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[Hello Indonesia] Korea, Indonesia to bolster ties on future growth drivers

Korean businesses increasingly investing in Southeast Asia's largest economy

By Im Eun-byel

Published : Nov. 5, 2023 - 16:33

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Night view of skyscrapers in Jakarta, Indonesia (123rf) Night view of skyscrapers in Jakarta, Indonesia (123rf)

South Korea and Indonesia, marking the 50th anniversary of diplomatic ties this year, are seeking to further extend their economic cooperation in key areas from electric mobility and infrastructure to finance, as both countries are eager to nurture future growth drivers.

Over the past five decades, the two countries have enhanced their economic and business partnership. The trade volume has surged from $185 million in 1973 to $26 billion in 2022, with Indonesia becoming Korea’s 11th-largest export destination.

Amid geopolitical tensions and protectionist policies around the world more recently, the two countries have increasingly joined hands in effectively managing the supply chains of their key industries.

One of the key areas is electric vehicles and its batteries. Indonesia is the world’s biggest producer of nickel, the key material for EV batteries. The country owns the largest nickel reserve of around 21 million metric tons, according to United States Geological Survey data.

Hyundai Motor Group, which set up its first Southeast Asian manufacturing plant in Indonesia last year, has teamed up with LG Energy Solution, Korea’s top EV battery maker, to build a battery cell plant in the country. The plant is set to become fully operational from next year.

Korean steel giant Posco Holdings is also working to establish a nickel refining plant in the country to strengthen its global nickel value chain.

“The Indonesian government is encouraging the exports of refined raw materials on a policy level, banning the export of raw ore,” an official from the Korea International Trade Association’s Jakarta branch said.

Indonesian President Joko Widodo’s administration banned the exports of unprocessed nickel ore in 2020 to control the limited pool of mineable nickel resources.

“For Korean companies that can create added value through processing raw materials, Indonesia will be a land of opportunities,” the official said.

Another area of potential cooperation is infrastructure. Indonesia plans to relocate its capital from Jakarta to the new city of Nusantara in Borneo, with hopes of inaugurating it in August of next year.

Companies such as Samsung C&T, the construction unit of Samsung Group, and Daewoo Engineering & Construction, have already joined hands with Indonesia, ready to take part in the city building project.

"As Indonesia plans to move its capital, infrastructure companies are expected to benefit from the relocation project," Jung Jong-hyun, chief representative at Korea Overseas Infrastructure & Urban Develop Corp., said.

“A new city requires roads, buildings and all kinds of establishments. Companies are keen to seize opportunities in a project like this,” Jung, based in Jakarta, said, hinting many countries have already started to compete to win deals.

As the Indonesian government hopes to develop Nusantara into a high-tech, green city, IT companies are also lining up, searching for business opportunities.

Korean telecommunications giant KT Corp. and information technology service provider LG CNS have secured partnerships with Indonesia, in a bid to make Nusantara a “smart city” in terms of city management and mobility.

Furthermore, Korean finance firms are eyeing expansion in Indonesia as the country is expected to grow rapidly, backed by its large, young population. Indonesia, the world's fourth-most populous country saw 5.31 percent growth in its economy last year.

Korea's top four commercial lenders, KB Kookmin Bank, Shinhan Bank, Hana Bank and Woori Bank, all have subsidiaries in Indonesia, seeing potential in its fast-growing economy.

Even Kakao Bank, the banking arm of Korean mobile giant Kakao, made its first investment outside of Korea in Indonesia, announcing it is to acquire a 10 percent stake in PT Super Bank Indonesia in October.

Brokerage houses, expecting Indonesia's middle-income market to grow, also have a presence in the country. Major securities firms have launched subsidiaries in the country, including Mirae Asset Securities, KB Securities and NH Investment & Securities.

Yet though Indonesia presents diverse opportunities with a booming economy, KITA also warned of risks with jumping headfirst into piling on investments, citing the volatile rupiah.

“For Korean businesses, the volatile rupiah remains a threat to stable earnings,” the official from KITA said.

“Together with rising costs of raw materials, the rupiah has strengthened against the US dollar since last year, but we are not sure how long this will continue.”

With an aim to explore new business opportunities between Korea and Indonesia, Herald Corp., publisher of The Korea Herald and Herald Business, will host a business forum under the title, “K-Wave and I-Wave, Together for the Future,” at Hotel Mulia Senayan in Jakarta on Nov. 30.