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Success of New Southern Policy hinges on local acumen: Indonesian ambassador

South Korean President Moon Jae-in (right) and Indonesian President Joko Widodo shake hands during a summit in Seoul in September 2018. (Indonesian Embassy)
South Korean President Moon Jae-in (right) and Indonesian President Joko Widodo shake hands during a summit in Seoul in September 2018. (Indonesian Embassy)

As Seoul implements its New Southern Policy across Asia, it is crucial to grasp the region’s diverse local situations and tap into opportunities in emerging cities, according to Indonesian Ambassador Umar Hadi.

Speaking in an interview at the Indonesian Embassy in Seoul last week, the envoy advised South Korean companies, particularly automakers and manufacturers in related industries, to do more in-depth analysis of metropolitan and second-tier cities outside of Jakarta, as they will increasingly fuel Indonesia’s future economic development.

“You need to have very good local knowledge,” he stressed, adding that “Indonesia is changing very fast.”

“It’s not just Jakarta as the only economically important city. New centers of growth are popping up like mushrooms throughout Indonesia, like Makassar, Surabaya, Medan, Bogor and others,” he added.

Mentioning Indonesia’s vastness -- the country comprises some 17,000 islands across three time zones -- the envoy said automakers and other companies need to plan their business across Indonesia’s wider territory, where the demand for cars is rapidly growing among the rising middle class. He also said partnerships with local companies in services and finance were important.

Hyundai Motor, Korea’s largest and the world’s No. 5 automaker, announced plans in late December to begin producing electric vehicles in Indonesia as part of an $880 million investment in the country.

In an effort to diversify its markets worldwide and reduce reliance on the Chinese market, Hyundai and its sister company Kia Motors will build a factory in West Java’s Bekasi, Karawang and Purwakarta integrated economic and industry zone -- its first car-manufacturing plant in Southeast Asia -- with an annual capacity of 250,000 units, including electric cars. The company plans to export over 50 percent of the vehicles manufactured in Indonesia to Southeast Asian and Australian markets and sell the remainder in the country, which is heavily dominated by Japanese automakers.

“We have one of the largest deposits of nickel laterite ore, a vital mineral for producing lithium-ion batteries used in electric vehicles,” Hadi said, adding that producing the electric-vehicle battery close to the nickel deposit and combining it with electric-vehicle production and sales in close proximity would be cost effective. “Many mines and plantations in Indonesia for palm oil, rubber, coffee and other goods also need trucks and large vehicles. Our President Joko Widodo recently instructed cabinet ministers to speed up the drafting of regulations for the electric vehicle industry, because that is directly conducive to Indonesia’s industrial development.”

Citing Financial Times data, the embassy said Korea was one of Indonesia’s strategic partners for investment, with Korea plowing $11.3 billion into Indonesia from 2013 through the third quarter of 2018. During the same period, Indonesia became Korea’s second-largest investment destination among the Association of Southeast Asian Nations economies, after Vietnam with $39.3 billion of investment, and the third-largest worldwide.

“Back in the early 1970s, big Japanese corporations came into Indonesia, while from Korea mostly small and medium-sized enterprises came in, many of them mom-and-pop stores,” he said, adding that large Korean corporations began entering the Indonesian market in the 1980s. “Over the years, many young Koreans were born in Indonesia, becoming the largest expat community there. Japanese brands are more familiar to Indonesians in general, but Korean brands have an edge among young Indonesians in cosmetics, electronics, fashion, K-pop and entertainment.”

The top Korean conglomerates that have invested in Indonesia are Lotte, Posco, Hankook Tire, GS Engineering & Construction, Korea Electric Power, DW Development, Hanhwa and CJ Group.

The two economies registered a $20 billion trade turnover last year, an 11.4 percent on-year increase.

“The best scenario would be Korean and Indonesian companies setting up joint ventures and marketing and selling their products in third markets worldwide, first in ASEAN and later expanding to Australia, Indo-Pacific and beyond,” said Hadi. “There are currently millions of Indonesian companies that are ready to go global. Because our domestic market is huge, they didn’t feel the need to globalize before, but with increasing economic globalization, they are now feeling the pressure to be internationally competitive.”

Hadi’s priorities are ensuring sustainability in bilateral cooperation across all areas, so that every partnership remains long-term and mutually beneficial, he said. Last year, the Indonesian and Korean governments started a cooperation scheme to reform their regulations to facilitate two-way trade and investment. A wide range of knowledge- and experience-sharing projects are underway alongside joint research endeavors involving industrial regulation, internet of things technology, cryptocurrency, information communications technology and others.

“Both sides want a wider engagement of their professionals, including the next generation of leaders. We have a mechanism for discussing how we can move forward our bilateral ties,” the diplomat said. “We want more Korean participation and investment in the automotive, human resource development, health care, ICT, smart manufacturing, food and agricultural industries.”

Pointing to the 30th anniversary of the establishment of ASEAN-Korea dialogue relations this year and to the upcoming 2019 ASEAN-ROK Commemorative Summit in Korea, Hadi said Indonesia has historically supported the regional bloc for shared peace, security and prosperity, especially by playing an instrumental role in setting up the ASEAN Charter and institutionally strengthening ASEAN.

By Joel Lee (