People Innovation Excellence

Export Import Trade Between Indonesia and Malaysia

Written by: Selly Novela, ST, MM

Indonesia–Malaysia Relationship

The bilateral relationship between Indonesia and Malaysia is one of the most important bilateral relationships in Southeast Asia. Indonesia and Malaysia are two neighbouring nations that shared similarities in many aspects. Both Malaysia and Indonesia have many common characteristic traits, these include common frames of reference in history, culture and religion. Although both countries are separate and independent states, there are also deeply embedded similarities.Their national languages; Indonesian language and Malaysian language are closely related and mutually intelligible, both being standardised registers of Malay. The majority of the population of both nations were of Austronesian ancestry or of the Malay race, with significant Malay culture shared among them. Both nations are Muslim majority countries, the founding members of ASEAN and APEC, and also members of the Non-aligned Movement,Developing 8 Countries and Organisation of Islamic Cooperation.

Despite sharing so many similarities, tied by common religion, language, proximity and a cultural heritage that dates back centuries, both nations have been lurching from one diplomatic spat to another.Since independence Indonesia and Malaysia have moved in different directions in their social, economic, and political development, leading at times to serious bilateral tensions.The unequal pace of democratisation in the two countries over last decades has made the relationship increasingly problematic. Malaysian government-controlled media has been restrained in reporting sensitive issues involving Indonesia, on the other hand Indonesia’s liberal mass media has played a key role in inflaming the tension.

Indonesia has an embassy in Kuala Lumpur and consulates general in Johor BahruGeorge TownKota Kinabalu and Kuching. Malaysia has an embassy in Jakarta and a consulate general in MedanPekanbaru and Pontianak.

 

CULTURE

Many similarities and shared cultures between Indonesia and Malaysia also because of significant numbers of Indonesian-origin immigrants in today’s Malaysian demographic both countries are often involved in disputes over cultural claims of the origin. Through an intensive tourism campaign, Malaysia has featured some famous cultural icons, namely the song Rasa Sayange, batik, shadow puppet theatered barongan (reog) dance. This aggressive tourism promotion and cultural campaigns had alarmed and upset Indonesians that always thought that these arts and cultures belongs to them. As the reaction, many Indonesians felt the need to safeguard their cultural legacies, and to the extreme developed the anti-Malaysia sentiments. In 2009 the Pendet controversy fuelled again the cultural disputes among neighbours.The advertisement promoting Discovery Channel’s programme “Enigmatic Malaysia” featured Balinese Pendet dancer which it incorrectly showed to be a Malaysian dance.

On the other hand, the shared language and culture have their own benefits on connecting the people of both countries. For example, Indonesian popular cultures such as Indonesian musicsfilms and sinetrons are popular in Malaysia. However this cultural exchanges is not always appreciated, the overwhelming popularity of Indonesian music in Malaysia had alarmed the Malaysian music industry. In 2008 Malaysian music industry demanded the restriction of Indonesian songs on Malaysian radio broadcasts.

In addition, the two nations are fierce rivals in the world of international football (soccer). Competitive matches between the two countries are famed for their immense turnout and intense atmosphere, whether the tie is in Malaysia or Indonesia.

 

ENVIRONMENT

The slash and burn practice to clear the lands for palm plantations in Sumatra and Kalimantan were causing haze and smoke fog that blown northwards by wind and had reached Malaysia and Singapore. The haze occur in 199720052006, and reached the highest haze pollutant levels in June 2013.

The haze is clearly hazardous for health and dangerous for transportation, especially flight safety in the region. The trans-border haze problems has strained diplomatic relations between Indonesia and Malaysia, and also with Singapore. Malaysian and Singaporean government had noted their protest and urged Indonesian government to reduce the hot-spots. In the peak of the haze that usually occur during dry season, Malaysian and Singaporean offer assistance to put off the fires. Indonesian government had banned the slash and burn practice, however the method was still widely used to clear palm oil plantation lands.

Another important environment issue is transborder illegal logging. Indonesian government has expressed the concern that many rainforest along Indonesia-Malaysia borders in Borneo were suffering illegal loggings, mostly done by Malaysian loggers. The concern was arroused because Malaysian authorities seem to be doing nothing to prevent the crime and even seems to be encouraging this practice to increase Malaysian timber yield.

INDONESIA – MALAYSIA BILATERAL TRADE: COFFEE

Indonesia was the fourth largest producer of coffee in the world in 2014.Coffee in Indonesia began with its colonial history, and has played an important part in the growth of the country. Indonesia is located within an ideal geography for coffee plantations, near the equator and with numerous mountainous regions across the islands, creating well suited micro-climates for the growth and production of coffee.

Indonesia produced an estimated 540,000 metric tons of coffee in 2014.Of this total, it is estimated that 154,800 tons was required for domestic consumption in the 2013/2014 financial year.Of the exports, 25% are arabica beans; the balance is robusta.In general, Indonesia’s arabica coffees have low acidity and strong body, which makes them ideal for blending with higher acidity coffees from Central America and East Africa.

The two countries Indonesia and Malaysia enjoy a significant trade relationship. Overall bilateral trade has grown steadily over the years even though it has dipped significantly in the past three to four years. Indonesia accounts for approximately 4.9 per cent of Malaysia’s export market and 4.5 per cent of its import market, while Malaysia makes up 4.2 per cent of Indonesia’s export market and 6.9 per cent of its import market.

While both countries make up a sizeable portion of each other’s total trade, China, Singapore, Japan and the US remain their preferred trading partners by a wide margin.The recently signed Trans-Pacific Partnership (TPP), however, may see Indonesia direct its attention to extra-regional markets if it decides to join the agreement. The TPP should give a further boost to exports and new markets may open up for Indonesia.In both Malaysia currently and Indonesia potentially, the TPP provisions would have to be ratified by their respective parliaments.

Indonesia has enjoyed steady growth in foreign direct investment (FDI) over the past five years. Primary contributors have been Singapore and Japan, with Malaysia’s contribution being insignificant until recently. In 2013, Malaysia accounted for around 2.5 per cent of Indonesia’s total FDI inflow. The following year, however, saw that contribution double to 6.2 per cent.  It is on track to double again, accounting for 13.6 per cent of foreign towards the end of 2015. The bilateral relationship between Indonesia and Malaysia is at an interesting point. Today, both countries are becoming increasingly important in the international system. Their economic relationship, while strong, may not reach its full potential as Indonesia may look to expand its extra-regional markets if it becomes a signatory to the TPP.

Indonesia is among the world’s top coffee producing and exporting countries. Most of production constitutes the lower quality robusta type. Indonesia is also famous for having a number of specialty coffees such as ‘kopi luwak’ (known as world’s the most expensive coffee) and ‘kopi Mandailing’ (see below). Regarding agricultural commodities, coffee is Indonesia’s fourth-largest foreign exchange earner palm oil, rubber and cocoa.Indonesia proved to have a near ideal climate for coffee production, hence plantations were soon established on other parts of Java and on the islands of Sumatra and Sulawesi.

Today, Indonesia’s coffee plantations cover a total area of approximately 1.24 million hectares, 933 hectares of robusta plantations and 307 hectares of arabica plantations. More than 90 percent of total plantations are cultivated by small-scale growers. As mentioned above, and similar to regional coffee giant Vietnam, the bulk of Indonesia’s coffee bean production consists of the lower-quality robusta type. The higher quality arabica beans mostly come from South American countries such as Brazil, Colombia, El Salvador and Costa Rica. As such, the bulk of Indonesia’s coffee exports (roughly 80 percent) consist of robusta beans. Exports of processed coffee are only a small fraction of total Indonesian coffee exports.

In Malaysia, Coffee is the second commodity mostly traded in the world, after petroleum. The main coffee producing and exporting countries are Brazil, Vietnam, Indonesia, Colombia, and India (Comtrade, 2015).Malaysia was ranked 60th worldwide, which only contribute approximately 0.16% of the world’s coffee production. Low domestic production and different quality of coffee cherries have prompted Malaysia to import coffee.Countries that supply coffee beans to Malaysia in 2013 were Indonesia (49%), Vietnam (35%) and Brazil (6%). At the same time, Malaysia also exports processed coffee (value added product) to several countries such as Thailand (19%), Singapore (14%), Philippines (8%), the USA (7%), and Hong Kong (5%). Generally, the amounts of coffee exported by Malaysia are small but growing every year, with an annual growth average of 7.6%. The total value of coffee exports is greater than the value of imports, which makes a positive trade balance.

In 2012, approximately 70 percent of Indonesia’s total annual coffee bean production was exported, mainly to customers in Malaysia, Japan, South Africa, Western Europe and the USA. However, as Indonesia’s domestic consumption of coffee has been growing, exports have declined. Coffee consumption in Indonesia rose by a Compound Annual Growth Rate (CAGR) of 7.7 percent in the years 2011-2014. Still, at 1.0 kilogram (2014 data), per capita consumption of coffee remains low in Indonesia.

References:

http://www.futuredirections.org.au/publication/indonesia-and-malaysia-prospects-for-closer-co-operation/

http://www.thestar.com.my/business/business-news/2015/02/06/malaysia-confident-trade-with-indonesia/

http://www.themalaymailonline.com/malaysia/article/malaysia-is-among-indonesias-biggest-trading-partners-with-trade-worth-over

http://www.indonesia-investments.com/business/commodities/coffee/item186


Published at :
Written By
Selly Novela, ST, MM
IIRC | IBM
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