Indonesia - The Ultimate Blue Economy Improver?
Indonesia - The Ultimate Blue Economy Improver?
Indonesia holds incredible potential for transitioning towards a sustainable blue economy.
I don't know what kicked off a side trip into this topic. If I can think of one article, I would probably have to attribute it to this piece from Noah Smith.
It was published back in November but perhaps was linked or mentioned in a more recent piece of his. No idea, but I'll go with it.
As Smith puts it, the U.S. must not ignore Indonesia. Of course, as educated readers of the news, you are fully in tune with what's happening in Indonesia.
You already know it is the world's fourth-largest nation by population (behind only India, China, and the U.S.) with around 275 million people and the 16th-largest economy (smaller than South Korea and Spain but above the Netherlands and Turkey). Its GDP per capita is double that of India, of course.
Like Smith, you also have been thinking about its underappreciated strategic importance to the U.S.
Oh, and remember that article highlighting that 2024 would be busy for national elections? Indo was part of that, with 275 million people going to the polls in February. But you knew that, too. Ah, my informed readers, I can't put anything past you!
Despite its size and strategic location, we hear very little about what's happening in Indonesia. Considering the stats above, you might wonder why.
Perhaps this lack of attention since the currency crisis in 1997 is a good thing. After all, when it comes to things like economies, markets, and democracy, boring is often good.
But what does this have to do with the blue economy?
As you can imagine, it has something to do with Indonesia being the world's largest archipelagic country. It comprises over 17,000 islands (and countless surf breaks) and has the 6th largest EEZ.
To revisit a concept I stole from economist and emerging market investor Ruchir Sharma of Rockefeller Asset Management and expounded on a couple of times, Indonesia may be the ultimate opportunity to join the improvers.
This 'improvers' concept is the idea that sustainable investors can't just put money in already green places and do the right thing.
For both returns and impact, you need to be in places and companies that are a bit earlier in the curve but open to the opportunities that a more sustainable future holds.
Indonesia’s Blue Economy
A massive island nation will naturally have a large ocean economy, which is certainly the case in Indonesia. But its transition towards a more sustainable blue economy is truly in its infancy.
The ocean economies in Indonesia currently cover traditional industries, with marine capture fisheries, aquaculture, and fish processing accounting for 83 percent of the total value contributed.
The growth of Indonesia's ocean economy yet faces a challenge related to the health of the marine ecosystem, due to poor sustainability in harvesting methods and tourism, pollution, and the impact of climate change.
+Indonesia Blue Economy Roadmap - Ministry of National Development Planning/National Development Planning Agency (BAPPENAS)
The nation's heavy reliance on fisheries should strongly incentivize it to protect these resources.
Yet other industries—mining, shipping, and tourism—are often at odds with this reliance.
Seafood
Indonesia is the second largest seafood producer after China. However, I was surprised by the quote above that stated Indonesia's ocean economy is dominated by seafood to such an extent.
Another incentive for improving the state of its fisheries and aquaculture production is the domestic reliance on these food sources. Indonesia consumes 70% of its vast domestic freshwater aquaculture production domestically.
My first thought was to see if The Outlaw Ocean Project had any coverage of issues related to IUU fishing in Indonesia.
Those readers who have been around here for a while have a good idea of what The Outlaw Ocean Project is at this point. For those who haven't come across their reporting, Outlaw Oceans is a group founded by investigative reporter Ian Urbina (NYT, New Yorker, etc) that has been investigating issues related to human rights and illegal fishing issues at sea.
They have a great piece on Indonesia's ongoing battle to protect its vast marine resources with limited budget and naval capacity.
The video below highlights a particular run-in with Vietnamese fishermen that soon escalated to a confrontation with Vietnam's Coast Guard.
I will note that recent articles I've seen highlight how Indonesia's fishermen are fishing illegally in Australia's EEZ (Indonesia is closer to its mostly empty northern coast than most cities and ports), so my intention isn't to defend Indonesia in every case.
+Resurgence of illegal Indonesian fishers 'unacceptable' as companies say stocks are suffering - ABC News
The point is to highlight how difficult it is to monitor activities (not just fishing, more on that below) in their EEZ, both of domestic and foreign players.
Additionally, these three allies of the U.S. - Indo, Vietnam, Australia - have an active confrontation brewing over marine resources at a time when we need all of them to work together to counterbalance China's aggressive stance in the South China Sea and beyond.
While the whole video is worth watching, I would specifically point out the conclusion. Urbina points out that this conflict is difficult, if not impossible, to avoid or mediate because the two countries involved don't even agree on where their respective maritime borders begin and end.
Shipping
"It is estimated that Indonesian waters and territorial waters of the region carry out 40 percent of the world's commercial maritime trade, and are considered one of the world's busiest maritime Sea Lanes of Communications (SLOCs). However, policing and monitoring these vast territorial waters is expensive. This has led Indonesian waters to be a global hotspot for illegally dumping oil."
I found this article back in March when researching a post on how data is changing our knowledge of activities on the ocean.
+World’s worst hotspot for oil pollution by ships -FT
Indonesia should be a huge beneficiary of this data, whether it's for the fishing examples above or illegal dumping of oil in an ecosystem that the nation and world rely on.
Additionally, with the disruptions in shipping we've seen in the last year in Panama and the Red Sea, having a critical shipping route should be a more considerable boon for the country.
Tourism
I basically only think of surfing when I think of Indonesia. The crowded island of Bali often comes to mind. Yet its tourism industry is relatively underdeveloped.
The contribution of tourism to GDP is still low at only less than 5 percent. The contribution is lower than other G20 countries such as Spain (14 percent), Italy (13 percent), Turkey (11 percent), as well as an ASEAN country such as Thailand (12 percent).
This presents yet another opportunity and challenge.
Growing the country's tourism industry seems like low-hanging fruit, yet it must be done sustainably to protect the oceans and forests that people go there to see while minimizing the impact on ocean health for locals who rely on fishing access and resources.
Monetizing Natural Assets
Indonesia is recognised as a global hotspot for marine wildlife, with 22.6 percent of the world's mangroves (the largest in the world) and 18 percent of the world's total coral reefs.
The financial markets for monetizing and protecting natural assets in the form of blue bonds, debt for nature swaps, blue carbon credits, or nature-based insurance products are just beginning to take form.
Indonesia possesses the assets to be an early mover and a huge beneficiary of these new developments.
Here’s a great article on the state of blue carbon in general:
Together, Indonesia's seagrasses and mangroves conservatively account for 3.4 Pg C, roughly 17 % of the world's blue carbon reservoir.
+Indonesia's blue carbon: a globally significant and vulnerable sink for seagrass and mangrove carbon - Springer
+Indonesia's 'blue carbon credits' are crucial for global climate mitigation. Here's how to help them flourish - The Conversation
2024 Election
As I discussed back in November, 2024 is a busy year for democratic elections, and Indo was part of the party.
Back in February, this country of 275 million people went to vote at over 800,000 election booths. The winner was retired army general Prabowo Subianto.
Again, I think it is telling that most news followers know India's Modi and China's Xi but probably have no idea what's going on in the world's third-largest democracy.
As it turns out, while there is little question that the democratic process properly played out in this year's election, some observers outside the country were left a bit dismayed by the choice.
Subianto, a former general, was at one time under investigation for humanitarian crimes during his prior service.
However, it isn't hard to understand why strong military and defense credentials were a strong stance in this election. Tensions in the region are high, and the U.S. could be taking advantage of a potential change in defensive posture.
However, the U.S. will have to tone down its rhetoric. As many leaders in the Global South have been quick to point out, "When we talk with China, we get airports; when we talk with America, we get lectured."
Invest in Indo?
Back in July, I took a look at a company called eFishery. This Indonesian startup that is bringing technology solutions to the local aquaculture industry hit unicorn status with its latest funding raise.
Bringing data to this industry has enormous implications for its carbon footprint and impact on critical feedstocks. Boosting efficiency also means more output per farm, perhaps slowing the mangrove destruction that often comes with new operations.
eFishery CEO Gibran Huziafah learned about the challenges of running a fish farm firsthand by starting a catfish farming business while in college. He soon learned what all participants in this sector know; it's all about the feed.
Feed for farmed fish represents up to 90% of the operating cost of an aquaculture operation, yet for the most part, this critical input is managed by hand with little data regarding waste and efficiency.
Looking at eFishery (Indonesia), Eachmile (Singapore), and Aquaconnect (India), you'll find a similar suite of tools to meet the needs of their target audience.
Tech targeted to physical needs of farmers - feed efficiency, traceability, IoT, sensors, and data aggregation.
Scaled access to education and boots on the ground credibility
Fintech layer providing marketplace services and/or credit
The fact that a company like eFishery can grab a billion-dollar valuation just by servicing the needs of the domestic market is indicative of the opportunity for growing companies in this market.
Indonesia is a large, growing democracy of vital strategic importance. Its ocean economy is large and important, both domestically and internationally. Yet, it is underdeveloped and needs to be modernized.
An example exists of technology scaling to benefit the blue economy and local participants while making money for itself. New data sources must be available to protect ocean assets and monetize their natural capital in global markets.
It sounds like there's a lot to do! Who's ready to pack up their surfboards—I mean spreadsheets—and get started?
Thanks for linking to my article Doug 👍