Indonesia’s President Joko Widodo, popularly known as Jokowi, is embarking on an official visit to Sydney with the aim of advancing Jakarta’s electric vehicle (EV) battery hub aspirations by leveraging Australia’s abundant lithium resources.
During his three-day trip, President Widodo will engage in the annual leaders’ meeting with Australian Prime Minister Anthony Albanese, as the two neighboring countries seek to strengthen their trade ties, which have been considered below their potential. Despite previous Australian leaders emphasizing the significance of the relationship with Indonesia, there is room for growth in trade cooperation.
Australia is home to half of the world’s lithium reserves, a crucial component for EV batteries. During the G20 Summit in Bali last November, President Widodo urged Prime Minister Albanese to collaborate on EV battery production. In February, Indonesia’s Chamber of Commerce signed a memorandum of understanding with the government of Western Australia to further explore this partnership. The state, rich in natural resources, revealed in its May budget that lithium will soon surpass fossil fuels as its second-largest revenue source.
While the majority of Australian lithium is currently sold to China, the largest EV market globally, the Australian government is keen to diversify critical mineral supply chains away from Beijing due to escalating political tensions. Indonesia, on the other hand, aims to become the world’s largest EV battery market and has been actively courting Tesla, among other major international companies, for investment in production facilities.
As the world’s largest producer of nickel, another vital component for EV batteries, Indonesia lacks the extensive lithium resources found in Australia. However, the alignment between the two countries regarding lithium presents a significant strategic partnership opportunity, according to Jennifer Mathews, the national president of the Australia Indonesia Business Council.
President Widodo’s visit also coincides with the third anniversary of the free-trade agreement between Indonesia and Australia, covering agriculture, health services, and education, with both parties expressing interest in expanding it. In the 2021-22 period, Australia’s bilateral trade with Indonesia amounted to AUD 18.35 billion ($12.2 billion), making Indonesia its 14th largest trading partner.
Tim Harcourt, an industry professor and economist at the University of Technology Sydney, highlights the importance of Australia capitalizing on its strengths in agriculture and services to succeed in Indonesia’s more protectionist and domestically focused market. While he believes Singapore, Malaysia, and Thailand will remain more attractive due to their market openness, he acknowledges the potential for growth in bilateral ties between Australia and Indonesia.
Despite past challenges such as live exports, spying allegations, human smuggling, and the execution of two Australian drug traffickers, diplomatic and economic relations have improved during President Widodo’s tenure. In February, Indonesia and Australia also agreed to strengthen their joint defense pact. However, President Widodo recently emphasized in an interview with Australian media that multilateral groupings, including AUKUS and the Quad, should not trigger an arms race in the Indo-Pacific. Instead, he called for inclusivity and engagement to promote peace and stability in the region.
As geopolitical tensions rise and China’s leadership takes on a more ideologically driven approach, Indonesia sees an opportunity to shed its previous reputation as a risky investment destination. One of the main challenges will be raising awareness among Australian industries about the market opportunities offered by Indonesia’s expanding middle class and rapidly growing economy.
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