World Bank, Jakarta, 15 June 2017
Honourable Minister of Finance, Ibu Sri Mulyani Indrawati. World Bank Country Director for Indonesia, Rodrigo Chaves, senior officials and colleagues.
I am honoured to have the opportunity to speak at the Indonesia Economic Quarterly, together with the Minister.
Australia is proud to support the IEQ. It speaks with an independent voice and makes a great contribution to policy debate in Indonesia. This edition focuses on early child hood development and child stunting.
Child stunting has considerable human and economic costs. Stunting increases the risk of child deaths, adversely affects cognitive and motor development, lowers performance at school and reduces productivity in adulthood.
Each year Indonesia misses out on 3 percent of GDP as a result of stunting.
Child stunting is fundamentally about nutrition and the availability of affordable high quality produce at critical times in life.
It is also about decreasing the burden of diarrhoeal disease so children can absorb vital nutrients.
There is a clear consensus that the first 1000 days in life are the most critical window for cognitive and physical development.
Australia’s development program supplies micronutrient and anaemia supplements in East Java and East Nusa Tengara provinces.
Training is provided to health-workers to increase their knowledge of the importance of micronutrients.
The project will provide 73,500 pregnant women with iron and folic acid tablets and 240,000 children under 5 with Vitamin A. 365,000 children will also be treated with Zinc and Oral Rehydration Solution (ORS) for diarrhoea.
I am pleased to announce here today a further AUD 2 million to extending our micronutrient work to include adolescent girls.
Studies have shown that at least one-third of adolescent Indonesian girls are anaemic.
Combined with the prevalence of early marriage and inadequate nutrition, iron deficiency anaemia among girls is a major public health challenge as anaemic women have a much larger chance of delivering a low-birth weight baby, pre-term delivery, poor neonatal health and potentially maternal mortality.
Household sanitation and treatment of drinking water are strong predictors of stunting.
Indonesia has a number of challenges to overcome with 18 per cent of the population still without access to improved water, 80 per cent without access to piped water, and 98 percent without access to sewerage systems.
Since 2008, Australia has invested over AUD 300 million into improving water and sanitation infrastructure and practices in Indonesia, including investments up until 2022.
This has resulted in almost 400,000 new connections, and an additional 260,000 connections have been provided since the model has been adopted and taken to scale by the Government of Indonesia for nation-wide application (using APBN funds).
We are working with the World Bank to support an Indonesian government program to provide water and sanitation to rural areas enabling 9.3 million people to have access to improved water facilities, and 11 million people to have access to basic and improved sanitation in more than 12,250 villages in Indonesia.
More broadly, Indonesia will be unable to make the most of its youth dividend to power economic development if it fails to address malnutrition and stunting.
Australia remains committed to water and sanitation and other infrastructure work in Indonesia.
In November 2015 our Trade Minister announced an extended $300m program at the same time as the decision was made to re-invigorate negotiations of the Indonesia Australia Comprehensive Economic Partnership - this $300m represents an investment in our economic partnership.
Food security and a stable, open trading regime go hand-in-hand.
Reality is that no country can or should produce all of its food needs domestically.
Indonesia, like Australia exports twice as much food as it imports.
According to the UN, in 2015 Indonesia exported USD 22 billion worth of food products and imported 10 billion.
Yet, as recent World Bank research shows, in the same year government interventions increased the cost of food by 36 billion USD in Indonesia.
An open and efficient trading regime enables a country to meet its basic nutritional needs by building a competitive food industry of its own.
Indonesia has enormous potential to do more with its food processing industry if it can get regulatory settings right.
According to the Bank of Indonesia, the food processing sector accounted for 5.6% of Indonesia’s GDP in 2015
This represents around one-quarter of all Indonesian manufacturing.
But statistics from the previous IEQ report released in October 2016 suggest Indonesia’s food processing sector is not reaching its full potential.
Tellingly, from 2001 – 2015 Indonesian imports of processed foods increased by a factor of seven - from USD 1.2 billion to around 8 Billion.
Indonesian food processers could compete better with their peers in the region – countries like Thailand, Vietnam and Malaysia - if they had improved access to high-quality, low-cost inputs.
There are some great examples of Indonesia benefiting from international partnerships in this sector for example, Indomie: imported wheat from Australia and elsewhere is used to make this iconic Indonesian product
This addresses local food needs and earns export revenue.
There is a real opportunity for Indonesia to become a food processing powerhouse by easing restrictions on agriculture imports.
We’re looking to help bring that about through IA-CEPA, which is currently under negotiation.
A strong food processing industry means jobs for young urban Indonesians and cheaper food.
Over 10 million Indonesians move to cities each year – they will need jobs.
But IA-CEPA is not just about boosting trade in goods
it’s also about partnerships in services and investment.
I’m delighted that this IEQ focuses on investment.
That’s because there is great potential to increase two-way investment between our two countries
There is great potential to increase two-way investment between our two countries
Indonesian investment into Australia remains modest ($1.2bn in 2016) while Australian investment into Indonesia is growing ($9.2bn in 2016, up almost 9 per cent from 2015).
Indonesia is keen to attract foreign investment to help drive its economic growth
President Widodo has identified infrastructure and manufacturing, for example, as priority sectors
Australian companies are keen to be part of Indonesia’s economic growth story.
Australian companies can help bring know-how and expertise, as well as capital, to key sectors of the economy that Indonesia is trying to develop further and make real contributions to employment, incomes and economic growth in Indonesia.
Like Coca Cola Amatil, an Australian company which invested AUD1.5 billion into its plant in Bekasi, creating thousands of jobs for Indonesians.
In 2015 Australia had 2.6 trillion US Dollars in managed funds – the highest in the Asian region and the third highest in the world.
A decent share of that money will only come to Indonesia if the conditions are right.
the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) is an opportunity to make that change.
We see that Indonesia has made reforms to its foreign investment regime and that Indonesia achieved a ranking of 91 on the World Bank Ease of Doing Business report, a jump of 15 places over 2015.
We welcome these reforms, including opening up sectors in the 2016 revision of the Negative Investment List and welcome and encourage further efforts by the Widodo government on its reform agenda.
But investors are looking for more both ways.
Reflecting policy reforms through binding commitments in IA-CEPA will send strong signals to Australian investors about Indonesia’s appetite for foreign investment.
Australia places very few restrictions on foreign businesses seeking to invest in Australia and we are very keen to see more
We welcome and encourage further investment into Australia by Indonesian companies
IACEPA is a singular opportunity to change business perceptions about investing in Australia.
Australia places great priority on a high-quality, comprehensive outcome in the IA-CEPA
we see it as a unique opportunity to transform our economic partnership.
As part of this, we also see IA-CEPA as an opportunity to give the two-way investment relationship the boost it needs by going beyond the commitments we have made in previous agreements and addressing barriers to investing in Indonesia for Australian businesses.
Thank you again to the World Bank for the opportunity to speak today.
The issues addressed in this report are important. Australia is partnering with Indonesia to achieve solutions.