Opportunities for Australian Business in Prabowo’s Victory

The clear win for Prabowo Subianto in Indonesia’s presidential election on Wednesday is likely to reinforce economic nationalism and slow decision-making over the next year, but it is not the time for Australian investors to be idle.

Indonesians have resoundingly endorsed Prabowo Subianto to be the next president.

While the official result won’t be known for weeks, ‘quick counts’ show his ticket received between 57 and 59 percent of the vote. Quick counts have been accurate in previous elections. The result is better than President Joko Widodo’s 55 per cent victory over Prabowo in the 2019 presidential election.

Of course, this time, Prabowo wasn’t facing Widodo but, instead, had the President’s backing with Widodo’s eldest son – Gibran Rakabuming Raka – as Prabowo’s running mate. That support was crucial in enabling him to defeat two other candidates outright without the need to go to a run-off.

There may be court challenges, but they won’t overturn the result. Prabowo will be installed in the presidential palace in October.

So, what does a Prabowo presidency mean for Australian investors and exporters?

Prabowo’s campaign has focused on continuing Widodo’s economic nationalism through industrial policy, infrastructure investment and championing state-owned enterprises. He is a populist who isn’t shy about playing to nationalist sentiment. Last year he criticised the EU for its stringent environmental rules around imports, suggesting that Indonesia did not need the bloc anymore.

Prabowo has made it clear that he will continue Widodo’s industralisation or ‘downstreaming’ policy that prohibits nickel and bauxite exports and that he plans to extend to other commodities, including copper. These policies aim to deter ‘dig and ship’ business models by requiring investment to process resources. He remains committed to the nickel policy despite its distortionary effect on global nickel supply and prices, and a World Trade Organisation ruling against it, which is on appeal.

Prabowo is committed to building the new national capital – Nusantara – in Kalimantan. His businessman brother, Hashim Djojohadikusumo, is one of many who stand to benefit from the initiative. While Prabowo is focused on the new capital, it’s possible that Gibran will handle Jakarta. There is a bill before the parliament that would give the Vice President responsibility for overseeing the development of Greater Jakarta, comprising 30 million people and contributing 17% to the economy, once the capital relocation is complete.

Prabowo has also promised to establish a Revenue Agency. The aim is to increase the ratio of state revenue to 23% of GDP, up from around 12%. If this can be successfully implemented, it may mean greater certainty around taxation for businesses and a healthier government budget position. This would in turn allow further investment in infrastructure, education and healthcare, which Indonesia urgently needs. But the transition will likely be messy, and a new agency increases opportunities for corruption.

For investors considering Indonesia, much government decision-making is likely to slow over the next twelve months. Jockeying for cabinet positions starts now. Decisions on privatising state assets, public-private partnerships and other major investments will likely be delayed until Prabowo’s new cabinet has been installed and new ministers have in turn appointed senior officials.

It’s crucial that investors don’t sit idly by during this time. Indonesia’s investment regime has been liberalised in recent years and the economic fundamentals make the market hard to ignore. Investors should be visiting the market, developing relationships and building their capability to do business in Indonesia. The Australian Government is standing up deal teams that were recommended in Nicholas Moore’s Southeast Asia economic strategy, which will help investors explore the market.

Spending time in market will allow investors to better assess risk-adjusted returns. Investments aligned with Prabowo’s economic nationalist agenda will be well received. However, investors will need to conduct thorough due diligence on deals under a Prabowo administration. Some of his business associates include former military and intelligence officials with chequered backgrounds.

Prabowo’s championing of state-owned enterprises (SOEs) might also spur further investment in Australia. If state-owned Pupuk Kaltim can pull off its protracted acquisition of Incitec Pivot’s fertiliser business it might open the door for more investment. Indonesia’s peak business body has already signed a deal with Western Australia on critical mineral cooperation. The current challenges in the lithium market may be attractive for Indonesian investors looking at discounted assets.

The story is different for exporters, who should expect trade to continue over coming months. However, there may be some disruptions and delays for commodities that rely on permits and quotas. We have already seen the impact of this on the cattle industry, which is yet to send its first shipments this year. But Indonesia has little incentive in delaying imports for long, particularly in the lead-up to the Eid Muslim festival in April.

Longer term, Prabowo has been an advocate for increasing Indonesia’s own food production and food security. While there’s also no indication at this stage that he would put in place new tariff or non-tariff barriers, this can’t be ruled out.

Prabowo’s erratic style makes it difficult to predict his approach to governing. Under Widodo, key institutions like the anti-corruption commission and Constitutional Court have been hobbled. If Prabowo further erodes democratic governance, then it might sour investor confidence. However, if he maintains the status quo then Indonesia will only become more attractive for business.

Robert is Director of Advisory & Insights at Asialink Business and a former DFAT officer and intelligence analyst.