The European Union seems to be waking up from a 30-year geopolitical slumber with the combined Ukrainian and Covid-19 crises. With the migration of the global center of gravity to the Indo-Pacific, the EU is beginning to implement a long-theorized principle: strategic autonomy, focusing on Africa and the Indo-Pacific region. This represents a tremendous opportunity for Jakarta.
Indeed, at a time when the major players in the region are calling for ideological alignment, the EU, and especially France, are presenting themselves as reliable, multilateral partners, pushing for compliance with international laws. While Indonesia is on the edge, between massive economic dependence on China and flirtation with America, the EU and France represent an opportunity to cooperate with Western countries without choosing sides. It may even be one of the last ways for Jakarta to follow its cherished policy of non-alignment in a region where the rivalry is looking more and more like a new Cold War.
The EU is indeed very present in the Indo-Pacific region, through the French islands in the area where more than 1.6 million French citizens live, protected by more than 8,000 soldiers spread from the Mozambique Channel to the middle of the Pacific Ocean. It should also be noted that Indonesia’s non-alignment is ideologically close to the French policy of the “third way”.
What could Europe offer Indonesia?
With its strategic position in the Indo-Pacific, its population of 277 million and its natural resources, Indonesia is attracted by both the United States and China. However, these two superpowers are increasingly offering technologies and agreements that are mutually exclusive. How long before China’s Logink logistics software prevents the country from dealing with North America? How long before the US extends the CAATSA law to China, which states that if Jakarta buys Chinese weapons, it faces US sanctions? No such measure is planned in Europe. Moreover, while EU members are of course Western actors, the continent remains included in China’s Belt and Road Initiative (BRI). EU members simply have too much to lose to disconnect their economies from China’s. It is therefore conceivable that the EU will maintain its position and offer investment without conditions of allegiance. Thus, not only will European technologies remain compatible with American technologies, but also with Chinese standards.
The EU could also be an important source of investment in the country: Europeans’ need for natural resources will double by 2040, as the EU seeks to reindustrialize its economy with the implementation of the European Industrial Strategy. In addition to the EU plan, most European countries have launched their own national programs to support their industry, with billions of euros promised. We can mention France Relance 2030 for France or Industrial Strategy 2030 for Germany.
However, the Indo-Pacific’s attractiveness in the EU precedes Covid-19, as EU countries were already pouring $90 billions in FDI into the region in 2019, making it one of the largest investors in the area. Rich in many metals, among other resources, Indonesia therefore has everything to gain by positioning itself as a major supplier to the continent, which is in intense need. In this situation, Jakarta can even put in place technology-sharing regulations or mandatory investment laws in secondary and tertiary industries. This is a second major opportunity: EU countries are in search of natural resources, but as the continent aims to be carbon neutral by 2050, they are legally prevented from bearing the environmental costs of processing these resources. Indonesia could therefore move up the value chain by creating new processing plants with the help of cooperation programs. All this while creating jobs for the young Indonesian population, which would allow the training of skilled workers and thus support the emergence of the middle class in the archipelago.
Greater European involvement in the Indonesian economy could also help the country overcome another problem: Indonesia’s growing dependence on China. Indeed, the PRC sits both upstream and downstream of the Indonesian economy, as China is both its largest investor, creditor and customer. Thanks to this footprint, China is the destination for 30% of Indonesia’s exports and the source of 18% of the country’s imports. How long can Jakarta have an independent voice with such Chinese economic dependence? It is already clear that China is trying to put pressure on the archipelago, especially to get Indonesia to respect China’s territorial claims in the China Sea, as illustrated by its controversial Nine-Dash Line.
Increasing the share of European investment and increasing the number of trade agreements with the EU would therefore dilute China’s weight in the Indonesian economy, without offending Beijing by breaking Chinese contracts. In short, Europe could be a solution for Indonesia to guarantee its geopolitical independence, without having to choose sides in the rivalry between the United States and China.
The many opportunities for economic cooperation between Indonesia and the EU
The bulk of the cooperation can take place at the level of infrastructure development. While Europe is a saturated market for infrastructure builders, more than $1.5 trillion worth of roads, bridges and railroads are expected to be built in Indonesia over time, according to the World Bank. Jakarta could organize fierce negotiations to bring down the price. This would allow the country to develop with quality equipment at a lower cost.
Moreover, since Europe lacks strong links in the Indo-Pacific region and does not always show great price flexibility in addressing the local market, Indonesia has another card to play. With its cheap labor force, the Indonesian political authorities could perfectly imagine negotiating global agreements for the whole country, in railroads for example, in exchange for “Made in Indonesia” trains. The national factories could then produce European train models under license, at lower cost, thus opening up the RCEP countries to European companies.
This strategy could come about thanks to the increased tax attractiveness of the country, thanks to the omnibus law of 2020. Indonesia could thus position itself as the European platform for investment and business deployments in the RCEP. Like mineral processing, this would not only improve the country’s infrastructure, but also help create a skilled workforce. In addition, it would create a complete value chain, with both mines, processing plants and manufacturing plants operating in the country.
Yet Indonesia presents a paradox: despite having near-perfect maritime exposure, closing the South China Sea and having direct control over the Strait of Malacca, the country ranks only 46th in the World Bank’s Logistics Performance Index. Indonesia therefore has untapped maritime potential and could position itself as a major logistics hub between Asian manufacturers and European consumers, as Singapore has done. In addition, the country’s archipelagic geography requires enhanced port infrastructure for intra-national trade. This trade is bound to grow as the country becomes more and more industrialized.
We could therefore perfectly imagine a partnership between local and European companies to develop the maritime infrastructures of the archipelago. Indeed, European countries are actively seeking a better port location in the region, as the French islands are too far away to serve as logistics points. In order to develop these infrastructures, a partnership with the Netherlands seems more than appropriate. Indeed, not only are the two countries used to working together, with trade links continuing after the end of colonization, but the Netherlands can be considered the European champion in terms of port infrastructure. This partnership would be welcomed by Amsterdam, which has positioned trade with Indonesia as one of its priorities in its “Indo-Pacific Guidelines”.
At an institutional level, there is also an opportunity for Jakarta with respect to the European Investment Bank (EIB). Indeed, the pre-pandemic era, when 30% of EIB investments in the region were absorbed by China and only 3% allocated to Indonesia, is over. Recent events and the closure of the Chinese market are pushing European investors to seek new partners.
Moreover, the new geopolitical order that is taking shape will push more and more European bankers to avoid investments in China, as the protection of companies is not guaranteed and returns on investment are decreasing. EU investment flows are now waiting to be redirected. Indonesia should therefore accelerate its lobbying of Brussels to become a major partner in the EU’s Global Gateway plan. This program, published in December 2021, is intended as an alternative to China’s BRI and will invest 300 billion euros in infrastructure around the world by 2027. Indonesia is more than legitimate to be one of the main beneficiaries of this plan, as was highlighted at the Indo-Pacific Forum 2022, which brought together EU and Asian countries. The G20 in Bali was another opportunity for Indonesian President Joko Widodo to highlight the country’s attractiveness to foreign governments.
The Indo-Pacific arms race: a French solution for Indonesia
It is no secret that the Indo-Pacific region is at the center of growing military tensions. This is not only because of the rivalry between the United States and China over Taiwan, but also because of one major issue: control of the China Sea.
This issue can be divided into two main points. First, China’s Nine-Dash Line, considered by many in the region as revisionist and illegal, is indeed a major source of conflict with all coastal countries. Second, to add fuel to the fire, significant oil and gas resources have been discovered in the South China Sea. More than 2.5 trillion dollars of resources to be precise. We can therefore see a rearmament of all coastal countries, including Indonesia.
But in this respect, solutions for potential partnerships are limited for Jakarta. Indeed, between Russia, which needs to rebuild its army, the fear of appearing too aligned with China or the United States, and the extraterritorial laws of the United States, the major players in the market have been pushed aside. There are a handful of other players left, but most of them feed their domestic weapons programs with U.S.-made technologies, which puts them under the US extraterritorial International Traffic in Arms Regulation (ITAR) law. This has been the case for most Korean, Japanese and German weapons programs in recent times. As a result, there seems to be only one last player left to supply advanced weapons to Indonesia: France.
For this reason, Indonesia has purchased 42 Rafale fighters in 2022 from French aircraft manufacturer Dassault. Again, Indonesia benefits from France’s Indo-Pacific strategy, as Jakarta signed a strategic military cooperation agreement with France in 2021. France is indeed looking to strengthen its position as an arms supplier, but also as a partner with which Jakarta could train and strengthen its army. And not only in the air, but also at sea and on land.
In terms of naval components, Indonesia could benefit from French independently manufactured submarines and frigates. Indonesia is taking note of the rising tensions in the region with the navy, naval militias and Chinese scientific research vessels intruding into its territorial waters. In order to strengthen the archipelago’s navy, a letter of intent was signed between the Indonesian and French defense ministers to explore the idea of building two Scorpene submarines under license. Again, this would not only provide state-of-the-art submarines for the Indonesian Navy, but also contribute to the construction of high-tech military shipyard infrastructure in the archipelago.
Indonesian policymakers should also consider the broken submarine contract between Australia and France in 2021, due to the AUKUS alliance. This means that France and its national shipbuilder, Naval Group, are keen to find new opportunities for French shipyards. Jakarta is therefore in a strong position in negotiations to obtain more submarines.
Moreover, the AUKUS submarine program has broken a taboo: the provision of nuclear-powered submarines to nations that do not possess nuclear weapons. France offers a drastic advantage to Indonesia in this regard, because its nuclear submarines are fueled by low-enriched uranium, which cannot be weaponized. This is not the case for other nations with nuclear-powered submarines. Acquiring French nuclear submarines therefore makes it possible to benefit from the advantages linked to this type of propulsion without being subjected to international pressure. And there is an opportunity to do just that, as France is in the process of replacing its Rubis-class nuclear submarines, which are still very efficient, with the new Suffren class. Jakarta could therefore contact Paris to find out if France would be willing to sell its old nuclear submarines, in order to equip the Indonesian navy with the most efficient submarines in the region at a lower cost.
The submarine war is indeed at the heart of tensions in the Indo-Pacific, as China has enormous difficulties in getting its submarines out of the South China Sea because of the first chain of islands. These difficulties explain the intrusion into Indonesian waters of a Chinese ocean mapping vessel in 2021, probably to search the seabed for a path for its submarines.
The way forward
Let us be clear: not only is all the world’s economic and geopolitical attention currently focused on the Indo-Pacific, but Indonesia’s geography places it perfectly in the middle of the two oceans, giving the country a unique advantage. Indonesia, following its policy of non-alignment, has the opportunity to be part of the investment plans of all major economic powers: China with its BRI, the US with the Indo-Pacific strategy and the EU with the Global Gateway. If Europe does not provide the most complete financial package, it is a neutral power in the tensions between the US and China.
The EU should therefore not be forgotten by Jakarta, as the continent has understood the importance of increasing its footprint in the region and is desperately seeking reliable partners. By establishing itself as a major partner and supplier to the EU in the Indo-Pacific, Indonesia could achieve several objectives, such as receiving funds for its infrastructure, expanding its educated middle class, and all in keeping with its policy of non-alignment. Moreover, France, an EU member with remnants of its colonial empire in the region, is more than willing to help Indonesia strengthen its military.
In short, although the tide has turned and is clearly in Indonesia’s favor, the country is under pressure from the growing rivalry between the United States and China. The archipelago is also under direct threat from Beijing. The EU’s intention to move into the region could be the best opportunity for Jakarta to improve the standard of living of its citizens, without increasing the risk of dragging them into a war. Indonesia, sometimes referred to as a “sleeping giant,” is closer to being fully awakened, and it has everything to gain from being the EU’s keystone in the region.
Picture credits: Martin Everard