Address to Australia-Indonesia Business Council

I acknowledge the presence here of my very dear friend the Ambassador from Indonesia Nadjib. Thank you for being here and I also acknowledge the President of the AIBC and Kate Carnell - Kate's here I think - the CEO of the Australian Chamber of Commerce and Industry. Also the chairman of the Indonesian Chamber of Commerce and Industry are here as well, Sulisto.

I'm here to discuss the relationship between Australia and Indonesia. We are living in challenging times in the Indian Ocean Asia-Pacific. I have designated our region, the Indo-Pacific, and there is significant change underway in a number of the region's nations.

Few countries, however, are undergoing change as significant as that in Indonesia. For Australia, engagement with Indonesia is a top priority – which is why I have visited Indonesia more than almost any other country since coming to office in September 2013.

I believe I have begun to establish a very good relationship with the new Foreign Minister Retno Marsudi, after a very good relationship with Marty Natalegawa. Marty and I exchanged mobile phone numbers at our first meeting and texted each other continuously throughout my time as Foreign Minister, when he was Foreign Minister, and much to the chagrin of our respective ambassadors and high commissioners and diplomats. Because this texting diplomacy isn't exactly the old-fashioned cable diplomacy, is it? But also Ambassador, I have to tell you, exchanged mobile phone numbers with Ibu Retno.

We have now met officially three times since she was appointed in October, including at APEC in Beijing last month and we had a couple of very long meetings at the G20 in Brisbane, including over lunch and dinner so I feel that we have great foundations for a long and enduring relationship.

We are already down to business. We are working closely on the range of shared interests that make the relationship between Australia and Indonesia so important. Trade and investment are of course critical to this relationship. With the Widodo Administration, we have a fresh burst of energy and drive – a new government taking a distinctive approach to development and reform – a prospect which offers new opportunities and potential.

From Australia's perspective, we recognise that there is more that we can do, and must do, to advance this important relationship with Indonesia and to take advantage of the changes that are taking place.

Australia and Indonesia are the two largest economies in South-East Asia. In fact we currently rank as the 12^th and 16^th largest economies in the world. There is considerable potential for expansion in our trade and investment relationship– particularly if Indonesia can implement its reform program and consistently lift its economic growth rate as President Widodo intends.

In the past five years, Australia has exported goods to Indonesia on average with an increase of about 5 per cent a year. But, I believe our economic ties with Indonesia are still under-done, especially if we consider that for example, our exports to Malaysia have grown 8.5 per cent, our exports to Vietnam 13 per cent and our exports to China 19 per cent a year. So I think that our trade ties with Singapore and Malaysia are noticeably stronger than those with Indonesia and I believe that that must change.

There are of course structural reasons for this: Australia and Indonesia are both major exporters of minerals and energy, so we wouldn't expect those products to be prominent in bilateral trade between us. But I don't think these statistics should disguise the fact that Indonesia's potential as a trade and investment partner for us is enormous, particularly with its rapidly growing young population, and it's large middle-class consumer market. The demographics are on our side and there are many areas where our economies are in fact complementary.

Already, Indonesia is Australia's third largest food export market, and we see great opportunities in tourism, education, health services, financial services, infrastructure and advanced manufacturing, including in automotive parts.

Of course, risks remain. As everyone here will be well aware, the business environment in Indonesia can be challenging, particularly for new entrants. Regulatory issues are a significant constraint for foreign players in a number of sectors. Trends towards economic nationalism and protectionism have been evident for some years, have featured in the last election and may well persist.

President Widodo is dealing with budgetary pressures, a minority in parliament, and - like many other countries - vulnerability to global economic trends. He spelled some of those challenges out honestly and directly in his address to the CEO Summit at APEC in Beijing last month – setting out just how much work lies ahead for Indonesia, particularly given the budgetary constraints he faces, a familiar story. He also outlined important plans for Indonesia's economic development, and made clear to everyone that he sees a role for foreign business in his vision for Indonesia.

Specifically, the President spoke of his key economic priorities, building key infrastructure, such as 24 seaports, within only five years, railway networks across Indonesia, mass transportation systems in six cities, 35,000 MW of new power capacity, and improving the business environment by cutting red tape.

Having made changes to the fuel subsidy that should return nearly $10 billion in estimated savings in 2015, President Widodo has already taken a significant step to achieving one of his first goals in office. This is a good sign that he will continue his pragmatic style, as he demonstrated as Governor of Jakarta and Mayor of Solo in effecting change.

For me, part of the issue for us in strengthening our trade and investment ties is changing the way we see Indonesia - shifting gears in the Australian mindset so we see the opportunities between our two countries - in the same way that we've seen the opportunities in North Asia.

Let me mention a few things that government and business are doing, and can do, to expand our economic relationship with Indonesia. Our foreign policy is based on what I call economic diplomacy: that is using all the political, diplomatic, aid and other levers at our disposal to enhance and build our economic and commercial relationships with other countries.

In launching for example our new aid policy in the middle of this year, what I call the new aid paradigm, I made no secret about the extent to which I think development assistance should underpin economic growth. Because economic growth, particularly private-sector led economic growth, is the major engine of job creation and poverty reduction.

We are using our aid program to help address the key issues President Widodo has prioritised. We have put a strong emphasis on infrastructure development, as well as projects that support international trade, aid for trade. Our support has focused on road infrastructure, transport, and water and sanitation, and we will continue to help and expand, where possible, our program to address Indonesia's infrastructure needs.

During Australia's 2014 presidency of the G20, infrastructure investment was a focus for the finance ministers, and the G20's Development Working Group. Together, we endorsed the Global Infrastructure Initiative at the G20 Leaders Summit in Brisbane. It is a package of measures aimed at boosting lending for infrastructure, particularly high quality, productivity enhancing infrastructure.

We're also well positioned to help with advice on how to adjust policies and regulatory settings to attract investment, and to grow a more robust and stronger private sector. We have in fact helped establish a Public Private Partnership Centre of Excellence in Indonesia. We did this during the 2013 APEC Leaders' Meeting, and it is actually set up inside Indonesia's Finance Ministry.

In 2014 we assisted Indonesia to draft the National Ports Master Plan, including proposals to introduce competition and private-sector involvement in port development and operation. We also see the value identified by the President in reforming the Indonesian tax system. He wants to make the financial system more stable, and to simplify and modernise tax administration, including boosting the revenue to GDP ratio to 16 per cent.

Our economic governance programs can assist here. We have already started work to help broaden Indonesia's tax base and strengthen the Tax Directorate's integrity functions. So this ethos of partnership is also why we are working with the private sector from both sides under the Indonesia-Australia Partnership for Food Security in the Red Meat and Cattle Sector to expand linkages between our two countries. Without being overtly political, there was an incident in recent memory where our reputation as a trusted and reliable trading partner with Indonesia was put to the test over the live cattle ban. So we are determined to restore our reputation as a reliable and trusted trading partner, particularly in the sensitive area of food security.

Tourism is a great way to expand mutual understanding and appreciation, and of course, bring economic benefit. This year, we expect one million Australians to visit Indonesia, a new record. In 2015 it is estimated that Indonesia will be the top overseas tourism destination for Australians, overtaking New Zealand which was visited by 1.3 million Australians in 2013. Australians are travelling North rather than East.

We also see considerable potential to increase the number of tourists from Indonesia to Australia, and to assist, the Indonesian Government has recently approved our opening a Tourism Australia office in Jakarta. And that's a very positive step. One of the issues I wanted to address when we came into government was to establish a Team Australia locality in each of our missions, so that aid, DFAT, immigration, tourism were all in the one location. This came about through great frustration I experienced one day in Shanghai as opposition foreign minister and it took me most of the day to get from our Austrade office to our Tourism Australia office to our consular office! I thought this is crazy, we should all be in the one place. So I'm delighted that we are now opening a Tourism Australia office in Jakarta.

This is also why we're working to deepen trade and investment links through the proposed Australia-Indonesia Comprehensive Economic Partnership. The government, particularly through the leadership of my portfolio colleague Andrew Robb, well and truly has the runs on the board when it comes to trade liberalisation. Just look at the three Free Trade Agreements we've concluded with our North Asian partners Korea, Japan and China.

Now the Indonesian Economic Cooperation Partnership Agreement gives us the opportunity to put our commercial relationship with Indonesia on a similar footing to those of our major trading partners in the region, with whom we have bilateral Free Trade Agreements. To build a comprehensive economic partnership. To address market access restrictions and other trade issues that are not fully addressed by the ASEAN-Australia-New Zealand Free Trade Agreement or indeed the Regional Comprehensive Economic Partnership, the RCEP, - which is currently being negotiated with Indonesia - its ASEAN partners and China, India, Korea, Japan and New Zealand.

In 2014, our officials continued to engage on developing the Comprehensive Economic Partnership Agreement through pilot projects. In 2015, as President Widodo's new cabinet settles in, we will seek to reinvigorate these negotiations. And the Abbott Government will back this up with increased engagement with the new Indonesian administration, including high level government visits accompanied by business delegations early next year. In fact I've already spoken to Ambassador Nadjib about my first 2+2 meeting with Indonesia, that we hope will take place very early in the year, 2015.

I was absolutely heartened by what the Indonesian President said at APEC to the CEOs: "We are waiting for you to invest in Indonesia" - another way of saying "Indonesia is open for business". So let's not ignore the invitation. Let's work to develop the relationship's full potential.

In doing this, business engagement is absolutely critical. The PWC Business Report released on Monday makes sobering reading, and there's another article about it in the Fin Review today. Only 9 per cent of businesses surveyed having operations of any sort in Asia and only 12 per cent having any experience at all.

But there is some progress. Australian companies, large and small, are investing in Indonesia and some are building meaningful relationships. Both ANZ and the Commonwealth Bank are doing great work in terms of raising financial literacy and promoting increased participation of women. ANZ has played a leading role in raising capital to fund the expansion of the ports in Jakarta and Surabaya.

And I think we need to take advantage of our trading complementarities. Our wheat exports to Indonesia – our biggest market – meet Indonesia's food needs and are an example of value-add processing and a partnership in which both parties win. And there are opportunities to build more partnerships that incorporate value chains across the region and globe. For example, Indonesia is emerging as a regional vehicle manufacturing hub. Indonesia accounted for about 40 per cent of cars produced in ASEAN and Australian industry is already exploring the potential for our component manufacturers to supply Indonesia's vehicle industry with what it needs.

Australian businesses are demonstrating their willingness to enter and commit to the market. Cokal, a coal miner listed on the Australian Stock Exchange, has invested in a Kalimantan coal project by pioneering US-developed barging technology in Indonesia, to move coal down Kalimantan rivers to ports. And a really smart Sydney-based printing and design company, called The Distillery, has chosen Indonesia for its international expansion, based on growing consumer opportunities.

We want businesses to keep seeing the opportunities in Indonesia, and to keep making the smart and strategic investments that will bind our economies even closer in the future. We also want business to encourage the community to take the broad perspective on our trade and economic engagement - not just seeing individual opportunities, but continuing to work to improve the business environment at large.

The involvement of many of you here today as part of the Indonesia-Australia Business Partnership Group has been an innovation in developing positions on key trade negotiating issues, something that I wholeheartedly endorse. This is the first time that business representatives from Australia and a trade negotiating partner have jointly developed positions on key negotiating issues.

I'd also like to congratulate AIBC President Debnath Guharoy for inviting sectoral working groups to meet on the sidelines of the conference to discuss opportunities. This dialogue is smart and timely, and I applaud the commitment shown from both sides - in particular on infrastructure - who mobilised to meet last month during the G20 in Brisbane.

Finally, I'd urge you to keep supporting our New Colombo Plan. For those of you who have not heard me speak about the New Colombo Plan I will tell you! It is our flagship foreign policy initiative which gives undergraduates at all Australian universities the opportunity to live and study and work in our region. We trialled this New Colombo Plan in 2014 in four locations Hong Kong, Japan, Singapore and Indonesia and during our trial program we had double the number of students we'd expected to be able to provide grants and scholarships to. In fact 1300 students have taken part in short-course or semester long courses in the four locations including Indonesia, 40 students won 12-month scholarships. For 2015 we have announced that 3150 students from 37 of our universities will be travelling to countries in the Indo-Pacific to undertake studies, internships and mentorships. On Tuesday evening I announced that 69 students have been awarded New Colombo Plan scholarships, that is study for up to 12 months and Indonesia was indeed a popular destination. In fact, of the 3150 students going on a shorter course or semester long courses, a vast number were awarded to Indonesia. 600 to Indonesia, next was China at 500, then India at 300. So our students get it. They are certainly applying to live and study and work in Indonesia. Ambassador, I must also acknowledge the support, not only of the Indonesian Government and the Foreign Ministry, but the number of Indonesian businesses who have offered to have Australian undergraduates in their workplaces to provide them internships so that they can have a real-life experience of the business culture in Indonesia - and importantly - set up connections and networks and friendships that I know will last a lifetime. I particularly want to note that at a time when naysayers were suggesting that there were tensions in the Australian-Indonesia relationship during the course of 2014, in fact, Foreign Minister Marty Natalegawa offered to take two Australian students as interns within the Indonesian Ministry of Foreign Affairs. That represents a level of trust and cooperation between two very good friends.

We recognise that we are living in a period of exciting change in Indonesia and so for Australians to make the most of our relationship with our large, dear, close neighbour, we need to continue to work hard to diversify and strengthen the links between our governments, our communities, our economies, our people. I can assure you that the Australian Government is working to add further ballast to the official relationship, by extending and developing the areas in which we cooperate. In fact Australia and Indonesia, at the Government level, did a stocktake of the number of official treaties, agreements, dialogues, forums that exist between Australia and Indonesia and at last count, in over 60 areas across 20 government departments and agencies, everything from economic, security, defence, justice, environment, science, technology, education and so many other fields. So the ballast is there, we need to build on it.

Strong commercial links are central to our vision for the future of this relationship.

In closing, I just want to wish you every success for your discussions over the next two days, I look forward to discussing the outcomes with you as we pursue opportunities and build new and productive business connections between our two countries.

I firmly believe that the very best days of the Australia-Indonesia relationship lie ahead of us.

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