Indonesia and the United Arab Emirates (UAE) concluded a new free trade agreement in July 2022, under the UAE-Indonesia Comprehensive Economic Partnership Agreement (IUAE-CEPA).

The free trade agreement removes trade barriers for a variety of goods and services with the aim to increase bilateral trade to US$10 billion by 2030.

Indonesia and the United Arab Emirates (UAE) concluded a new free trade agreement in July 2022, under the UAE-Indonesia Comprehensive Economic Partnership Agreement (IUAE-CEPA). UAE President Sheikh Muhammad bin Zayed and Indonesian President Joko Widodo witnessed the signing in Abu Dhabi.

The free trade agreement removes trade barriers for a variety of goods and services with the aim to increase bilateral trade to US$10 billion by 2030 from US$4 billion in 2021. The UAE enjoyed a trade surplus with exports to Indonesia totaling approximately US$2.1 billion and imports worth US$1.9 billion from the archipelagic nation.

This is the third trade deal signed by the UAE this year following CEPA’s with Israel and India. The Middle East’s finance and tourism hub is trying to diversify its economy away from hydrocarbons and deepen trade ties with the fast-growing economies in Asia and Africa. The UAE wants to remodel itself as a finance and business hub.

Emirati Minister of State for Foreign Trade Thani Al Zeyoudi stated that the trade pact with Indonesia would create 55,000 highly-skilled job opportunities by 2030 in the UAE.

The ratification is targeted to be completed by the end of 2022 in both countries.

What do the IUAE-CEPA cover?

While waiting for the full text of the IUAE-CEPA to be ratified, both governments have highlighted several sectors that will benefit from the removal of trade tariffs. Under the deal, over 80 percent of UAE exports will gain duty-free access to Indonesian and Indonesian palm oil, food products, fashion wear, and other products and commodities that will benefit from the reduced or eliminated tariffs.

Both countries are also expected to increase investments and cooperation in the areas of agriculture, energy, infrastructure, logistics, healthcare, and tourism. Furthermore, Indonesia and the UAE will increase cooperation in emerging sectors like renewable energy, Islamic finance, the digital economy, and automation.

Current Indonesia-UAE trade

Of the total US$4 billion in bilateral trade, the UAE exported over US$1 billion worth of petroleum and its related products in 2021. This was followed by more than US$200 million in iron and steel and over US$100 million in aluminum.

The remaining export of goods came from precious stones, precious metals, Sulphur, cement, and pharmaceuticals.

Indonesia’s largest export to the UAE was palm oil and its related products which were valued at over US$290 million in 2021. In addition, Indonesia also exported precious stones, precious metals worth over US$200 million, and over US$170 million in vehicles and accessories. The country also saw more than US$150 million in exports of electrical machinery and equipment.

UAE investments in Indonesia

The UAE confirmed that it would commit to investing US$10 billion towards Indonesia’s new capital city project via the Indonesia Investment Authority (INA). A portion of the project will be directed to the new capital whereas the remainder to other strategic sectors such as food security, infrastructure, logistics, and digital infrastructure.

The ambitious project to relocate Indonesia’s new capital city is set to cost over US$35 billion. President Joko Widodo has assembled a team of political and business heavyweights as part of the new capital’s steering committee. These include Abu Dhabi Crown Prince Muhammad bin Zayed Al Nahyan and former British Prime Minister Tony Blair.

Indonesia’s Halal economy potential

Indonesia’s huge domestic Halal economy will be at the forefront of UAE investments. Indonesian Muslims spend more than US$200 billion annually on Halal products, representing the world’s largest Halal market or some 10 percent (US$2 trillion) of global spending on Halal products. Moreover, the global Islamic economy is expected to be worth US$3.2 trillion by 2024, with Indonesia at the forefront.