Indonesian trade buoyant in 2021

After years of lacklustre performance Indonesia’s export sector is booming.


The nation produced $US231.54 billion in exports; a record busting 42 percent increase from 2020. It has posted a $US35.34 billion trade surplus in 2021, the highest since 2006.

While this has largely been due to a spike in commodity prices in its traditional exports of coal and palm oil, the change has also been driven by huge volume increases in processed nickel and steel.

Another notable development is in the trade relationship with Australia, with a doubling of imports from that country. Australia’s third largest export to Indonesia in 2021 was iron ore concentrate which presumably is being used in the steelmaking industry. There has also been a turnaround in the wheat trade, with Australia regaining its market dominance with one of its historically biggest customers after having to deal with drought and other country competition. While these shifts are in traditional commodities, maybe this could be the initial green shoots for the much anticipated IA-CEPA powerhouse partnership.



After peaking in 2011 at $US203 billion Indonesian exports of goods trended downwards until the middle of the decade before beginning an uneven improvement.

Meanwhile on the merchandise import side, the peak level of imports was in 2012. This was also followed by a sharp decline and a brief improvement around 2018. Unlike the case of merchandise exports, the growth of merchandise imports this year was less significant.



The result of these developments in 2021 saw the country enjoy a record trade surplus of almost USD 60 billion.

The results of these dramatic changes in trade during 2021 should demonstrate that Indonesia’s external sector played a positive role in contributing to Indonesia’s modest economic recovery this year.


Looking under the headline data

With specific reference to merchandise exports, almost 56 percent of merchandise exports in 2021 consisted of 10 core items. This represented a notable concentration in the base of the nation’s exports.



Table 1 outlines the huge increase in the value of the country’s top three exports, namely palm oil, coal and ferro-nickel products. The first two have been prime exports of Indonesia for well over a decade. In the case of coal, most of the increased value of export was due to significant price increases during the year for this commodity. The price of palm oil also saw significant price increases but there also appears to have been a relative increase in more processed crude palm oil over basic crude palm oil during the year.

The growth in the value of exports of nickel based products including stainless steel is clearly the big export growth story of this era. During the nine years to 2021 the value of these exports has increased by over 1,000 percent. Most other products included among the top 10 exports have experienced some increases vis a vis levels of export over the past five years, but the changes have not been significant.

A quick comment should be made about the products apparel and clothing accessories, knitted or crocheted (HS 61) and apparel and clothing accessories, not knitted or crocheted (HS 62) and footwear (64). Specific details on the value of these exports to the end of 2021 are not yet available, but looking at the previous years, even in 2020, these products should each still be expected to exceed the value of the exports of crude oil and refined oil. In 2020 they were valued at $US3.4 billion, $US3.6 billion and more than $US4 billion respectively.

Historically the exports of oil and gas have been centrally important to Indonesia but times have changed. Indeed the AIC’s own work on public attitudes in late 2016 revealed that Indonesians still believe that oil/gas exports are important for Indonesia. Unfortunately these views are very outdated. At their peak in the middle of the second oil boom in 1982, oil/gas exports comprised 82 percent of all Indonesian exports. By the turn of the century the figure had fallen to 23 percent. Despite the improvements in export performance of the oil and gas sector in 2021 they only comprised 5 percent of all Indonesian exports in 2021.

While this transformation away from dependence on oil and gas exports has been significant, arguably of greater significance is the transformation of Indonesia from a major exporter to being a significant and growing net importer of oil and gas. In 1982 the country was a net exporter of oil and to the value of $US15 billion. By 2000 this surplus declined to $US8 billion. In 2021 this figure reached a deficit of $US13 billion. Chart 3 below, outlines Indonesia’s steady but consistent trajectory from net oil/gas exporter to importer.






With regards to the developments of Indonesia merchandise imports, Table 2 above, outlines a number of the country’s top 10 imports.

A quick scan of these key imports reveals that capital goods are the most important component of total imports. Intermediate goods and raw materials used for further processing are also important. The very sharp increase in pharmaceutical imports in 2021 is obviously to be expected given the ongoing COVID-19 crisis. Of note is that looking back at BPS data indicates a rather modest increase in pharmaceutical imports during 2020 itself over 2019. Components of the pharmaceutical sector that did see a major increase during 2020 were blood fractions for biotech processes (HS 30021500), vaccines as well as the broad grouping of other medicaments (HS 30049099). These constituted one third of all pharmaceutical imports in 2020.

The sharp increase in the value of oil/gas imports, as with the case of oil/gas exports in 2021 has been attributed more significantly due to price increases rather than any increase in volume.

While Indonesia’s merchandise trade surplus will reached a new record surplus in 2021, the country is also expected to a produce a record services trade deficit, perhaps to the value of up to $US14 billion. Notable within this development is the very sharp decline in the value of Indonesia’s tourist exports, traditionally the country’s strongest services export. Valued at over $US16 billion in 2018 and 2019, receipts from travel in 2020 fell to just over $US3 billion in 2020 and in 2021 will be well below $US1 billion. Despite the worsening deficit in the services trade deficit, the growth of the merchandise trade surplus should be more than sufficient to see Indonesia enjoy its first significant current account surplus since the end of the resources boom.

The Indonesia-Australia trade corridor

Arguably the most frequently used term in describing the commercial relationship between Australia and Indonesia is “underdone”. Data from the Australian Bureau of Statistics (ABS) reveal that in 2020 Indonesia was its 13th largest export market and only 16th largest source of imports. From the perspective of Indonesia, the country’s Statistics Central Agency (BPS) revealed that in 2020 Australia was Indonesia’s 13th largest export market and its 8th largest source of imports. Considering the two are neighbours with lots of economic complementarity the term underdone does appear apt.

However 2021 has produced some new dynamics.

Indonesia’s non-oil/gas merchandise exports to the world rose 42 percent during 2021 while its imports from the world during this same period rose 39 percent. During this period Indonesia’s non-oil/gas exports to Australia rose only 24 percent while its non-oil/gas imports from Australia grew by 104 percent. This extraordinary growth in imports from Australia was the fastest growth of any major supplier economy to Indonesia and elevated the country to 7th largest source of Indonesia’s non-oil/gas imports.

Indeed during the month of October 2021 Australia rose to become the third largest supplier, with only China and Japan exporting more to Indonesia that month. All up Australia supplied five percent of all Indonesian non-oil/gas imports in 2021, the highest percentage figure since 2007.



Arguably the biggest development in Australian exports to Indonesia in 2021 has been the recovery of wheat exports after a couple of years of very poor exports due to drought in key wheat growing areas in Australia. During 2021 Australia regained its traditional position as the largest supplier to Indonesia.

Two further exports of note include the surprising boost in coal exports to Indonesia despite the country being the top or second top global exporter with Australia. The third largest export in 2021 has been iron ore concentrate. This has been a steady but continuously growing export from Australia to Indonesia over the past decade. The combination of growing iron ore and coal exports, ostensibly coking not thermal coal, from Australia and Indonesia reflects the growth of Indonesia’s steel making industry including among its exports.

Shifting terms of trade

The terms of trade index measures the ratio of export prices to import prices. In essence if the terms of trade index for a country are rising it means the relative prices for what it exports are rising faster (or alternatively falling slower) than the average prices of what it imports.

The OECD produces data on the terms of trade for all its members together with countries like Indonesia that are special dialogue partners with the OECD. Chart 4, below,  plots the movements of the terms of trade for Australia, Indonesia and the OECD overall over the past 25 years. The data series uses the relative value of the terms of trade from each economy from 2015 as its baseline.



One of the more notable features of the external sector of both countries has been growing divergence in the trajectories of their terms of trade. The stand out features of these data are that Australia’s terms of trade has enjoyed a quite extraordinarily positive rate of growth in its terms of trade since the mid-1990s peaking at the top of the resources boom then declining sharply before recovering strongly over the last five years.

Put crudely Australia has been in the enviable position of being able to buy more by selling less over these past five years. Preliminary data released by the Reserve Bank of Australia (RBA) suggest even further strengthening of Australia’s terms of trade in 2021 to the point of exceeding the peak at the time of the resources boom.

There is often seen to be a connection between the terms of trade and the strength of a currency. It is notable that the last time Australia’s terms of trade was so high the value of the Australian dollar was in excess of the US dollar. It may be that in the near future there may be some upward pressure on the value of the Australian currency.

In the case of Indonesia there has actually been a slow but steady decline in its terms of trade ever since the Asian financial crisis of 1997/1998. Intriguingly like Australia, Indonesia was a beneficiary of the resources boom, but that boom and post boom period did not see a significant shift in the trajectory of the movement of the country’s terms of trade. The sharp increase in the price of its two key export commodities, palm oil and coal during 2021 may see some improvement in the country’s terms of trade.

Green shoots for an IA-CEPA powerhouse?

One of the key driving factors that informed the development and content of the Indonesia Australia Comprehensive Economic Partnership Agreement (IA-CEPA) was the powerhouse idea. The central premise of this idea is that by combining the comparative economic strengths of both economies, they can collectively boost their overall export trade potential and competitiveness with the rest of the world. In many respects this is not a new idea. Indeed it is fair to note that the success of industrialisation programs that have driven the economic development, prosperity and wealth in the leading Asian economies beginning with Japan and later with, South Korea, Taiwan and more recently of China were significantly advanced due to the partnerships they were able to forge with Australia as a source of reliable, high quality and well-priced inputs into the manufactured goods they exported to the world.

One feature of the trade relationship that emerged between Australia and each of these economies as they passed through their rapid pace of industrialisation and economic modernisation is that each had large trade deficits with Australia while at the same time they developed significant trade surpluses with the rest of the world.

The essence of Australia’s advantage from these earlier powerhouse partnerships was its exports of key raw and semi-processed materials that fuelled the industrial growth of Japan and the newly industrialising economies in earlier times. While it is to be expected that many of these commodities will also support Indonesia’s future industrialisation and drive to prosperity, it may be expected that Australian services inputs notably in the area of education, vocational and other training can be expected to play a greater role in boosting Indonesian global competitiveness and development. This will indeed build upon the strong and deep bilateral partnerships particularly in education that have existed for decades.

As noted earlier, the trade balance between Australia and Indonesia this year will be strongly in Australia’s favour both from the perspective of merchandise trade while the collapse in Indonesia’s tourist exports to Australia will also reduce if not eliminate the services surplus that Indonesia has been enjoying with Australia in recent years. While the value of Australia’s education exports to Indonesia have also taken a hit due to the COVID-19 control policies, Indonesia’s loss of tourist revenue from Australia is much larger.

Significant increases in Australian exports to Indonesia have come from traditional export goods both in terms of larger volumes as well as value. In the case of wheat it is true, based on earlier trade experience, that some of the wheat Australia exports to Indonesia will be processed in Indonesia and then exported as flour to neighbouring countries thus demonstrating some element of a powerhouse arrangement. In this regard these commodities reflect long established trade flows and are not likely to reflect some major new transformation in trade patterns.

However, other exports from Australia are worthy of more careful attention. This includes the intriguing growth of Australian coking coal exports to Indonesia. While Indonesia does produce and export coking coal most of its coal, including for its exports, is thermal. While prices did increase, volumes of these exports from Australia to Indonesia also increased significantly from 2.3 million tonnes in 2015 to 4.9 million tonnes in 2020. The figure for 2021 could well exceed eight million tonnes in 2021.

Of further note is the growth of Indonesia’s iron ore imports from Australia. Considering Indonesia’s wider ambitions to become a major producer and exporter of more sophisticated products such as automotive, imports of a commodity like iron ore would be a natural input to that sector. Indonesian production of steel grew each year and on average by 16 percent in the five years to 2020. Indonesia is not strongly endowed with reserves of iron ore and its coking coal reserves are mostly concentrated deep in the hinterland of the province of Central Kalimantan. Given the abundance of reserves of both commodities in Australia, we should expect to see Australia emerge as a key strategic partner for Indonesia as it continues to develop and expand its steel industry, including its export markets, in the years ahead.

If we are in the early days of an emergent powerhouse basis for the Australia-Indonesia commercial corridor, we should expect that Australian exports to Indonesia will grow faster than Indonesian exports to Australia but we should also see a solid growth of Indonesian manufactured and other processed goods being exported to the world. This was certainly the experience of other Asian economies initially with Japan and most recently with China. In each of these countries Australia has been a strategic partner that has enabled each of them to power forward towards economic modernity and prosperity.

On the services trade side, and assuming that the COVID-19 epidemic finally comes to an end in 2022, we should begin to see a significant increase in Indonesia’s services exports to Australia, notably of tourism, while Indonesian students may begin returning to take up their studies in Australia. Finally air transport services should begin to pick up business with benefits to companies in both countries.


Picture of Kevin Evans

Indonesia Director
The Australia-Indonesia Centre

Kevin has been a student of Southeast Asia in general and Indonesia in particular for 35 years.

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