Trade and Indonesia’s Emerging Digital Economy, Gadjah Mada University, Yogyakarta

Blank Template - Remarks by Ambassador Blake

Remarks by Ambassador Blaka at Trade and Indonesia’s Emerging Digital Economy, Gadjah Mada University, Yogyakarta

Rector Rika, Dr. Made Arsana, thank you for the invitation to speak today.  It is a pleasure to be here at UGM, one of Indonesia’s finest universities.  I am here in Yogyakarta today because our two governments are meeting under what’s called a Trade and Investment Framework Agreement, or TIFA to discuss what further practical steps we can take to increase trade and investment between our countries.

But first let me briefly set the scene and context of our overall relations, which reached a new peak with President Jokowi’s visit to Washington in late October to meet with President Obama.  Our two Presidents elevated our relations to a Strategic Partnership; announced over $20 billion in new U.S. investment and business deals; and enhanced cooperation on strategic regional and global challenges, including to further develop our important trade and investment relationship.

President Jokowi has set out an ambitious agenda to increase Indonesia’s economic growth and to reduce poverty.  Today, I would like to discuss how trade can be a major pillar of Indonesia’s strategy to achieve the President’s goals of economic growth and poverty reduction.  I will also focus on one important issue that has the promise to transform Indonesia’s economic future.  I’m talking about Indonesia’s digital economy development and innovation agenda.

But first, let’s talk about trade.   The Trade and Investment Framework Agreement provides a mechanism for regular discussions on our bilateral trade and investment relationship, and how we can and should work together to improve that relationship.  And it could be better.  Total trade between the United States and Indonesia was just under $27 billion in 2015, down slightly from 2014.  We need to find ways to boost our trade relationship because our economies and our people both win when we trade together.

So why is trade important?

In short, trade creates opportunity.  Most of you have heard of the theory of comparative advantage.  It’s a theory that says people, companies, or countries have different strengths and should focus on those strengths, producing goods or services that they are good at.  They can then export those products while importing other products others have a comparative advantage in.

For consumers, trade means lower prices and a wider choice of goods and services.  For industries, trade creates opportunities for innovation or expansion into new areas.  Manufacturers can expand their sources for new technologies and inputs and can also seek new markets for their products.  And for governments, expanding trade creates opportunities to boost economic growth and broaden and deepen a country’s economic resiliency and stability.

Trade also benefits small and medium sized enterprises.  SMEs make up the majority of businesses in Indonesia and the United States, and they are a key source of innovation and job creation.  In the U.S., 98% of exporters are SMEs.  Trade is a source of growth for them and for the economy in general.  The same is true for Indonesia.

Companies that export are also among America’s most dynamic and productive companies.  Exporters tend to be more technologically sophisticated, pay higher wages, and create jobs quickly.

The bottom line is this:  trade leads to more and better jobs for domestic workers and more and better choices for consumers.

That’s not to say that everyone benefits equally.  Opening up an economy to greater trade will mean some sectors that are less competitive will be affected.  But contrary to what the doomsayers predicted and what several U.S. presidential candidates are alleging, the U.S. actually saw a net increase in jobs following the passage of our NAFTA free trade agreement with Mexico and Canada.  Some jobs were lost, but the jobs that were created more than made up for them.

Finally, increasing trade is quite possibly the most important thing a country can do to reduce poverty.   Study after study has shown that reducing barriers to trade helps the poor by increasing incomes and lowering prices, even for basic goods.

So what does all this mean for Indonesia?  

Indonesia will unequivocally benefit by reducing barriers to trade and enhancing its competitiveness.   Let’s take the ASEAN Economic Community.  ASEAN is the second-fastest growing economy in Asia after China, with a combined GDP of $2.4 trillion and a consumer base of 626 million people.  With more economic integration and freer movement of goods and services across borders, the AEC offers a significant opportunity for Indonesia to tap into a much larger market than the one within its own borders.  So the AEC can be seen as an opportunity, not a threat.

The Trans-Pacific Partnership, or TPP provides another major trade opportunity for its members.  TPP will be the most ambitious, comprehensive trade agreement in history with a membership representing nearly 40 percent of global GDP.   

The initial group of 12 TPP member countries shares a commitment to creating more open trade relationship and to expanding to include additional countries throughout the Asia-Pacific region.  We see TPP as a way to boost economic growth in the U.S. and other member countries, and to support the creation of high-quality, 21st century jobs by increasing exports in the region.  We welcome President Jokowi’s statement that Indonesia intends to join TPP in the future, and we look forward to working with Indonesia in the future as opportunities for new membership arise.

U.S. companies are already in Indonesia manufacturing for export and helping to grow Indonesia’s economy.  Honeywell produces advanced avionics technology such as the famous black boxes from a plant in Bintan for its global customers.   Fluidic Energy manufactures its innovative green battery technology in Bogor for Indonesian and global clients.  And here in Yogyakarta, GE manufactures millions of lightbulbs a year.  The list goes on.

Indonesia today is faced with a choice.  It can stand on the beach and try to stop the global economy at its shores.  Or it can follow the lead of President Jokowi, Minister of Trade Tom Lembong and others, and choose to compete in the global economy.

The choice to compete will make Indonesia’s economy more dynamic, more creative and more competitive.  And the global economy is changing. Nowhere is that more evident than in the global digital economy.

The internet has made the world smaller.  The Internet and technology innovation have allowed cities to become smart, governments to become more efficient and transparent, and societies to become more connected.  The smartphones in your pockets have more computing power than NASA had when they sent a man to the moon.  And the industrial internet, the so called “internet of things”, will provide efficiency gains that will be worth hundreds of billions of dollars to the global economy.

Companies around the world are making breakthroughs in advanced robotics, self-driving cars, and artificial intelligence that will continue to fuel 21st century innovation.

Indonesia’s Digital Potential

With more than 85 million Indonesians online already and the opportunity to add many more relatively quickly, Indonesia’s digital potential is enormous.  And Jogja can be a center for that growth.  With young people like you leading the way, Indonesia can become a leader in e-commerce and digital development.

Indonesia’s digital ecosystem is vibrant.  But it remains small.  According to a recent Accenture study, the U.S. internet economy accounts for more than 6% of America’s GDP.  Estimates put the Indonesian digital economy at about 1% of GDP.  So there is tremendous room for growth in Indonesia.  So the question is, how can Indonesia achieve its digital potential?

How many of you have heard about the triple helix concept for innovation?  The main idea behind the triple helix is that government, academia, and the private sector each have important roles to play to support innovation, and that close collaboration between the three can lead to tremendous breakthroughs and innovative growth.  Researchers and students at universities produce innovations and the private sector creates business uses for those innovations.  And the Government supports innovation by creating a policy environment for innovators to thrive.

The best example of the triple helix at work is Silicon Valley.  You’ve all heard of it.  With Stanford University as one focal point, a robust venture capital community, and a regulatory environment to encourage innovators and investors from around the world, Silicon Valley has grown to be the global epicenter of technology innovation.

But Silicon Valley is by no means alone.  Similar things are happening in Boston, New York, and in smaller clusters throughout the United States and throughout the world.  What they all have in common is that these universities and their government and private sector partners develop and train entrepreneurs, help inventors patent and license new technologies, and connect researchers and entrepreneurs with venture capital funding, incubators, and business development networks to promote the startup and growth of an endless stream of new companies.

President Jokowi has recognized the importance of digital development to Indonesia’s future, and the government is working to support innovation and technology development.  But governments can only do so much.  In the United States, the government has created a policy environment where technology innovation can thrive, and then has gotten out of the way of the entrepreneurs who can make it happen.  Centers of innovation like Silicon Valley have been the result.

How Can Indonesia Achieve Its Digital Potential?

In thinking about how Indonesia can achieve its digital potential, it all comes down to expanding access — access to people and markets, access to capital, and access to talent.   Let me talk briefly about each.

First, expand Access to People.  E-commerce development and digital innovation can only happen if there is a market for the services and products that are created.  At just over 30%, Indonesia’s internet penetration lags behind its neighbors, and leaves more than 160 million Indonesians unable to participate in the country’s digital transformation.  Indonesia’s 2014 National Broadband plan will leverage government and private sector funding to expand broadband access throughout the country, allowing more Indonesians to get connected, and allowing the government to utilize technology to improve service delivery, including health care, education and other e-government initiatives.  The United States, through our U.S. Agency for International Development, supported the development of the National Broadband Plan.

The private sector is doing its part too.  Google signed agreements with Telkomsel, Indosat, and XL Axiata to begin testing its new Google Loon technology here in Indonesia.  Have you heard about this? Google has developed the technology to use large balloons flying high in the atmosphere, like cellular base stations in the sky, that can help Indonesia expand internet access to underserved areas.

Apple plans to create a state of the art app development center in Indonesia, the first of its kind in Asia. Once approved by the government, Apple’s investment will train hundreds of Indonesians ‎in app development  annually, creating a pipeline of coders and app developers to lead Indonesia’s digital and mobile technology development.

Access to Capital

Second, we need to ensure that Indonesian innovators have Access to Capital.  This is a critical element of any digital economy.  As part of its recently announced e-commerce roadmap, the government seeks to grow the digital economy ten-fold to $130 billion, and support the creation of 1,000 new “technopreneurs” by 2020.  This is an ambitious, but achievable goal.  To meet these goals, Indonesia’s innovators will need access to capital.

U.S. tech leaders can help Indonesia achieve its digital economy goals.  Investors that focus on early stage investment represent so-called “smart-money,” as they offer mentorship, connections, and other much-needed intangibles to help Indonesian startups bring their ideas to market, scale their businesses, and join the global digital economy.

These early investors are also willing to risk failure in their pursuit of next big thing, a critical ingredient to a successful startup ecosystem.  Y Combinator, a leading early stage investor and accelerator in Silicon Valley funds more than 100 startups a year with small seed funding.  Many of those startups fail.  But that’s okay, because among the more than 1,000 startups Y Combinator has funded since 2005 are tech success stories AirBnB, Reddit, Twitch, and many other companies that you may have heard of.

Indonesian venture capital investors can provide similar funding and support to local startups, but homegrown capital is not sufficient to meet the growing needs of Indonesia’s vibrant digital ecosystem.  For that reason, we all should welcome and celebrate any capital investment in the Indonesian tech sector, of any size, from any place, as it represents a vote of confidence in Indonesia’s digital future.

Access to Talent

Finally, startups need access to talent.  Indonesia has a lot of tech talent out there.  But the booming tech sector still suffers from a talent deficit. As startups grow, finding talented engineers and coders is becoming difficult.

As part of the e-commerce policy roadmap, the government will work to create an educational environment conducive to digital economy growth.  That’s where academic institutions like the Gadjah Mada come in.  Just as MIT and other U.S. universities have become centers of innovation and sources of America’s entrepreneurs, Indonesian universities can become the engines of Indonesia’s digital economy growth.

To do so, Indonesian universities must become more entrepreneurial, and seek partnerships with the private sector to boost research and development, involving students in cutting edge research.  A great example of this is the Geothermal Capacity Building program, a partnership between the University of Southern California, the Bandung Institute of Technology, USAID, and Star Energy, an Indonesian geothermal company.

The program conducts seminars on geothermal technologies, provides scholarships, and creates internship opportunities for students at American and Indonesian companies.  Through this partnership, ITB’s geothermal master’s program is strengthened, and the participating companies benefit from qualified graduates to fill their ranks.

But such partnerships are the exception.  Every university in Indonesia should be thinking about how its faculties can partner with the local private sector to fund university research, train the students in those faculties, and drive the innovation that will create jobs in districts and provinces across Indonesia.

USAID’s university partnership program has developed more than two dozen partnerships between U.S. and Indonesian universities to help Indonesian faculty and students deepen their research skills.

For example, the partnership between Bogor Agricultural University (IPB)/Columbia University and Sampoerna University, Tufts University and New York Hall of Science (NYSCI) has equipped makerspaces with tools for faculty and students to carry out their research with technical support from U.S. counterparts. Intel Indonesia has joined to support advanced development of the initial research and products created by these makerspace participants.

While we are committed to strengthening universities in Indonesia to help produce the leaders of tomorrow, we also see tremendous value in promoting educational opportunities in the United States.  Today, only some 40,000 Indonesians pursue higher education abroad.  We are working increase those numbers.  Our Education USA advisors are available to help you find opportunities for study in the United States.

I am also a huge supporter of Government of Indonesia’s scholarship program, LPDP.  What an amazing opportunity for talented Indonesian students. LPDP currently awards nearly 3,000 scholarships annually and intends to award up to 5,000 in the coming years to allow Indonesian students to pursue degrees at foreign universities! We want those LPDP scholars to pursue a world class education at one of the top 55 US universities that are part of the program.

So those of you undergraduates here today contemplating getting a Masters or PhD, there is no better opportunity than at these U.S. universities, from the Ivy League to Stanford to MIT and so many others.  And once you are accepted, your government is ready to give you a scholarship.

I am excited to see Indonesia’s vibrant tech ecosystem take flight.  But Indonesia will not reach its digital potential overnight.  It will take time, hard work, and a conducive policy environment to make it happen.  It will take openness to trade and investment, access to people and markets, access to capital, and access to talent that I’ve discussed today.  It will take people like you to see the possibilities at home and abroad, to embrace the challenge of competition, and to lead Indonesia’s digital transformation.

I have no doubt that within Indonesia’s young population, and maybe right here in this room, are the global leaders of the future.  I encourage you to embrace the possibilities of technology and openness and use these tools to build a prosperous, connected, and dynamic Indonesia.

Thank you.  I look forward  to hearing your thoughts and answering some of your questions.