15
Volume 12 Nomor 1 Tahun 2021
P ROSPECTS AND C HALLENGES OF I NDONESIAN E XPORTS TO N ON - T RADITIONAL M ARKET : M EASURING T HE C OMPETITIVENESS OF
I NDONESIAN P RODUCTS IN UAE M ARKET
Riska Nurhafizhah1,, Fajar B. Hirawan2
1Master of Public Policy Candidate
School of Government and Public Policy, Bogor, Indonesia
2Lecturer and Faculty Member
School of Government and Public Policy, Bogor, Indonesia
Abstract
The US-China Trade War and the COVID-19 pandemic are unprecedented incidents involving Indonesia's traditional markets as the main actors, i.e. the US and China which impacted Indonesia's economy and trade indirectly. Market diversification to new market or non-traditional market is one way out that can be done to minimize the impact of the global crisis on the country, when traditional markets are unreliable, such as the United Arab Emirates (UAE) that has made a positive contribution both in investment and trade for Indonesia in the midst of a pandemic. However, Indonesia's exports to the UAE experienced a significant decline in 2018 after previous two years continued to increase. So that knowing the competitiveness of Indonesia's export products in the UAE is the purpose of this study. This research answers the prospects and challenges of Indonesian export products in the UAE by measuring the export performance in 2016-2018 using the Constant Market Share (CMS) and Revealed Comparative Advantage (RCA) analysis methods. This research uses descriptive quantitative method with secondary data and triangulation of data sources, methods, and theories as the validity and reliability methods.
The results of this study indicate that CMS and RCA analysis output are different so that the prospects and challenges for Indonesian products are also explained by the Indonesian approach and trade policies which lead to the conclusion that the UAE is a potential market to become non-traditional market for Indonesian economic development when its traditional markets are unreliable.
Keywords: Trade Policy, Competitiveness, Non-Traditional Market, Indonesia, UAE
I. I NTRODUCTION
Relations between countries are a reflection of humans interaction as social beings who always need other parties to survive and fulfill their interests (Burchill, 2005). Although, the state claims to be able to do self-help in meeting its needs, but the realization will be difficult, especially in realizing interests that cannot be achieved without the help of other countries. The state opens itself to collaborating with other countries that encourage a closed economic system to transform into an open economic system (Hillman, 2008; Marleku, 2013; Humpreys, 2015).
However, the state does not express its aims and objectives to other countries directly, but rather takes a kind of intergovernmental approach based on benefits for all or a positive sum game, so that the national interest remains the priority of each country.
The transformation of the economic system requires dynamic economic policies following the latest issues, in particular of trade policies after the US-China trade war and the COVID-19 pandemic.
These incidents not only affected the parties directly involved but also disrupted the economic stability of countries in the world, including Indonesia, because the United States (US) and China as superpower were Indonesia's traditional markets. The Indonesian Central Bureau of Statistics called that the US-China Trade War had an impact on Indonesia's trade balance, which deficit reached US$ 2.56 billion in April 2019. This figure is much higher than in 2018 as a whole and is recorded as the worst in history. Meanwhile, during the January-April 2019 period, Indonesia's export value was US$53.2 and the import value was US$55.76 billion (Tobing 2019).
University of Indonesia (UI) economist, Telisa Falianty, stated that the deficit due to the US-China
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16 trade war made trade demand decrease so that commodity prices weakened and hit Indonesia's export performance even after the US and China signed the first phase trade agreement based on the principles of equality and mutual benefit in December 2019 which is expected to end the tariff war between the two (Falianty, 2019; Chinese Official Media, 2019). Referring to the World Integrated Trade System (WITS), both China and the US did not leave Indonesia's five main export and import trading partners. That is why Indonesian exports are pressed into these markets while it is undoubtedly affected its balance of trade and economic growth (Kusnandar, 2019). It was getting worse with the existence of the COVID-19 pandemic which was first discovered in Wuhan, China, has had made the emergence of supply and demand disruption because trade restrictions in various countries. Indonesia's trade balance suffered a deficit of US $ 860 million in January 2020 because the export balance position was US$13.41 billion. The number was lower than the import balance which reached US$14.28 billion due to a decline of import values in several major countries including China, by 3.08% to US$125.2 million (Rika, 2020).
The Chairperson of Indonesian Fruit and Vegetable Exporters Association, Hasan Johnny Widjajapara, stated that the fruit exporters who sell or ship goods under the Cost and Freight (CNF) scheme or payment is made after the goods arrive at the port of export destination are the most affected by the pandemic because buyers from China stopped buying imported fruit from Indonesia suddenly (Sandi, 2020). This fact forces the government to decide on a trade policy that is oriented towards the public interest with regard to trading activities in all limitations due the COVID- 19 pandemic particularly when the traditional markets were in trouble. As such, the public policy needed is an answer to how the country survives and continues economic development by stabilizing the contribution from the trade aspect when the main market is unreliable? The answer is certainly a potential new market or traditional market such as the United Arab Emirates (UAE) for Indonesia. Indonesia's exports to the UAE reached US$75 thousand or more than IDR1.1 billion, mainly for fruit and vegetables in the midst of a pandemic (Indonesian Ministry of Trade, 2020), when exporters from Indonesia suffered losses due to the unilateral cancellation of China for the same commodities. In the same year, Indonesia- UAE realized 16 collaborations at a cost of approximately US$22.89 billion or IDR314.9 trillion with the participation of the UAE around
30% or equivalent to US$6.8 million (Antara, 2020).
The investment agreement between the two indicates that the UAE has never been absent for the last five years since 2015 to invest in Indonesia, which has more intense and more stable than other Middle Eastern countries that tend to fluctuate (Indonesian Cabinet Secretariat, 2020). These proactive UAE investment in Indonesia is the yields of the Indonesian Government's commitment to target the UAE as a non- traditional market in Trade Expo Indonesia (TEI) 2018 as the largest trade fair in Indonesia which is supported by the Government and the private sector with a B2B (business to business) concept to bring up the business prospects.
Producers can introduce their export quality products to prospective buyers, while buyers themselves can see directly the products offered by producers (Indonesian Ministry of Trade, 2011). Investment encourages trade relations between countries to become more comprehensive which brings investment back into it because Foreign Direct Investment (FDI) is a promotional tool to the global market which follows foreign trade with access to international markets far greater than what is required by foreign production facilities (Afin, et al., 2008).
Prior to the contribution of the UAE’s trade and investment to Indonesia in the COVID-19 pandemic, the UAE market has been studied as a potential market to become a non-traditional market for Indonesia which proven by the establishment of ITPC in Dubai since 2013. ITPC is a technical implementing element that is part of the representatives of the Republic of Indonesia abroad who assess and consider a country to be a potential market for Indonesian export commodities. ITPC Dubai has reputed the suitability of the UAE as a potential non- traditional market for Indonesia with the following findings; 1) According to BPS, the growth trend of Indonesia's non-oil and gas exports to the United Arab Emirates during the 2009-2013 period experienced a growth of 5.56% with a fairly good trade growth trend of 23.27% and total trade between the two countries reaching US$3.39 billion in 2013, and 2) the Indonesia-UAE oil and gas trade balance in the 2009-2013 period was negative, but the non-oil and gas trade balance was positive for five years (Indonesian Ministry of Trade, 2014).
Actually, the trade policy of exploring the potential of non- traditional markets while maintaining traditional markets has been carried out since 2015 as a mandate from President
17 Jokowi during his first leadership to the former Trade Minister, Enggartiasto Lukita (Amindoni, 2015). In fact, neither traditional nor non- traditional markets have a definite definition of a particular school or scholarships. In particular for Indonesia, traditional markets must meet two conditions, i.e. 1) exports to other countries have been going on for more than 40 years, and the adequacy requirement is not affected by economic conditions in other countries, and 2) the consumption structure of Gross Domestic Product (GDP) is more than 50% structure of GDP is less than 5%. It can be interpreted as export destination market of a country whose trade value can affect its total trade and trade balance. Meanwhile, the non- traditional market is a status pinned to countries that have a positive five-year growth trend and a growth in the value of Indonesia's non-oil and gas exports to these markets (Indonesian Ministry of Trade, 2016). Traditional markets are Indonesia's trading partners who are considered to have strong economic cooperation relations and being the destination of Indonesia's export market for the long time, while non-traditional markets are countries that have economic potential and are prospective as a market destination for Indonesia (Sabbarudin, 2016). Thus, Indonesian exports play an important role in international trade because they affect GDP, trade trends, and the trade balance. That is why, the products must have high competitiveness to enter and gain market share so as to increase exports and compete with another supplier.
Product competitiveness is the product's ability to successfully determine a new product agenda in the market by increasing the added value of the product which has a very positive impact on the product's profit (Luo, 2009; Widyasanti, 2010). A country needs to first assess the products competitiveness to add value to a product so that it can map the prospects and challenges of a country's exports in certain markets as a basis for consideration in formulating a trade policy.
Prospects are an overall picture of both threats, obstacles, and opportunities from an activity related to uncertainty which later describes the challenges that will be faced (Sutejo, 1945; Zarkasyi, 2013).
Knowing the prospects and challenges also creates opportunities as a business actor to meet their needs, and get a profit (Krugman, et al., 2018). So, studying prospects and challenges are a strategy to achieve Indonesia's goals to sustain the market and create highly competitive products as well as anticipate events that are detrimental to Indonesian trade such US-China Trade War and Pandemic of COVID-19.
Ultimately, there are two research questions to be answered in this research. First, how is the competitiveness of Indonesia's export products in
the UAE market? Notably, author use export data for 2016-2018 to minimize the research scope.
Second, how are the prospects and challenges for Indonesian products in the UAE market? This research has relevance to public policy because it is expected to provide recommendations as a deliberation for the Indonesian Government's decision-making process in utilizing the prospects and challenges of exports to the UAE as a non- traditional market as well as a solution when traditional markets are unreliable.
II. M ETHOD
This research uses quantitative descriptive research method with secondary data using export data from the World Integrated Trade System (WITS), the World Bank, and other supporting data from the official websites of the Government of Indonesia and the UAE, journals, articles and news.
The data analysis method used is the Constant Market Share (CMS) and Revealed Comparative Advantage (RCA) model. The use of two analytical methods is intended to validate the results of the study so as not to cause bias affecting the author's interpretation as part of the quantitative descriptive method. While the data collection techniques are document review and literature study using triangulation techniques of data sources, methods, and theories to test the validity and reliability of the data.
The Constant Market Share (CMS) analysis model used in this study refers to the version of Leamer and Stren (1970) with the main concept of changing the value of a country's exports which the assumption is a country's exports may be successful and may also fail to grow as fast as world average for three reasons: (1) exports can be concentrated in commodities where demand is growing relatively fast or slow; (2) exports are likely to grow relatively stagnant; (3) the country under study may or may not be able to compete effectively with other sources of supply. The CMS model analysis formula used is shown in Figure 1;
Constant Market Share
The Constant Market Share (CMS) analysis model used in this study refers to the version of Leamer and Stren (1970) with the main concept of changing the value of a country's exports which the assumption is a country's exports may be successful and may also fail to grow as fast as world average for three reasons: (1) exports can be concentrated in commodities where demand is growing relatively fast or slow; (2) exports are likely to grow relatively stagnant; (3) the country under study may or may not be able to compete
18 effectively with other sources of supply. The CMS model analysis formula used is shown in Figure 1;
V’ij - V ij = rVij + ∑i(ri – r) V ij + ∑𝒊(V’ij - V ij - ri V ij) (1) (2) (3) (4)
Figure 1. The CMS Analysis Formula Source: Leamer and Stren, 1970
Where:
Vij = export value of certain products (i) from one country to another (j) in period I
V’ij = export value of certain products (i) from one country to another (j) in period II
r = growth in total world exports from period I to period II
ri = growth in total exports of certain world products from period I to period II
(1) = Total effect
(2) = Import Growth Effect (3) = Composition Effect (4) = Competitiveness Effect
In this study, (i) is Indonesia, and (j) represents the world, and the UAE. Then period I means the first year of 2016, period II means the last year of the 2018 period, while period I to period II means the entire 2016-2018. The CMS model used in this study refers to the explanation in Table 1:
Table 1. Components on CMS Analysis
Effects (+) (-)
Competitiveness The certain product is competitive
The certain product is not
competitive Initial Country Positive
demand of certain product
because of the high demand
from the specific country
or region
Negative demand of certain product
because of the low demand
from the specific country
or region Product Positive
demand of certain product
because of the high demand from the world
as a whole
Negative demand of certain product
because of the low demand from the world
as a whole
Adaptation Positive
response or adaptation
Negative response or
adaptation
Source: Hirawan, 2017; 9
The competitiveness effect refers to equation (4), adaptation effect refers to equation (3), while initial effect consists of country effect
which refers to equation in (1), and the product effect refers to equation (2). Then there are four quadrants:
Figur 2. Quadrants in the CMS Analysis Source: Hirawan, 2017; 10
Each of the four quadrants represents the combined status of country competitiveness and country effects which referring to the level of competitiveness along the X axis and the level of trade in growth values on the Y axis. (A) product is said to be a “champion” if the bubble is located in quadrant 1, because the product is competitive and has a positive growth in trade value in the market.
If the bubble is located in quadrant 2 or
“underachievers”, a product underperforms because it is less competitive despite having a positive growth in trade value. If it is located in quadrant 3 or “declining sector”, it means that the product is declining due to its lower characteristics, is less competitive, and has a trade which negatively impacts the value of growth in the market. If it is in quadrant 4 or “achievers in diversity”, a product has high performance but difficult to compete, and has a negative growth in trade value. Then, the green color which represents achievers (+,+) means "good", the red color for declining sector (-,-) means "bad", and the yellow color means "can still be cultivated"
which represents both under achievers (-.+), and achievers in diversity (+ .-).
Revealed Comparative Advantage
The Revealed Comparative Advantage (RCA) is a method of analysis measures the export performance of a country by evaluating the role of certain commodity exports by comparing a country's total exports and the market share of that commodity in world trade (UNCTAD Statistics, 2020). The RCA model function is similar to the CMS analysis model but with different components.
Then, the RCA metrics are as follows:
19
Figure 3. The RCA Metrics Source: UNCTADStat, 2020
Where:
P = the set of all products (with i∈P) XAi = the country A’s exports of product (i) Xwi = the world’s exports of product (i)
Σj∈PXAj = the country A’s total exports (of all products (j) in P)
Σj∈PXwj = the world’s total exports (of all products in (j) in P)
So, (i) is a certain export product while (j) is all products, (A) represents Indonesia, and (P) represents United Arab Emirates. Then the numerical data used in this analysis method is specific per year so that all components calculated must come from the same year.
If the RCA equation index is more than one (RCA>1) means the country has the competitiveness of a product above the world average while the value of less than one (RCA<1) means the opposite. The higher the RCA value of a country for a product, the higher the export power for that product.
III. R ESULT AND D ISCUSSION
Penelitian ini menggunakan metode kualitatif yaitu suatu pendekatan yang berupaya mengeksplorasi dan memahami arti individu atau kelompok dalam suatu fenomena sosial. Analisa data dilakukan secara induktif yang dibangun dari tema tertentu yakni evaluasi proses bisnis (Pateli dan Philippidoi, 2010) dan New Public Service (Denhardt dan Denhardt, 2015). Demikian pula pada struktur pembahasan yang bersifat fleksibel namun dengan tetap mempertahankan pentingnya penyampaian kompleksitas suatu situasi (Creswell
& Creswell, 2018)
The US-China Trade War and the COVID-19 pandemic had a direct impact on the Indonesian economy because the US and China were Indonesian traditional markets that could not be relied on when the incident occurred. So, it takes a new potential market to stabilize the situation which in this topic discusses the UAE market. Thus, the results and discussion of this study answered two research questions, i.e. 1) Indonesian products competitiveness in the UAE market for the 2016-2018 period based on the output of the CMS and RCA analysis, and 2) Prospects and challenges of Indonesian exports in the
UAE market as described by the policy and implementation of Indonesian-UAE trade.
A. The Competitiveness of Indonesian Products in the World Market
The CMS and RCA analysis models that are applied to measure the competitiveness of Indonesian products use a comparison between Indonesia's export performance in the UAE market as a particular market with Indonesia's export performance in the world. Therefore, the first data to look at is the total export-import for Indonesia- World in Figure 4:
Figure 4. The Total Exports-Imports of Indonesia-World (Value: Billion)
Source: WITS, 2020
Indonesia's exports to all countries continued to experience a significant increase in this period compared to imports of 17.36% in 2017 and 6.50% in 2018. However, the increase in exports in 2018 coincided with the outbreak of the US-China Trade War, which had a difference of 5% with higher imports. This certainly has an impact on trade and economic growth in Indonesia even though Indonesia is not directly involved in the conflict between the two (Indonesian Central Bureau of Statistics, 2019).
Then, these performance of Indonesia-World exports produces CMS output which shows that Indonesian products in the world are more competitive products, but export performances are dominated by “achievers in diversity” status as shown in Table 2;
Table 2. The CMS Analysis Output of Indonesian Products Competitiveness in the World Market in 2016-2018
(Value: %)
Products Effect(s) Status
Competitiveness Country
Animal + - Achievers in
Diversity
Vegetables + -
Food + -
Mineral + + Champion
Fuel + +
Chemical + +
Plastic &
Rubber _ + Underachievers
144 136
169 157180 189
I N D O N E S I A N E X P O R T S T O T H E
W O R L D
I N D O N E S I A N I M P O R T S F R O M T H E
W O R L D
2016 2017 2018
20
Hide and Skin + -
Achievers in Diversity
Wood + -
Textile and
Clothing + -
Footwear + -
Stone & Glass - - Declining Sector
Metal + + Champion
Machinery &
Mechanical - + Underachievers
Transport + - Achievers in
Diversity
Miscellaneous - - Declining Sector
Source: Author, 2020
Mineral, fuels, chemical, and metal products with "champion" status or must be prioritized for trade while sone and glass products have a
“declining sector” status or they are preferably not traded in certain destination markets. The rest are products that are potential to be traded. Next is the comparative advantage of Indonesian products in the world market;
Table 3. The RCA Analysis Output of Indonesia Products Competitiveness in the World Market in 2016-2018 (Value:
%)
Products 2016 2017 2018
Animal 1.08 0.95 0.95
Vegetables 3.94 4.17 4.16
Food 1.16 1.15 1.31
Mineral 1.57 1.26 2.01
Fuel 2.14 1.96 1.78
Chemical 0.44 0.44 0.46
Plastic & Rubber 1.13 1.27 1.08
Hide and Skin 0.65 0.72 0.83
Wood 2.55 2.58 2.73
Textile and
Clothing 2.09 1.95 1.96
Footwear 4.75 4.61 4.61
Stone & Glass 0.88 0.75 0.78
Metal 0.73 0.78 0,.95
Machinery &
Mechanical 0.44 0.4 0.37
Transport 0.37 0.4 0.4
Miscellaneous 0.45 0.46 0.43
Source: Author, 2020
The nine of the sixteen Indonesian products in the world i.e. animal products, vegetable products, food products, mineral products, fuels, plastic or rubber products, wood products, textile and clothing products, and footwear have an RCA value of >1 which means that their comparative advantage is above the world average, except for animal products whose value was less than one in 2017 and 2018. So, animal products have comparative advantage below the world average and so chemical products, hides and skins, stone and glass, metal products, mechanical and mechanical products, transportation products, and miscellaneous products.
The CMS Analysis Output of Indonesian Product Competitiveness in the UAE Market
As explained in the introduction, the scope of the research year is the 2016-2018 period because apart from narrowing the research focus, Indonesia's exports to the UAE continued to experience a decline at its peak in 2018 amounting to US$1.46 million or a decrease of US$466 thousand from 2015 as seen in the following Indonesia-UAE export-import figure;
Figure 5. The Total Exports-Imports of Indonesia-UAE (Value: Million)
Source: WITS, 2020
Indonesia's imports from the UAE reached their peak in 2017 with a drastic increase of around US$880 thousand, while Indonesia's exports to the UAE increased slightly by US$20 thousand in the same year which was then accompanied by a decrease in the following year of approximately US$170 thousand. The import value which is greater than the value of exports, actually shows that the performance of Indonesia's export products in the UAE market based on the CMS analysis output is dominated by a "declining sector" meaning that their products are hopeless and should not be traded as seen in the Table 4;
Table 4. The CMS Analysis Output of Indonesian Products Competitiveness in the UAE Market in 2016-2018 (Value:
%)
Products Effect(s) Status
Competitiveness Country
Animal - - Declining Sector
Vegetables + - Achievers in
Diversity
Food - - Declining Sector
Mineral + + Champion
Fuel - + Underachievers
Chemical + + Champion
Plastic &
Rubber _ - Declining Sector
Hide and Skin + - Achievers in
1,61 1,311,63 2,19
1,46 1,87
I N D O N E S I A N E X P O R T S I N U A E
M A R K E T
I N D O N E S I A N I M P O R T S F R O M T H E
U A E M A R K E T 2016 2017 2018
21
Wood + - Diversity
Textile and
Clothing + -
Declining Sector
Footwear + -
Stone & Glass - -
Metal + +
Machinery &
Mechanical - +
Transport + - Achievers in
Diversity
Miscellaneous - - Declining Sector
Source: Author, 2020
Indonesia's export products in the UAE market that have positive country effect are mineral products, fuels and chemical products which have positive demand due to the high demand from the UAE in contrast to other thirteen products have negative country effects due to low demand from the UAE based on RCA analysis output in the following sub-section. Five other products; vegetable products, hide and skin products, wood products, and transport products with the status of "achievers in diversity", and fuel with the status of "underachievers" are in the yellow group, so they all have potential and can be traded. Only mineral products and chemical products are included in the green group or have the “champion” status, meaning that these products are good for trade priorities in the UAE market.
The RCA Analysis Output of Indonesian Product Competitiveness in the UAE Market
The RCA value for each Indonesian product in the UAE market in 2016-2018 shows that more than half of Indonesian products in the UAE market during 2016-2018 had an RCA >1. The RCA analysis output also shows that the highest RCA value was wood products at 9.71% in 2016, still with a downward trend while some products such animal, mineral, fuels, stone and glass, metal, machinery and mechanical, transports, dan miscellaneous had an RCA value <1 or their comparative advantage was below average of world which can be seen in the following table:Table 5. The RCA Analysis Output of Indonesian Products Competitiveness in the UAE Market in
2016-2018 (Value: %)
Products 2016 2017 2018
Animal 0.53 0.32 0.19
Vegetables 5.9 4.87 5.18
Food 2.62 1.25 1.67
Mineral 0.24 0.69 0.36
Fuel 1.36 0.32 0.18
Chemical 1.18 1.11 1.06
Plastic & Rubber 2 1.54 1.11
Hide and Skin 2.95 2 1.94
Wood 9.71 6.42 5.65
Textile and Clothing
9.05 5.63 4.58
Footwear 8,31 7,85 6,62
Stone & Glass 0.59 0.18 0.42
Metal 0.88 0.88 0.55
Machinery &
Mechanical
0.52 0,44 0.52
Transport 0.4 1.02 1.02
Miscellaneous 0.45 0.46 0.43
Source: Author, 2020
Table 5 shows that eight of sixteen Indonesian products had the comparative advantage was over average of the world because had the RCA >1.
Then, transport products increased in 2017 and 2018 from the initial value of 0.74%, and this is in contrast to fuel, which actually decreased drastically until 2018. Other products had an RCA value <1 or their comparative advantage was below average of world.
Based on the analysis of the CMS and RCA models regarding the competitiveness of Indonesian products in the world and in the UAE, the output are not the same, although the data processing of the two models uses export data and aims to see the export performance of a country's products in certain markets. For instance, Indonesia's exports to the UAE in 2016-2018 were dominated by “declining sector” products including food products, textiles and clothing, and footwear, but all three have an RCA>1 which means that they are Indonesian export strength in the UAE market.
Another fact is that only two Indonesian export products in the UAE for the 2016-2018 period were
“champion” products based on the CMS analysis output, while almost half of Indonesia's export products to the UAE market had RCA<1 or had a comparative advantage below the world average.
Therefore, neither the CMS nor the RCA output can be a single benchmark in mapping the prospects and challenges of a country's export products in a particular market but must also consider facts on the ground, especially in terms of State policies.
The Prospects of Indonesian Exports in the UAE Market
Diplomatic relations between Indonesia and the UAE have been established since 1976, marked by each having an embassy as a representative in their respective countries. Both are members of the World Trade Organization (WTO), The Non-Block Organization, and the Islamic Cooperation Organization (OIC) (Indonesian Ministry of Foreign Affairs, 2020). These three similarities, coupled with the same background, by equally applying halal standardization for exports and imports, are important points that there are good prospects in the future for Indonesian exports in the UAE
22 market. Prospects can be created internally with the efforts of Indonesian domestic actors, and created from external encouragement that comes from the UAE for Indonesia so as to describe the potential of the UAE as a non- traditional Indonesian market.
Expanding Market Access and Free Trade Cooperation
The UAE market has the potential to increase Indonesia's exports to the Middle East region in line with the continued development of partnerships between Indonesia and the Gulf countries with an increase in trade between them by 40%, from US$8.68 billion in 2016 to US$12.15 billion in 2018. The total investment in the Gulf States in Indonesia increased by 26% from US$60.3 million in 2016 to US$76.1 million in the same year which became the basis of Indonesia's commitment to propose the formation of a free trade agreement with the Gulf countries including the UAE in the Indonesia-Gulf Cooperation Council Free Trade Agreement in 2018 (Timorria, 2020).
So, the prospect is undoubtedly increasing trade access, reducing barriers to economic cooperation, increasing direct investment, and indirectly expanding its market in trade liberalization to access the Gulf Countries through the UAE as a bridge.
Proactive Indonesian Government Efforts
The Indonesian government actively links Indonesian products to international markets e.g.promoting Indonesian products through the Gulfood 2017 exhibition held by the UAE which is attended by food entrepreneurs in an effort to increase spice exports in the UAE and increase Indonesia's foreign exchange (Maulida, 2019).
The Government through ITPC Dubai also facilitated a meeting between PT Mayora and Yupi Indo Jelly, with its partner in the UAE, Hashemizadeh Trading Co. which plans to expand the Indonesian product market in the UAE (Laoli, 2017). However, it is feared that efforts to be facilitated in getting the market cannot be obtained by all levels of domestic business actors considering that large companies have easier access to the Government. Even though the ITPC has become a promotional forum for domestic products from MSMEs, the Government must pay more attention to ensure that MSMEs get the same access to directly meet their markets in the UAE through the G to G agreement as initiated in 2020 to reduce the burden of import duties on Indonesian export products (Antara, 2020).
Prospects are also created continuously in the participation of the Indonesian pavilion at the
Expo Dubai every year as a joint effort of the Indonesian Consulate General in Dubai with the ITPC (Indonesian Ministry of Foreign Affairs, 2020). Participating in this exhibition become entry point for investment and tourist visits to the country and as a promotional space in bridging Indonesian export products to the Middle East and African markets (Timorria, 2020).
Participation of Domestic Business Actors
The market prospects for Indonesian products in the UAE are not only created by the Government but can also be captured by business actors in Indonesia, especially Indonesian exporters e.g.Indonesian Catfish Entrepreneurs Association or Asosiasi Pengusaha Lele Indonesia (APCI) who participated in SEAFEX 2018 in Dubai, UAE, which managed to reap extraordinary revenues with transactions of US$10 million for Indonesian catfish (Antara, 2018). This achievement was an excellent response from exporters from Middle Eastern and Asian countries by more than 45 buyers who had registered for the business meeting with the majority of transactions coming from the UAE. The prospect of the Indonesian market in the UAE is getting wider after the Indonesian Grocery Store E-Commerce Platform project under Indonesian Micro, Small and Medium Enterprises Committee or Komite Pengusaha UMKM Bersatu Indonesia (KOPITU) in collaboration with Indonesian Ministry of Agriculture, Indonesian Ministry of Trade, and Eximbank Indonesia, succeeded in making Dubai, UAE as the first market that provides access to increased national exports to support people's business credit for SMEs) and farmers (Indonesian Micro, Small and Medium Enterprises Committee, 2020).
UAE Market Demand for Indonesia
Indonesian food and beverage products are in demand in Dubai, UAE, as evidenced by sales transactions of US$7.36 million at the 2017 Gulfood exhibition, an increase of 121.02% from the previous year's total transactions of US$3.33 million (Laoli, 2017). In addition, the UAE imports a lot of agricultural products from Indonesia, especially spices, which shows a market prospect for Indonesia as a spice-producing country. The export of Indonesian spices to the UAE market has developed quite well since 2011 with limited natural resources owned by the UAE (Maulida, 2019).
UAE Investment in Indonesia
The UAE, which has never been absent from investing in Indonesia for the last 5 years since 2015, has resulted in 11 business agreements with
23 Indonesia with an estimated total investment of US$22.89 billion and projects worth US$22.89 billion in January 2020. The UAE will participate in around 30% of them or around US$6.8 billion for Business to Business (B to B) cooperation (Antara, 2020). The UAE government has again committed to investing US$22.8 billion in Indonesia through the Sovereign Wealth Fund, together with Masayoshi from Softbank (Japan), and the International Development Finance Corporation (IDFC) from the US in early 2020 (Indonesia Cabinet Secretariat, 2020).
Halal Products and Halal Market
Indonesian National Certification Bodies through Indonesian National Accreditation Committee has successfully collaborated with the Emirates Authority for Standardization and Metrology (ESMA) to facilitate Indonesian companies to export to the UAE region. This is manifested in a Memorandum of Understanding (MoU) with the contents of the ESMA recognizing the halal certificates issued by a certification body accredited by National Accreditation Committee based on the requirements of the UAE standard which also upholds the halal industry. Previously, Indonesian food products were threatened with being blocked from entering the UAE, such as biscuits, instant noodles, processed meat products, candy and jelly, as well as food flavours and food ingredients related to this halal issue. After the existence of the MOU, the prospect of animal products and other consumption products are even greater considering Indonesia has obtained the Accreditation of Halal Certification of UAE. The prospect for halal products and halal market between the two always created considering Indonesia is the country with the largest Muslim majority and the UAE as a Muslim country (Indonesian National Standardization Agency, 2018).
The Challenges of Indonesian Exports in The UAE Market
Furthermore, prospects are certainly followed by challenges in which Indonesia must adapt to conquer it into an advantage for the country's economy and development. Challenges are not always about bad things but also positive ones for the sake of achieving Indonesia's national trade interests in the UAE market. Therefore, challenges are important to consider the potential of the UAE that can be relied on when its traditional market cannot be expected which are beneficial for the country's development.
Uncertainty of Disappearance the COVID- 19 Outbreak and Risk of US-China Trade War Resumption
The US-China trade war and the COVID-19 pandemic in an economic contraction had a severe enough impact to disrupt the performance of Global Value Chain (GVC) especially from the supply side, which then had an impact on the economies of countries in the world including Indonesia. So, the challenge of Indonesia's exports to the UAE is about the uncertainty of the COVID- 19 pandemic, and the possibility of re-escalating tensions between the US and China after the pandemic is no longer a major concern of the world considering the two have not officially agreed to reconcile and resolve the trade war. The potential of the UAE as a non-traditional market for Indonesia is at least one of the positive views of bad expectations and worries due to the global economic crisis which has caused a sharp decline in consumer demand (demand side). This challenge is exacerbated by large-scale social distancing and social restriction policies that are being intensively campaigned by countries which directly interfere with cross-border shipping activities, especially trading activities.
Trade Barriers to Reach the UAE Market
Trade barriers experienced by Indonesian export products in UAE are still quite high, e.g.obtaining an import duty of 5% because it does not have a trade pact with this group of countries.
Then, Indonesian exporters, especially SMEs, are often unable to meet certain material content limit standards or labels that must use at least two languages, i.e. Arabic and English (Andri, 2019).
Besides, the UAE is a federal monarchy consisting of seven oil-rich emirates which presents a challenge for the readiness of Indonesian logistics to reach the UAE market, such as Indonesia's agricultural exports to the United Arab Emirates are also constrained by the logistics aspect in the form of a two-fold increase in transportation costs by plane compared to before the COVID-19 pandemic (Judith, 2020). Ultimately, this challenge must be considered carefully by the Indonesian Government for a solution considering that the UAE plans to invest in Aceh development because the flight distance from Abu Dhabi is only about 5 hours or more (Gideon, 2020). The UAE also has Dubai as the largest city as well as a trading city in this country which is very strategic as an agent for developing a network of business partners to the Middle East, Africa and Europe. So other solutions
24 also need to be prepared if the plan is not realized by the UAE Government or there is no definite time for the plan implemented in Indonesia because it hinders domestic business actors from reaching the UAE market even when their products have the potential to be marketed.
IV. C ONCUSLION
The competitiveness of Indonesian products in the UAE market in 2016-2018 was dominated by a
‘declining sector’ referring to the CMS analysis output. The output from the RCA analysis is also similar, showing that more Indonesian products in the UAE market in the same period have RCA value
<1 or the demand for these products is lower than the world average. However, there is contradictory results from the two analytical methods, e.g.
"champion" competitive chemical products, metal products, and transportation products, as well as leather and leather, as well as machine products with "excellence in diversity" status, in contrast to the RCA analysis output shows that all of these products have a low comparative advantage with RCA values <1.
Meanwhile, Indonesia's export prospects in the UAE market come from the country's internal and external policies and implementations. The prospects created from the internal aspect of Indonesia include opportunities from expanding market access and free trade agreements, proactive Indonesian government, and participation of local business actors, while from the external aspect Indonesia consists of the UAE market demand for Indonesia, UAE investment in Indonesia, and halal products and halal market. However, there are two challenges that become obstacles to the existing prospects, i.e. the uncertainty of resolving the COVID-19 outbreak and the resumption of the US- China Trade War, and Indonesian logistics in reaching the UAE market.
Based on the CMS and RCA analysis output and considering the prospects and challenges that are likely to be negotiated to achieve Indonesia's national trade interests in the UAE market, it can be said that the UAE is a potential to become a non- traditional market for Indonesia that can be relied on when Indonesian traditional market cannot be expected to stabilize the economy and contribute for country’s development. As a follow-up to this, there are several policy recommendations:
1. To explore the potential and increase the competitiveness of Indonesian products in the UAE market based on scientific and quantitative analysis methods:
a. The Indonesian government through the Ministry of Agriculture and Ministry of
Trade conducts regular studies and research in measuring and mapping the competitiveness of Indonesian products in the UAE.
b. The Indonesian government which in the case refers to the Indonesian Ministry of Agriculture, Indonesian Ministry of Trade, Eximbank Indonesia together with Indonesian SMEs Entrepreneurs Committee as the person in charge of the Indonesia Groceries E-Commerce Platform project, mapping the area, readiness and availability of capital and materials for suppliers and Indonesian companies to support the production of highly competitive Indonesian export products in the UAE so that it meets demands from the UAE.
2. To increase prospects and anticipate as well as conquer challenges in Indonesia's exports to the UAE as a non-traditional market:
a. The Indonesian government follows up on the FTA Indonesia-Gulf Cooperation Council of which the UAE is a member, and takes bilateral approach to the UAE to propose a Preferential Trade Agreement (PTA) with the aim of getting more benefits for Indonesian trade and privileges from the UAE.
b. The Indonesian government makes Trade Expo Indonesia (TEI) accessible to business actors from the UAE and other Middle Eastern countries as participants. The government should also re-enter Indonesian entrepreneurs who have participated in the Dubai Expo to become the main stand to be promoted at the upcoming TEI.
c. The Indonesia government strengthens relations and cooperation with domestic business actors and MSMEs by holding regular meetings after holding TEI to discuss the prospects for Indonesian products that have high potential to penetrate and compete in the UAE market, including evaluate the performance of each product.
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APPENDIX
The following is the raw data from the processing of CMS and RCA analysis by Author which using the Harmonized System (HS) for the product group. HS is an international standard for the naming and numbering system used to classify trade and derivative products administered by the World Customs Organization (WCO).
I. CMS Analysis Output; The Competitiveness, Country, and Market Share Effects of Indonesian Products in the World Market in 2016-2018
HS Description
Effect(s)
Market Share (%) Competitiveness Country
01-05 Animal Products 8.23977E-06 -9.46652E-06 0.961925415
06-15 Vegetable
Products 5.56906E-05 -2.9095E-05 3.856729556
16-24 Food Products 1.80799E-05 -1.16832E-05 1.051648645
25-26 Mineral Products 2.99091E-05 1.00294E-05 2.177097251
27 Fuels 6.00515E-06 0.000193073 1.833087192
28-38 Chemical Products 4.99571E-05 2.17228E-05 0.594654283
39-40
Plastic & Rubber
Products -1.83422E-05 6.93665E-07 0.977521784
41-43 Hides Skin
Products 9,87987E-06 -5,20557E-06 0,517219405
44-49 Wood Products 7,07822E-05 -5,48097E-06 2,415099036
50-63
Textiles & Clothing
Products 5,27987E-05 -4,29481E-05 1,677682676
64-67 Footwear 2.74515E-05 -1.06948E-05 3.50159939
68-71
Stone & Glass
Products -5.29506E-05 -5.32641E-05 0.700663514
72-83 Metal Products 0.000126856 4.41156E-05 0.881005094
84-85
Machinery &
Mechanical
Products -6.47078E-05 4.86688E-06 0.270839475
86-89 Transport
Products 3.01735E-05 -6.07708E-05 0.32897369
90-99
Miscellaneous
Products -4.41293E-06 -4.58927E-05 0.21154618
