Indonesia lures investment from Middle East as US turns inward
March 12 2017 09:53 PM
Commuters walk along a footbridge as commercial buildings stand in Jakarta. As one of Asia’s fastest-growing economies and the most populous Muslim nation in the world, Indonesia is billing itself as a natural home for Middle Eastern investment at a time when the US is turning inward.


As one of Asia’s fastest-growing economies and the most populous Muslim nation in the world, Indonesia is billing itself as a natural home for Middle Eastern investment at a time when the US is turning inward.
With a landmark visit by Saudi Arabia’s King Salman bin Abdulaziz to Southeast Asia winding down last week, Indonesia has won pledges of $1bn in development finance and signed agreements to cut trade barriers. That’s on top of a $6bn oil refinery deal between Saudi Aramco and Indonesia’s PT Pertamina signed in December.
As the largest supplier of crude to Indonesia and with muted oil demand in developed markets, Saudi Arabia has plenty of economic reasons to build stronger ties with the Southeast Asian nation. 
“It probably also makes sense for the Middle Eastern petro-states to diversify their investments geographically into Asia,’’ said Thomas Lembong, head of the Indonesian Investment Coordinating Board. “In Muslim-majority countries like Indonesia, Middle Eastern investors would enjoy added comforts such as the inherent respect and feelings of sanctity towards investment from the very cradle of Islam.’’
The visit by the Saudi king was planned well before US President Donald Trump issued an executive order for a travel ban that targeted several Muslim-majority countries, and which was renewed last week after initially being set aside by the courts. Indonesia criticised Trump’s move at the time the order was issued, saying closing borders to the rest of the world won’t address the problem of terrorism.
With a 1,500-strong entourage in tow, the Saudi king’s 12-day visit to Indonesia was preceded by a visit to Malaysia, another Muslim-majority nation, to seal a separate $7bn deal with the state-owned Petroliam Nasional Bhd to develop an oil refinery and provide up to 70% of its crude requirements. Malaysian and Saudi Arabian companies signed agreements worth about $2.2bn in areas including construction, aerospace, halal, and Haj-related industries.
Naser al-Tamimi, a researcher based in the UK and author of a book on China-Saudi Arabia relations, said he expects ties between the Arab world and Muslim-majority countries like Indonesia and Malaysia to be strengthened.
“The efforts to develop relations with countries such as Indonesia, Malaysia enjoys considerable support from most Saudis,” he said by email. “I expect that relations with countries such as Indonesia and Malaysia will expand in the future in all areas, including security and defence, as a result of Saudi Arabia’s strategy to diversify its foreign policy and its investments in the world.”
Indonesia’s youthful and growing population of 260mn, economic growth of about 5% and a relatively stable political environment are luring investors. President Joko Widodo, who took office in 2014 on pledges to reform and boost the economy, sees foreign investment as key to his growth plans.
Foreign direct investment into Indonesia has surged 48% in the past six years to about $29bn in 2016, according to data from the Investment Coordinating Board. Saudi Arabia is the nation’s biggest trading partner in the Middle East, with total trade of $5.9bn in 2015.
“The Saudis are seeking to strengthen ties with countries that import its oil, and to promote investment opportunities in Saudi Arabia, as it grapples to diversify its economy,” Norshahril Saat, a research fellow at the ISEAS-Yusof Ishak Institute, said in a report after the king’s visit to Malaysia. 
A $5bn deal between Iranian and Indonesian companies to build an oil refinery in East Java have also been in the works - although talks were suspended last month amid the threat of US sanctions – while billions in investment dollars have also been coming to Indonesia from Qatar and the UAE.
“The developed world is a declining market for oil and Asia is one of the regions where growth in oil demand is expected to stay strong over the coming years,” said Jason Tuvey, Middle East economist for London-based Capital Economics Ltd. “Low yields on conventional financial assets have prompted a number of the Gulf countries to adopt more aggressive investment strategies and the pivot towards Asia may form part of this.”

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