Indonesia – Ethiopia Economic Diplomacy: Recent Developments and Further Potential

Retno L.P. Marsudi visited Addis Abbas in order to attend the Uni-Africa Summit and signed an MOU in the Indonesia-Ethiopia bilateral cooperation agreement forum.

Various countries in the world use different ways to deal with security crises and international trade. One of the ways used by Indonesia as a tool to improve trade relations is through economic diplomacy. Economic diplomacy is an effort and the main key to success for developing countries such as Indonesia in utilizing economic opportunities from other countries. Economic diplomacy is specifically intended to meet domestic needs by utilizing opportunities from other countries in the form of export market needs, investment, trade cooperation, and economic cooperation agreements. The 1945 Constitution has also emphasized that Indonesia’s foreign policy is free and active by promoting equality and mutual respect in relation to the implementation of Indonesia’s economic diplomacy.

As a country that adheres to the principle of free and active foreign policy, it certainly has the right to establish relations with any country, including countries in Africa.  One of the many countries that have established relations with Indonesia in Africa is Ethiopia. In 2015, there was a good improvement in Indonesia’s relationship with Ethiopia. Retno L.P. Marsudi as the Minister of Foreign Affairs of Indonesia visited the Ethiopian capital in Addis Abbas in order to attend the Uni-Africa Summit and signed an MOU in the Indonesia-Ethiopia bilateral cooperation agreement forum.

The existence of the agreement is a form of Indonesia’s commitment to cooperate with Ethiopia considering the importance of relations and cooperation between Indonesia and Ethiopia in the future. The development of Ethiopia, which was once one of the African countries with the highest poverty rate in 2000 with 56%.  However, over time the percentage eventually dropped to 31% in a span of no less than 11 years.

In addition, Ethiopia was also able to reduce the income inequality index from 1.4 in 1995 to 0.34 in 2014.  Then in 2015, Ethiopia emerged as the country with the fastest economic growth with an average economic growth of 8% to 13%.  This can be achieved certainly cannot be separated from the role of the Ethiopian government which forms and implements foreign capital policies in the form of foreign investment. This is a form of Ethiopian state policy in opening its domestic market with the aim of absorbing foreign investment from outside countries.

Direct trade between Indonesia and Ethiopia reached a total value exceeding US$ 80 million. On the other hand, indirect trade between Indonesia and Ethiopia reached US$ 560 million. This figure shows that there is an increase in the value of Indonesia’s exports to Ethiopia of several products during the 2016-2019 period, especially intermediate goods such as wood, stone and glass, plastics, chemicals, footwear and rubber.

Not only Indonesia, Ethiopia also exported to Indonesia during the 2015-2018 period, although this shows that Indonesia has not become the main destination for exports from Ethiopia. The development of trade between Indonesia and Ethiopia is still relatively small, but Indonesia shows a desire to increase the value of trade with Ethiopia.  This is due to the potential in the Ethiopian market. On the other hand, Ethiopia is also increasingly opening up to foreign investment from other countries. Currently, Ethiopia as a country in East Africa is one of the investment centers. This also certainly encourages Indonesia’s interest to invest in Ethiopia. Therefore, this paper will analyze how Indonesia and Ethiopia strengthen economic relations through diplomacy.

Recent Developments in Economic Diplomacy between Indonesia and Ethiopia

Bilateral relations between Indonesia and Ethiopia officially took place in 1961. The two countries, in fact, have been interacting with each other since 1955 during the Asian-African Summit held in Bandung. However, Indonesia’s embassy office to Ethiopia could only be opened in 1964 as one of the first 35 countries to decide on its embassy office in Addis Abbas, Ethiopia. The Ethiopian embassy itself was only opened in Indonesia in 2016, previously the Ethiopian embassy office was located in Tokyo, Japan which also doubles for Indonesia since 1978. Unlike Indonesia, which initially opened diplomatic relations by opening its embassy, Ethiopia only opened its embassy a few years ago.

The country itself is located in the horn of Africa which has a population of more than 112 million people, making Ethiopia the second most populous country in Africa after Nigeria. As a country with rapid economic development, from 2010/2011 to 2019/2020 the average growth was at 9.4% then slowed down to 6.1% due to the Covid-19 pandemic.

As a country that was once the poorest country in the world with a GNP level of only US$ 6 billion. It turns out that there are factors that cause this such as, feudal government structure, high population growth, ancient agricultural models to the low purchasing power of the community and the low level of education of the population. However, the Ethiopian government has a way of overcoming these problems by eliminating private ownership of land.

Basically, Ethiopia is highly dependent on imported goods. As a country that has no sea territory or its entire territory covering land (Land Locked Country), Ethiopia must open its country to imported goods that will enter through ports from Ethiopia’s closest neighboring countries. To get to Ethiopia, the imported goods are transported by road or rail. Certain goods can only pass through Addis Ababa international airport, the capital of Ethiopia.

In driving Ethiopia’s economy, one of the vital sectors for Ethiopia is the agricultural sector. This sector is the largest contributor to Ethiopia’s GDP, reaching 41%. In addition, there is an infrastructure sector that is also starting to add value to Ethiopia’s GDP as development continues in the industrial sector, which in 2017 was able to contribute 23% of Ethiopia’s GDP. Then there is also another sector that began to offset the agricultural sector as a contributor to Ethiopia’s GDP since 2014, namely the services sector which contributed 37% of Ethiopia’s GDP until 2017.

The Ethiopian government has gone through many efforts to achieve their rapid economic growth. One of the ways the Ethiopian government has achieved this economic growth is by implementing a foreign capital accumulation policy that includes foreign investment, foreign aid and grants. This method certainly helps a country in boosting its domestic economy. The biggest influence of foreign capital accumulation on a country’s economy is investment. The foreign investment will be utilized by the recipient country in the context of sustainable economic development and building various infrastructures in Ethiopia.

Further Potential of Economic Diplomacy between Indonesia and Ethiopia

Indonesia has the potential to make breakthroughs related to non-traditional markets that will increase the value of exports that benefit Indonesia. This potential must be well utilized by Indonesia considering that Indonesia’s export potential in Africa reaches US$ 550 billion as stated by President Joko Widodo. Of course, achieving this potential requires a good economic diplomacy.

Retno Marsudi as Indonesia’s Minister of Foreign Affairs divides the objectives of economic diplomacy into three main points, namely increasing the value of exports, expanding investment, and promoting Indonesian tourism. Economic diplomacy during the administration of President Joko Widodo occupies a special position as part of Indonesia’s foreign policy priorities, namely in the 2019-2024 period which is located in the first point, in the form of strengthening economic diplomacy written as a priority of Indonesian foreign policy, which will be applied to various strategic steps including strengthening trade negotiations, promoting trade and investment, strengthening domestic markets, strengthening Indonesia’s economic strategic interests, strengthening traditional markets and expanding non-traditional markets and encouraging economy 4.0.

Indonesia and Africa, if seen from the historical relationship that has been established, it can be said that the relationship has been established for a long time. The relationship between Indonesia and Africa is further strengthened by various activities such as the Asian African Summit, Asian African Conference Commemoration Indonesia 2015, Indonesia Africa Forum 2018, Indonesia Africa Maritime Dialogue 2019 and Indonesia Africa Infrastructure Dialogue 2019. As the third largest continent in the world, the African continent has a large human resource of 1.3 billion people with potential in the African market. The African continent, which is separated into 5 regions with 54 countries, certainly has its own characteristics. One of them is East Africa, agriculture and mining in this region is one of the dominant natural resources and is also supported by various factors such as soil conditions and climatic conditions.

As a country that is very active in conducting various international cooperation, Indonesia has several trading partner countries in East Africa such as Somalia, Uganda and Djibouti. Indonesia and Uganda have established bilateral economic cooperation in infrastructure through technical cooperation in various development sectors such as agriculture, fisheries, MSMEs, and forestry. Bilateral relations between Indonesia and Djibouti have also taken place by encouraging market diversification to expand Indonesia’s export land. Bilateral economic cooperation has also been established between the governments of Indonesia and Somalia, which will cooperate in infrastructure such as the construction of roads, ports, and housing projects. Various export market expansions to several non-traditional Indonesian markets, especially in the Middle East Africa region, continue to take place. Somalia as a country that shares border with Ethiopia will certainly be an entry point for Indonesia to Ethiopia.

Strategic cooperation opportunities between Indonesia and Ethiopia also continue to increase so that this becomes an attraction in terms of other cooperation. As the home of the headquarters of the African Union, Ethiopia’s position is very much taken into account. The rise of Ethiopia has been through a long history of humanitarian disasters that managed to change the narrative of stagnation, crisis, and various other negative issues related to Ethiopia into a narrative that can be described as Ethiopia’s amazing economic development.

Even though the market potential in Ethiopia is very promising, of course Indonesia also has several challenges that need to be faced. Such as geographical conditions which ultimately make the economic system closed so that Ethiopia is too far to reach and cultural differences which will also have implications for the lack of interest of Indonesian entrepreneurs who will market their products to Ethiopia, but as a country that has the potential to become a strategic target market for investment, of course Ethiopia has carry out cooperation with various countries. One of the ongoing collaborations is between Ethiopia and China which have carried out economic, political and diplomatic cooperation. The consolidation that has existed between Ethiopia and China has succeeded in making China a trading partner and one of the largest investors for Ethiopia itself. Ethiopia as China’s strategic ally in sub-Saharan Africa is increasingly attracting China’s attention. As the diplomatic capital of Africa which has a big influence on continental decisions, of course Addis Ababa is China’s motivation to make Ethiopia a strategic point in promoting other African countries so that China’s investment and cooperation activities in Africa are very intensive.

Indonesian foreign officials must maximize their performance in intensifying economic diplomacy to the African region, especially in Ethiopia. The role of the government is very important as an intermediary for cooperation between Indonesia and Ethiopia in opening diplomatic relations to reduce obstacles that could become obstacles for both parties in carrying out bilateral cooperation. The Indonesian government must position itself as a state actor that bridges the continuity of cooperation between non-state actors from Indonesia and Ethiopia.Pada kesimpulannya, Ethiopia sebagai negara yang pernah mendapat predikat sebagai negara termiskin dunia di benua Afrika, pada beberapa tahun terakhir ini memperlihatkan ekonomi Ethiopia yang perlahan mengalami peningkatan dan pertumbuhan yang pesat. Perkembangan tersebut tentu tidak terlepas dari bantuan dari berbagai negara yang telah melakukan kerjasama.

Opportunities for cooperation between Ethiopia and Indonesia must be maximized by the Indonesian government through increased collaboration with the private sector. The Ministry of Foreign Affairs can collaborate with related technical ministries such as the Ministry of Trade, Ministry of Industry and other ministries to become a bridge in conducting diplomacy and facilitating access for Indonesian private companies to enter the Ethiopian market. The challenges of entering the Ethiopian market can be minimized as best as possible by providing adequate information regarding market opportunities in Ethiopia. Private companies need information about the Ethiopian market to use as parameters in calculating the costs or risks of making foreign investments. This information is also used as material for entrepreneurs to focus on traditional markets to see opportunities in the Ethiopian market as an investment destination. In terms of accommodating the private sector, the Indonesian government can expand its scope by providing opportunities for potential MSMEs.

Alfindo Andry Saputra
Alfindo Andry Saputra
I am a student at the Faculty of Law, Bengkulu University, currently pursuing a Bachelor's degree. I am actively doing research, especially related to constitutional issues and international law.