Indonesia Lures Middle East as Trump Worries Muslim Nations

  • Saudi king’s visit to Indonesia draws investment pledges
  • FDI into Indonesia surged 48 percent in past six years

Saudi Arabia’s King Salman bin Abdulaziz in Jakarta, Indonesia on March 2.

Photographer: Jefta Images/Barcroft Images/Getty Images

As one of Asia’s fastest-growing economies and the most populous Muslim nation in the world, Indonesia is billing itself as a natural home for Middle Eastern investment at a time when the U.S. is turning inward.

With a landmark visit by Saudi Arabia’s King Salman bin Abdulaziz to Southeast Asia winding down this week, Indonesia has won pledges of $1 billion in development finance and signed agreements to cut trade barriers. That’s on top of a $6 billion oil refinery deal between Saudi Aramco and Indonesia’s PT Pertamina signed in December.

As the largest supplier of crude to Indonesia and with muted oil demand in developed markets, Saudi Arabia has plenty of economic reasons to build stronger ties with the Southeast Asian nation. With the U.S. hardening its attitude toward some Muslim-majority nations, Indonesia also sees the potential for tighter links with the Middle East on the basis of religious bonds.

“Politically, it probably also makes sense for the Middle Eastern petro-states to diversify their investments geographically into Asia,’’ said Thomas Lembong, head of the Indonesian Investment Coordinating Board. “In Muslim-majority countries like Indonesia, Middle Eastern investors would enjoy added comforts such as the inherent respect and feelings of sanctity towards investment from the very cradle of Islam.’’

‘Slippery Slope’

The visit by the Saudi king was planned well before U.S. President Donald Trump issued an executive order for a travel ban that targeted several Muslim-majority countries, and which was renewed this week after initially being set aside by the courts. Indonesia criticized Trump’s move at the time the order was issued, saying closing borders to the rest of the world won’t address the problem of terrorism.

“We are on a slippery slope when we start linking the issue of radicalism and terrorism around any particular religion,” Foreign Ministry spokesman Arrmantha Nasir said last month.

With a 1,500-strong entourage in tow, the Saudi king’s 12-day visit to Indonesia was preceded by a visit to Malaysia, another Muslim-majority nation, to seal a separate $7 billion deal with the state-owned Petroliam Nasional Bhd to develop an oil refinery and provide up to 70 percent of its crude requirements. Malaysian and Saudi Arabian companies signed agreements worth about $2.2 billion in areas including construction, aerospace, halal, and hajj-related industries.

Naser Al-Tamimi, a researcher based in the U.K. and author of a book on China-Saudi Arabia relations, said he expects ties between the Arab world and Muslim-majority countries like Indonesia and Malaysia to be strengthened.

“The efforts to develop relations with countries such as Indonesia, Malaysia enjoys considerable support from most Saudis,” he said by email. “I expect that relations with countries such as Indonesia and Malaysia will expand in the future in all areas, including security and defense, as a result of Saudi Arabia’s strategy to diversify its foreign policy and its investments in the world.”

FDI Surge

Indonesia’s youthful and growing population of 260 million, economic growth of about 5 percent and a relatively stable political environment are luring investors. President Joko Widodo, who took office in 2014 on pledges to reform and boost the economy, sees foreign investment as key to his growth plans.

Foreign direct investment into Indonesia has surged 48 percent in the past six years to about $29 billion in 2016, according to data from the Investment Coordinating Board. Saudi Arabia is the nation’s biggest trading partner in the Middle East, with total trade of $5.9 billion in 2015.

“The Saudis are seeking to strengthen ties with countries that import its oil, and to promote investment opportunities in Saudi Arabia, as it grapples to diversify its economy,” Norshahril Saat, a research fellow at the ISEAS-Yusof Ishak Institute, said in a report after the king’s visit to Malaysia. “The Saudis are also using soft power in its oil diplomacy,” given its status as the center of the Islamic world, he said.

A $5 billion deal between Iranian and Indonesian companies to build an oil refinery in East Java have also been in the works -- although talks were suspended last month amid the threat of U.S. sanctions -- while billions in investment dollars have also been coming to Indonesia from Qatar and the United Arab Emirates.

“The developed world is a declining market for oil and Asia is one of the regions where growth in oil demand is expected to stay strong over the coming years,” said Jason Tuvey, Middle East economist for London-based Capital Economics Ltd. “Low yields on conventional financial assets have prompted a number of the Gulf countries to adopt more aggressive investment strategies and the pivot towards Asia may form part of this.”

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