia's choice whether to open that door, but the opportunity cost of leaving it closed is huge.

Andrew Robb, Australia's Minister for Trade and Investment Minister, together with his Indonesian Investment counterpart have launched “Succeeding Together" a joint ANZ and PwC report written on behalf of the Australia-Indonesia Centre.

It highlights rich and, more critically, feasible opportunities:

• Australia and Indonesia working together presents an $A3 trillion opportunity over the next decade.
• For Indonesia, the big prize is a second manufacturing revolution, like that of the late 1980s. Leveraging Australia's expertise can help Indonesia upskill its workers and design capability while avoiding the middle-income trap.
• For Australia there are the new horizons of Education, Health, Logistics, Food Processing and Animal products, textiles and fashion.

The joint opportunity for Australia and Indonesia to more closely align their economies greatly amplifies the individual outlook. Whilst Asia is the dominant global economic hub, smart North Asian, US and European organisations are moving their supply chains, and the centre of activity, south and east. This is happening at unprecedented speed.

In less than a decade, for instance, Vietnam has become the third largest producer of shoes globally, with the European Union being its largest market.

Global supply chains are a fundamental dynamic of international trade. However as a percentage of exports, both Indonesia's and Australia's participation in regional and global supply chains is the lowest in developed ASEAN. Both countries are leaving opportunity on the table by operating outside these.