Indonesia spying scandal – the true cost for Australian exporters

In the wake of Australia’s spying scandal with Indonesia, international trade relations with the country could be damaged, with the country now looking elsewhere for its beef and wheat imports.

Relations between the countries are at their lowest point in over a decade since the East Timor crisis in the late 90s and 2000s, and now it seems the political scandal has escalated into damaging trade relations.

Indonesian Trade Minister Gita Wirjawan told foreign journalists in Jakarta yesterday the country was considering halting live cattle trade in the aftermath of the spying revelations.

“The reason for our concern at the moment is quite easily explicable. And you as a human being, I think would understand it – if someone that you trust would do, you know, would do whatever that’s been described,” he says.

Last week, Wirjawan asked the Indonesian parliament to revise health laws and allow the country to import beef from India and Brazil.

Indonesia is Australia’s 12^th largest trading partner and Australia’s live cattle export trade to Indonesia alone is worth $174 million.

The biggest export industry to Indonesia is wheat, with this market worth $1.395 billion. This market could also be in trouble, with Indonesia signalling yesterday it was looking at other countries to help with its food security.

“There are other places that I think can help us with our food security aspirations,” Wirjawan says.

Australian goods and services exports to Indonesia make up a total of $4.75 billion.

Other major industries which will be impacted by the damaged relations include crude petroleum, aluminium and cotton, all worth between $200 million and $300 million.

Dearin and Associates founder Cynthia Dearin told SmartCompany Australia’s already witnessed the importance of Indonesia to our economy when live cattle exports were halted in 2011.

“Indonesia is a very significant relationship for Australia. Although not equally significant across all sectors, it’s particularly important for the live cattle trade,” she says.

“If the government manages it well, it will go back to normal because it’s in everybody’s interests, but that’s as long as it gets resolved soon.”

In May this year, Australia’s largest beef cattle producer, Australian Agricultural Company, blamed the 2011 suspension for a $46.5 million in the first three months of 2013, as the ban had prompted Indonesia to more than halve its beef quota from Australia.

A partner in the political risk and advisory firm Political Monitor, Damian Karmelich, told SmartCompany the relationship between Australia and Indonesia has always been a challenging one.

“Our trade with Indonesia at the moment is small in terms of its overall potential. As the middle class grows, trade in Indonesia will grow in kind. It will grow fivefold in the next decade and tenfold by 2030.”

Karmelich says it’s trade potential which is at risk given the spying revelations.

“This relationship may not matter much today, but we’re not far from a time where we’ll be begging for Indonesia’s attention,” he says.

“The country has more than 240 million people, and there will be 130 million people in the middle class by 2030 and it will be the seventh largest economy in the world.”

Hope for mending relations between the two countries came late last night when Julian Pasha, a spokesperson for Indonesian President Susilo Bambang Yudhoyono, said a letter from Prime Minister Tony Abbott was “definitely in accordance” with what was expected.

The letter had responded to the President’s request for an explanation about the spying.

Karmelich says Australia and Indonesia need to develop a “robust framework” to deal with conflicts when they arise.

“I don’t think an apology today is going to do much for our longer-term relationship,” he says.

“The number of countries looking to deepen their relationships with Indonesia is growing. The favoured status Australia has held won’t be enough.”

Karmelich says each trade sector with Indonesia will face its own challenge, but overall the problem is Australia being seen as an untrustworthy, unreliable partner.

“Indonesia will look elsewhere for its commercial relationships. They won’t stop trading with us, but they’ll start looking to other countries first,” he says.

But Dearin says the real impact of the spying scandal on businesses in Australia remains to be seen.

“We’ve seen the impacts most clearly in our counter intelligence efforts and anti-people smuggling operations. This is where the cooperation had been suspended,” she says.

“There isn’t a direct correlation between spying and trade, but it affects the overall climate and means some people have a negative bias towards us.”