Paul Keating famously declared that "no country is more important to Australia than Indonesia". Tony Abbott saw Australia's foreign policy future as "more Jakarta, less Geneva". This long-standing commitment across party lines to better and closer relations with our northern neighbour has never been more important. We must preserve it carefully.
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As the world navigates the energy transition away from fossil fuels and towards green energy, Australia and Indonesia have more in common than ever before. We are two democratic middle powers in the Asia-Pacific with mineral-rich economies worth more than a trillion dollars. The two largest coal exporters in the world, we have seen our dependence on fossil fuels result in energy price spikes that drive rising living and business costs. The fact that we each hold the key to the other's long-term wellbeing makes the relationship too important to play politics with.
When challenges emerge in this relationship, our leaders must navigate them without politicising them for a domestic audience, lest we jeopardise the long-term economic and diplomatic opportunities our relationship contains.
Australia's response to the foot-and-mouth disease outbreak - including stepping up biosecurity measures at borders and distributing 1 million FMD animal vaccines to Indonesia - has been backed by expert and livestock industry players as the most effective suite of measures to protect our agriculture sector.
Senator Pauline Hanson's unnecessary commentary drew attention and condemnation in Jakarta last week. Despite not reflecting the views of most Australians, Hanson's comments have been widely covered in the Indonesian press, appalling both the Indonesian government, the wider public and damaging Australia's reputation in the region.
At a recent G20 event on clean energy finance in Jakarta co-hosted by the Centre for Policy Development, I said that if Australia and Indonesia can decarbonise, any nation can. At the same event, Indonesian Energy Minister Arifin Tasrif indicated that the nation will seek US$1 trillion in capital investment in climate transition between now and 2060. This represents an extraordinary opportunity for Australian investment and trade.
The new federal government has, rightly, recognised the importance of Indonesia and south-east Asia for Australia's future prosperity. China's trade sanctions against Australia, and its increasingly concerning geopolitical position, have underlined the need for diversification of trade interests for both nations.
On his June trip to Jakarta, Prime Minister Anthony Albanese said Indonesia "represents enormous opportunity" for Australia. "We see Indonesia as central to our trade diversification plan," he said. Mr Albanese committed to a $200 million climate and infrastructure partnership. This is a step in the right direction. The announcement shortly afterwards of a delegation of Australian institutional investors led by IFM chair Greg Combet underlined the cross-border investment opportunities that decarbonisation presents.
We are not the only ones alive to this opportunity. President Joko Widodo secured almost US$12 billion investment from Japan and South Korea during a trip to east Asia late last month - with a particular focus on the green economy.
Geopolitically, there is also a sound rationale for deepening our relationship. With Jakarta set to chair ASEAN in 2023 after hosting the G20 this year, the nation is ascendant both diplomatically and economically. McKinsey projects Indonesia will be the world's seventh largest economy by the end of the decade, becoming larger than the economies of the UK and Germany by 2030.
The ingredients are there for Australia and Indonesia to act as partners, building upon trade and diplomatic links dating back hundreds of years, to drive decarbonisation across our region. Our two countries signed a new Comprehensive Strategic Partnership in 2018. A free-trade deal, the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), came into force in mid-2020.
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Monash became the first foreign university in history to open a campus in Indonesia in April this year. The world's biggest solar photovoltaic and battery storage project, Sun Cable, will run from the Northern Territory through Indonesian waters to provide energy to Singapore. While it will not supply energy to Indonesia, Sun Cable is investing $2.5 billion in Indonesia as part of the project.
These are all welcome steps, but there is so much more we can do. Melbourne University's AsiaLink Business head Leigh Howard has noted that it is hard to find any two neighbours with large economies who trade so little with each other. Indonesia is not even in Australia's top 10 largest trading partners.
Opportunities for capital investment by Australian funds and banks in climate transition infrastructure are on the near horizon, supported by public commitments already announced. Our free trade agreement will allow Australian research and development to feed into Indonesia's immense manufacturing base for green technologies. Australia will need many of the components Indonesia produces to accelerate our clean energy transition.
Indonesia aims to become an electric vehicle manufacturing hub, with its Ministry of Industry projecting the manufacture of 400,000 electric cars in 2025, set to increase to 5.7 million units in 2035. An energy-hungry Indonesia also represents a nearby market for emerging industries like green hydrogen and ammonia, alongside the longer-term opportunity to export energy directly as Sun Cable will to Singapore.
We need to accelerate the growth of this vital relationship if we are to capture the value that climate transition investment represents. Australia's national prosperity, our standing in the region, and the decarbonisation we must undertake to avoid catastrophic climate change, all depend on it.
- Andrew Hudson is the chief executive officer of the Centre for Policy Development, a John Monash Scholar and a board member of Australian Progress.
