The endorsement of a preferential trade pact between Indonesia and Bangladesh holds the promise of significantly influencing the economies of both countries as well as fostering greater integration within the regional economy. This accord may play a role in cultivating stronger economic bonds between South and Southeast Asia and could serve as a gateway for Bangladesh to evolve into a prominent regional trading hub.
In 1971, Bangladesh and Indonesia established diplomatic ties. While Indonesia stands as the largest Muslim country globally, Bangladesh ranks as the fourth largest. These two nations collaborate as partners within the United Nations and several multilateral organizations, notably in international peacekeeping, the Developing 8 Countries, the Non-Aligned Movement, the World Trade Organization, Organization of Islamic Cooperation, Developing 8 (D-8), Group of 77 (G77), and the ASEAN Regional Forum (ARF).
While Bangladesh has its embassy in Jakarta, Indonesia has established its embassy in Dhaka. The year 1972 saw the establishment of official diplomatic relations, as Indonesia became one of the first Muslim countries to recognize the independent state of Bangladesh formally.
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Indonesia’s Trade Impact on Bangladesh
June 21, 2022, marked the 50 years of diplomatic ties between Indonesia and Bangladesh. In terms of bilateral collaboration, Indonesia and Bangladesh have made significant strides. Throughout the years, these two nations have achieved numerous milestones in their relationship, marked by visits from their respective leaders.
Based on statistics released by the Bangladesh Bank, imports originating from Indonesia to Bangladesh totaled approximately $2.92 billion for the fiscal year 2021–22. Indonesia primarily shipped Palm Oil ($1.36 billion), Coal Briquettes ($432 million), and Cement ($166 million) as its critical exports to Bangladesh. Over the past 26 years, Indonesian exports to Bangladesh have surged consistently at an average annual growth rate of 13%, escalating from $123 million in 1995 to $2.92 billion in 2021.
PT Industri Kereta Api (PT INKA), the Indonesian state-owned train manufacturer, has successfully shipped 450 passenger trains to Bangladesh in the years 2006, 2015, and 2017. The cumulative value of these transactions has exceeded US$190 million. Additionally, during the period from 2019 to 2021, CV. Laksana, an Indonesian bus assembly company, has supplied Bangladesh with 43 luxury buses and 10 double-decker buses, amounting to a total transaction value exceeding US$808 thousand. Notably, the Bangladesh army has made its inaugural procurement of 50 Tear Gas Launchers and corresponding ammunition from Indonesia’s Defense Industry (PT. PINDAD), resulting in a total transaction value of US$66.583.
Annually, a significant number of individuals from Bangladesh journey to Indonesia. Indeed, Bangladeshi tourists constitute a substantial market for Indonesia’s tourism sector. Upon arrival, Bangladeshi passport holders have the option to obtain on-arrival visas for their travels to Indonesia. The previous maximum stay of 30 days has been expanded to 60 days for travel visas and 180 days for business visas.
Additionally, numerous Bangladeshi workers seek employment opportunities in Indonesia. The Indonesian government is contemplating the introduction of a ‘digital nomad visa,’ designed to allow remote workers to reside in the country without tax obligations for a duration of up to five years, on the condition that their income is sourced from overseas.
Bangladesh’s Exports to Indonesia
The Indonesian market has witnessed the strong competitive edge of Bangladeshi textile products. Over the span of a decade, imports of garments from Bangladesh to Indonesia have surged by an impressive 194 percent, soaring from $25.6 million in 2013 to a substantial $75.2 million in 2022. These imports now comprise a significant 68 percent of the overall garment imports, and this growth is all the more remarkable given the comparatively high tariffs of 20-25 percent that these products face.
Besides clothing, the pharmaceutical sector in Bangladesh has shown significant advancements recently. Medications manufactured within Bangladesh are gradually gaining traction in both the European and American markets. With their superior quality and cost-effectiveness compared to medications manufactured in Europe and America, Bangladesh has established a firm foothold in the Indonesian market. Bangladesh has supplied medicines and vaccines to Indonesia during the COVID-19 outbreak.
Future Business Opportunities
On 18 July 2022, a bilateral meeting took place in Jakarta between Bangladesh and Indonesia. The discussions were led by Dr. A. K. Abdul Momen, the Foreign Minister of Bangladesh, and Retno L. P. Marsudi, the Minister of Foreign Affairs of Indonesia. They shared a hopeful perspective on the imminent finalization of the pending MoUs.
Dr. Momen appealed to the Indonesian representatives to give thoughtful consideration to Bangladesh’s plea for incorporating RMG items into the PTA, aiming to tackle the significant trade imbalance.
Minister of Commerce Tipu Munshi expressed that Bangladesh and Indonesia are likely to finalize a PTA or preferential trade agreement by 2023. During a formal visit to the ministry offices at the Secretariat, Indonesian Ambassador Heru Hartanto Subolo echoed the commerce minister’s positive sentiment about the trade agreement and underlined the headway accomplished in this region. To facilitate this agreement, the two countries have formed a ‘Trade Negotiations Committee’.
A notable consequence of the PTA’s decisions is the elimination or reduction of tariffs on specific commodities traded between Bangladesh and Indonesia. This is likely to simplify and make trading between the two countries more cost-effective, with the potential to boost bilateral trade.
Furthermore, the PTA could serve as a catalyst for increased collaboration between South Asia and Southeast Asia with respect to challenges like connectivity and the development of infrastructure. For instance, the pact could stimulate funding directed towards enhancing transportation facilities, such as ports, railways, and highways, subsequently bolstering the flow of trade and investments between the two regions.
Ultimately, the PTA’s engagement might foster Bangladesh’s transformation into a significant hub for regional trade. It might help Bangladesh draw foreign capital as well.
Indonesia and Bangladesh are increasingly enhancing their defense collaboration. Furthermore, Indonesia has expressed its apprehensions regarding the repatriation of Rohingya refugees.
Considering its low sulfur and waste content, coal from Indonesia stands as a prime choice. Opting for this coal could prove advantageous for Bangladesh, addressing its coal scarcity and making a positive impact on environmental preservation.
As both Bangladesh and Indonesia consider broadening their import, export, and trade alliances, the economic benefits are likely to contribute to a more robust and enduring friendship between the two countries. Expectations are high that in the upcoming days, the socio-economic development of the two countries will experience a positive transformation.