The ongoing efforts of the United Arab Emirates (UAE) to extend its military sphere of influence to countries such as Libya, Somalia, and Yemen have captured plenty of headlines. The UAE’s cultivation of an economic empire, on the other hand, has received far less attention. Indonesia, the world’s largest Muslim-majority country, has become the latest front in this Emirati campaign of foreign direct investment (FDI). Emirati financiers are pouring money into the Southeast Asian archipelago, home to significant natural resources as well as a range of financial opportunities.
In March, the UAE promised to seed the Indonesia Investment Authority (INA), a sovereign wealth fund established earlier this year, with US$10 billion. The Emirati pledge marked the first and largest contribution of FDI to the INA since its creation. The UAE’s state media suggested that the Emirati funds will bolster agriculture, infrastructure, and tourism in Indonesia, in line with the INA’s mission to promote the country’s economic growth.
The UAE’s support for the INA follows other recent Emirati moves to engage with the economy of Indonesia. During a meeting between Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed Al Nahyan and Indonesian President Joko Widodo in the Emirati capital last year, the countries reached a series of deals totaling US$23 billion. The day after the end of Widodo’s visit, the UAE’s de facto leader also agreed to oversee the committee handling the construction of a new, US$34 billion Indonesian capital on the island of Borneo to replace Jakarta, the current capital.
During a meeting between the Abu Dhabi Crown Prince and Indonesian President last year, the countries reached a series of deals totaling US$23 billion.
The substantial oil reserves of the UAE have underwritten these investments and partnerships. In 2019, the UAE exported US$2.06 billion in goods to Indonesia, including over US$1 billion in petroleum products. One of the agreements concluded during Widodo’s trip also stipulated that the Abu Dhabi National Oil Company would provide 528,000 metric tons of liquefied petroleum gas to the Indonesian state-owned enterprise PT Pertamina before the end of 2020.
The Emirati investments in Indonesia represent the high-water mark of a relationship going back decades. Indonesia and the UAE first established diplomatic ties in 1976, and the UAE opened an embassy in Jakarta in 1991. This bilateral engagement laid the groundwork for a partnership based on economics and immigration. According to Bank Indonesia, the country’s central bank, 36,000 Indonesian workers lived in the UAE in 2020. In the spirit of these ties, Sheikh Zayed bin Sultan Al Nahyan, the founding father of the UAE, paid a visit to Indonesia in 1990.
Sheikh Mohammed, the Abu Dhabi crown prince and Sheikh Zayed’s son, is following in his father’s footsteps. The prince remarked during his own Jakarta trip in 2019, “The visit of the late Sheikh Zayed bin Sultan Al Nahyan to the friendly Republic of Indonesia in 1990 underscored the great importance the UAE leadership attaches to the UAE-Indonesian relations.” To highlight this point, Sheikh Mohammed has even named mosques and roads after Indonesia’s president.
The repeated Emirati overtures to Indonesia may seem strange, given that the island country lies thousands of miles from the UAE and the Middle Eastern battlefields where the UAE has entangled itself. In fact, Indonesia serves as just one portfolio in an Emirati investment strategy that has grown to include a range of Asian countries, from Pakistan to the Seychelles.
Indonesia serves as just one portfolio in an Emirati investment strategy that has grown to include a range of Asian countries.
In 2019, Emirati Ambassador to Pakistan Hamad Obaid Ibrahim Salem al-Zaabi said in an interview with the Saudi newspaper Arab News that the UAE intended to invest US$5 billion in the construction of an oil refinery in the Pakistani province of Balochistan.
Meanwhile, the UAE has bankrolled projects in the Seychelles that include a power grid, a solar park, and even a military base for the East African archipelago’s coast guard. Sheikh Khalifa bin Zayed Al Nahyan, the UAE’s nominal president, also maintains a Seychellois palace whose construction contributed to what some officials on the island nation called an environmental disaster.
The geographic breadth of these investments ensures that the UAE will command a sizable diplomatic and economic sphere of influence well after Emirati oil reserves run dry. In a growing number of cases, the UAE’s engagement with Asia has already yielded considerable return on investment: China, the UAE’s second-largest trading partner in 2019, concluded US$3.4 billion in agreements with the Middle Eastern monarchy that year. India too is investing in the UAE.
Emirati officials hope that Indonesia will go in a similar direction. The island country boasts the largest economy in Southeast Asia and the seventh largest in the world, and the prospects for its rapid economic growth provides Emirati investors with more opportunities than they might find in Malaysia or Singapore. The Jakarta Post has also described Sheikh Mohammed and Widodo as “firm friends, forging one of those rare personal relationships among world premiers that extend beyond economic cooperation and can redraw the map of political alliances.”
The future of the UAE’s relationship with Indonesia looks bright. Nonetheless, Emirati officials will face competition in their attempts to woo their Indonesian counterparts. In 2017, companies from Indonesia and Saudi Arabia – the UAE’s much larger neighbor – signed a series of deals worth US$2.4 billion during a visit to Jakarta by the Saudi king. Oman, to the south of the Arabian Peninsula, is also employing an Indonesian company to develop 18 petroleum reservoirs.
For now, the UAE enjoys a lead over competing Arab investors in Indonesia, a state of play that will likely draw the two countries even closer in the years to come. Whether that economic understanding grows into a geopolitical alliance will depend on the extent to which the UAE involves itself in Indonesian affairs. So far, Emirati leaders seem more preoccupied with their military interventions in the Arab world, drawing the ire of the international community for their role in the Libyan conflict. Soon enough, though, the UAE may direct its attention eastward.