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Indonesia-Qatar: Deals on the Horizon

Relations between Qatar and Indonesia are getting closer and Terry Lacey’s article looks at key economic cooperation sectors including telecoms as well as an upcoming aircraft deal

Following meetings between the Emir of Qatar, Sheikh Hamad bin Khalifa al-Thani, and Indonesian President Susilo Bambang Yudhoyono (SBY), supported by Ministers and private sector representatives, ongoing and proposed business deals in LNG gas, telecoms, the aircraft industry and investments in trade, energy, agriculture, transport, infrastructure and tourism, point to expansion of Indonesia-Qatar business links.

Qatar currently also has 27,000 Indonesian migrant workers, mostly skilled workers in the hotel, airline, oil and gas industries. SBY asked if this workforce could be expanded and there is some consideration of more Indonesian health workers coming to Qatar. Remittances from abroad are an important source of revenue for Indonesia.

One new deal on the horizon is that the Emir of Qatar confirmed interest in the purchase of medium sized CN 235 turbo-prop airliners which are produced by Indonesian state-owned enterprise PT Dirgantara Indonesia in a joint venture with Spanish CASA EADS. The aircraft can have civil or military applications.

The maritime patrol variant, of interest for countries with oil and gas fields, fisheries protection requirements or coastal security, is in service with: Spain, Ireland and Turkey (manufactured by EADS CASA) and in Indonesia, Brunei and UAE (manufactured by Dirgantara).

Qatar already has deals with Indonesia as a supplier of LNG gas, since Indonesia is both an importer, exporter and trader in LNG. Only Qatar and Malaysia produce more LNG than Indonesia.

Despite short term over-supply Indonesia has to balance contractual export requirements with a burgeoning domestic gas market, whilst having insufficient downstream gas infrastructure to optimize its own supply and demand. Hence the need to stay close to Qatar.

Qatar is also a significant investor in the Indonesian telecommunications company PT Indosat. In March 2009 Kaleej Tijmes reported that Qatar Telecom has raised its stake in PT Indosat Tbk to 65 per cent from 40.81 per cent.

Qatar Telecom aims to be a global top-20 telecoms provider by 2020, and already has a global customer base of 57 million subscribers. It has invested $2.6 billion in PT Indosat to gain access to the huge Indonesian market. (Arabianbusiness.com. 30.11.08).

The Emir of Qatar and President Susilo Bambang Yudhoyono (SBY) of Indonesia agreed in Jakarta to complete the setting up of a US $1 billion joint venture fund backed by the Qatar Investment Authority (QIA).

SBY has suggested to the Emir that these joint funds should be used to finance projects managed by Indonesian State Owned Enterprises, such as electricity projects for rural areas. This is a good target but may mean more work is needed on project preparation, deal structuring and modalities.

To ink a deal on such an investment now puts Qatar in a positive position to carry through other deals of interest to the Qatar government and private sector in the next five years since President Susilo Bambang Yudhoyono and his Democratic Party, and four Islamic party main coalition partners, are forecast to win the direct Presidential elections on July 8th, leading to a new presidency and government on October 21st.

One of the secrets of the success of the Indonesian economic model has been to keep a strong State-Owned Enterprise sector, and a large state budget, as props to maintain domestic demand while export earnings from traditional markets have fallen.

Qatar seems to have understood the way the SOEs underpin access to the Indonesian private sector.

In 2008 two-way trade increased by 85 percent to $349 million from $188 million in 2007, but Indonesian exports (of paper, stationary and plywood) fell from $146 million in 2007 to $86 billion in 2008. (Jakarta Post 20.05.09).

Growing trade and investment links with Qatar are part of the Indonesian post-financial crisis strategy to diversify markets and investment sources, from traditional to non-traditional partners.

Improved Indonesia-Qatar business links are also in line with increasing trade and investment between southern economies, as per the targets of the Organization of Islamic Conference (OIC), of which both countries are a member.

Terry Lacey is a development economist who writes from Jakarta on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking.