The Prospect of IORA Comprehensive Economic Partnership Agreement (CEPA)

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The Prospect of

IORA Comprehensive

Economic

Partnership Agreement

(CEPA)

2017

Center for Policy Analysis and Development Asia Pacific and Africa Region

Ministry of Foreign Affaris of The Republic of Indonesia

Chief Editor Dr Siswo Pramono, LL.M, Policy Analysis and Development Agency (PADA), Ministry of Foreign Affairs of the Republic of Indonesia

Published by Center of Policy Analysis and Development Agency on Asia Pacific and Africa Regions, Ministry of Foreign Affairs of the Republic of Indonesia on 2017 Central Jakarta 10110 Indonesia

E-mail: [email protected]

Table Of Contents Section 1: Introduction ...... 12 Introduction ...... 12 Research Focus...... 13 Research Questions : ...... 13 Method Of Research : ...... 13 Section 2: ...... 14 Chapter II ...... 14 Measuring Economic Cooperation In Indian Ocean Rim: ...... 14 An Illustrated Sketch About Regional Architecture ...... 14 Iora Is To Promote A Robust Economic Cooperation ...... 14 History Matters: An Indonesian Perspective ...... 14 On Diaspora ...... 17 Decolonized Indian Ocean Rim ...... 17 Other Parameters: Political Stability And Security ...... 18 Indian Ocean As We Know It Today: A Contemporary Sketch ...... 19 Assuring The Sustained Growth: Innovation As A Key Factor ...... 21 From Innovation To Competitiveness:...... 24 Ease Of Doing Business In Indian Ocean ...... 27 More Focusing On Cooperation And Norm-Setting ...... 32 Conclusion: Towards An Indian Ocean Architecture ...... 33 Section 3: ...... 34 Chapter III ...... 34 Regional Economic Mapping ...... 34 A. India ...... 34 Trade ...... 35 Banking Or Financial Services ...... 36

Investment ...... 36 Infrastructure ...... 37 Tourism ...... 37 Energy ...... 38 Fishery ...... 39 Market Access ...... 39 Trade Facilitation ...... 40 Non-Tariff Barrier ...... 40 B. Malaysia ...... 41 Connectivity ...... 42 Investments ...... 44 Ease Of Doing Business & Innovation Index ...... 45 Malaysia And Iora ...... 45 C. Australia ...... 45 Investment ...... 48 Australia And Iora ...... 50 Iora-Cepa ...... 50 A. Singapure ...... 51 Trading ...... 51 Investment ...... 52 Banking ...... 53 Technology ...... 53 Changi International Airport ...... 53 Telecommunication ...... 54 Tourism ...... 54 Singapore And Iora ...... 54 A.Iran ...... 55 B.United Arab Emirates ...... 61

C. Mauritius ...... 70

Section 4: ...... 85 Chapter IV ...... 85 Right Model For Enhancing Economic Cooperation Iora ...... 85 Economic Integration ...... 85 Free Trade Economic Integration ...... 85 Comprehensive Economic Partnership Agreement (Cepa) ...... 88 Discourse Formation Of Iora-Cepa ...... 89 Sectoral ...... 89 Blue / Ocean Economy ...... 90 Tourism ...... 92 Apec Model / Trade Facilitation ...... 93 Proposed Trade Facilitation In Iora ...... 95 Bilateral Cooperation Within Iora ...... 97 Appropriate Cooperation ...... 97 Section 5: ...... 110 Conclusion ...... 110 Recommendation ...... 111 Cost And Benefit Of Indian Ocean Rim Association (Iora) Trade Cooperation For Indonesia ...... 112 Aziza Rahmaniar Salam & Ridho Meyrandhoyo Middle Researcher And Policy Analyst At The Center For Assessment Of International Trade Cooperation ...... 112 Agency For Assessment And Development Of Trade ...... 112 Ministry Of Trade Of The Republic Of Indonesia ...... 112 Policy Issues:...... 112 Trade Performances Of Indonesia And The World And IndonesiaAnd The Iora Member Countries ...... 112

Costs And Benefits Analysis Of The Iora Trade Cooperation To The Macro And Sectoral Economics ...... 113 11.1. Impact On Macro Economy ...... 113 Benefits ...... 113 Cost ...... 114 11.2. Impact On Sectoral Economy ...... 114 Benefits ...... 114 Costs ...... 114 Indonesia Cooperation With Iora, Aagc And Obor ...... 115 Conclusions And Recommendations ...... 116 Editors ...... 118 Facilitators ...... 119 Bibliography ...... 120 List Of Abbreviation ...... 122

Table Tabel 1.: Commodity Trade Complementarity in Indian Ocean ...... 17 Tabel 2 list of IORA ...... 21 Tabel 3 depicts the change of score by comparing the database of 2010 with 2015...... 22 Tabel 4.: Source: Global Competitiveness Report 2016-2017. Klaus Schwab...... 25 Tabel 5.depicts the change of overall DTF scores by comparing the database of 2010 with 2015.. .. 29 Tabel 6. Source: Trade Complimentarity Index, UNCTAD. Modified by BPPK ...... 30 Tabel 7. Indian Market Access ...... 40 Tabel 8 . Global innovation index 2017 ...... 59 Tabel 9 . Iran’s Competitiveness Index 2017...... 59 Tabel 10. Iran’s trend in Ease of Doing Business Iran and IORA ...... 60 Tabel 11 . UAE Ease of Doing Business ...... 62 Tabel 12. Trade Between Mozambique and Partners ...... 66 Tabel 13. Trade Complementarity Index ...... 68 Tabel 14. Mauritius Foreign Trade Indicators ...... 73 Tabel 15. Mauritius Exports to IORA Countries, 2007-2016 (in Thousand Dollars) ...... 74 Tabel 16. Mauritius Imports from IORA Countries, 2007-2016 (in Thousand Dollars) ...... 75 Tabel 17. Trade complementarity Mauritius with Indian Ocean Rim Association Members (2013) ... 76 Tabel 18 . Mauritius’ Trade Arrangements ...... 77 Tabel 19. Liner Shipping Connectivity 2016 ...... 78 Tabel 20. Mauritius’ Ease of Doing Business ...... 80 Tabel 21. Country Comparison For the Protection of Investors ...... 81 Tabel 22 . Comparison TPP-CEPA (source: https://www.brookings.edu/wp- content/uploads/2014/01/11-asia-pacific-economic-integration-presentation-basu-das.pdf) ...... 88 Tabel 23. List of countries by income in 2016 (in US $ billion) ...... 89 Tabel 24 . Simulation Result 1 and 2 on Indonesia Macro Economy and IORA ...... 114 Tabel 25. Simulation Results 1 and 2 on Sectoral Export Performance (%) ...... 115 Tabel 26. Simulation Results 1 and 2 On Sectoral Import Performance (%) ...... 115

FIGURE Figure 1.: Source Young, Gery Keith (2001) Rome’s Eastern Trade: International Commerce and Imperial Policy ...... 14 Figure 2: Source: http://1.bp.blogspot.com/- occGgqNAEI/Vcfsomc6k0I/AAAAAAAAGRI/_c04odHsuo4/s1600/cinnamon- spice-trade-route.jpg. Accessed on 12 February 2017 ...... 15 Figure 3.: The Technical Details of Austronesian Canoe as Illustrated in the Relief in the Borobudur Temple ...... 15 Figure 4.: The Canoe “Samudera Raksa” was built using the information relief in Borobudur Temple...... 15 Figure 5.: Source Hofstra University. https://people.hofstra.edua/geotrans/eng/ch2en/conc2en/map_VOC_ Trade_Network.html) ...... 16 Figure 6.These new routes were known as VOC sea lanes, and many of them are still functional until today...... 16 Figure 7 shows the extent of Chinese, Indian, and Indonesian diasporas in the Indian Ocean region ...... 17 Figure 8.: Source: http://www.internal-displacement.org/globalreport2016/. Accessed on 12 February 2017...... 18 Figure 9.: Developed by BPPK ...... 19 Figure 10.: Source World Bank 2015 for GDP...... 20 Figure 11.: Source: Global Innovation Index Report 2016 as provided jointly by Cornell University, INSEAD, and the World Intellectual Property Organization. (http://data.worldbank.org/region/least-developed-countries:-un- classification. Accessed on 12 ...... 21 Figure 12. Source:Global Innovation Index Report 2016 as provided jointly by Cornell University, INSEAD, and the World Intellectual Property Organization. Modified by BPPK ...... 23 Figure 13.: Source: Global Innovation Index Report 2016 as provided jointly by Cornell University, INSEAD, and the World Intellectual Property Organization. Modified by BPPK ...... 23 Figure 14.: Source Global Innovation Index Report 2016 as provided jointly by Cornell University, INSEAD, and the World Intellectual Property Organization. Modified by BPPK ...... 24 Figure 15.: Source: Global Competitiveness Report 2016-2017. Klaus Schwab. World Economic Forum ...... 24 Figure 16.Figure 16. Source: Global Competitiveness Report 2016-2017. Klaus Schwab. World Economic Forum. Modified by BPPK ...... 26 Figure 17.Source: Global Competitiveness Report 2016-2017. Klaus Schwab. World Economic Forum. Modified by BPPK ...... 26 Figure 18.Source: Global Competitiveness Report 2016-2017. Klaus Schwab. World Economic Forum. Modified by BPPK ...... 27 Figure 19 illustrates some key indicators of ease of doing business...... 28 Figure 20. Source: World Bank. http://www.doingbusiness.org/data/exploretopics/ starting-a- business/frontier. Accessed on 4 February 2017. Modified by BPPK . 29 Figure 21 helps visualize the rank of IORA members in the Ease of Doing Business...... 29 Figure 22 .Source: World Bank. http://www.doingbusiness.org/data/exploretopics/starting- a-business/frontier. Accessed on 4 February 2017. Modified by BPPKFigure 22. . 30 Figure 23. Source: Trade Complimentarity Index, UNCTAD. Modified by BPPK ...... 30 Figure 24 . Source: Trade Complimentarity Index, UNCTAD. Modified by BPPK ...... 31

Figure 25 . Source: IORA Charter and documents relating to discussion of IORA Concord. Developed by BPPK ...... 32 Figure 26. Developed by BPPK ...... 33 Figure 27. India’s Population Composition Source: https://www.populationpyramid.net/india/2017/ ...... 34 Figure 28. India Dependency Ratio ...... 35 Figure 29 . India Trade Partners...... 36 Figure 30. Tourism and Hospitality Service Direct Contribution ...... 38 Figure 31. India’s Trade Facilitation Performance. Source: https://www.oecd.org/tad/facilitation/india-oecd-trade-facilitation-indicators- april-2014.pdf ...... 40 Figure 32. Malaysia Trade Performance ...... 42 Figure 33 . Malaysia’s Connectivity Achievement...... 42 Figure 34. Malaysia Connectivity Map. Source: Presentation from the Ministry of Transport of Malaysia on Malaysia: Key Logistics and Transport System (Road and Rail) at the Seminar on the Development of Integrated Transport and Logistics System in the A ...... 43 Figure 35. KTMB Railway NetworkInvestments ...... 44 Figure 36 Figure 36. Malaysia’s Major Investors ...... 44 Figure 37 . Australia’s GDP Performance Source: Trading Economics accessed https://tradingeconomics.com/australia/gdp, accessed on 25 September 2017 ...... 46 Figure 38. Australia Main Trade Partners...... 46 Figure 39. Australia’s Export Partners...... 47 Figure 40. Australia’s Investment by Sector ...... 48 Figure 41. Share of Foreign Investment in Australia ...... 49 Figure 42. Share of Australia Investment Abroad ...... 49 Figure 43. FDI in Singapore and Singapore’s Investment in 5 partnering countries (2015) . 53 Figure 44. Singapore Internasional Arrivals ...... 54 Figure 45. Iranian Demographic Pyramid: ...... 56 Figure 46. Gas reserves in MozambiqueTrade...... 65 Figure 47 . Mozambique Principle Export Destination and Imports Origin (Avg. 2011-2015) 66 Figure 48 . Ports in Mozambique and Their Central Role as Entry Point to the Hinterland .. 67 Figure 49. Mozambique Economic Growth and Prospects...... 69 Figure 50 . Mauritius Population Composition ...... 71 Figure 51. Mauritius’ Innovation Index ...... 80 Figure 52 . Problematic Factors for Doing Business ...... 82 Figure 53. Percentage of countries by income category ...... 90 Figure 54. Free Trade Zone in Iran ...... 96 Figure 55. Connectivity Sea in Iran ...... 96 Figure 56. Comparison of the total population IORA countries and the World ...... 98 Figure 57 . Export to IORA compared to Export to the whole world (Percent) ...... 98 Figure 58. Contributions IORA the world economy ...... 98 Figure 59. Contributions economy among IORA countries in the last 10 years (GDP Current Price) ...... 99 Figure 60 . Economic growth in IORA subregion ...... 99 Figure 61 Figure 61. Inward investment to IORA member states, 2016 ...... 100 Figure 62: Progress of Innovation in Indian Ocean is still relatively low (2010 and 2015) ...... 100 Figure 63. Global Innovation Score 2015 ...... 100 Figure 64. Progress of Competitiveness In Indian Ocean (2010 and 2015) ...... 101 Figure 65. Global Competitiveness Rankings 2015 ...... 101

Figure 66. Ranking of Ease of Doing Business di IORA (2010 and 2015) ...... 102 Figure 67. Average Overall DTF 2015 ...... 102 Figure 68. Level of openness to trade ...... 103 Figure 69 . Export Complementarity IORA member states, 2013 ...... 103 Figure 70. Import Complementarity IORA member states, 2013 ...... 104 Figure 71 . IORA Trade Complementarity Index and Connectivity ...... 104 Figure 72 . Shipping Line Connectivity Index 2016 ...... 104 Figure 73 . Shipping Line Connectivity Index 2016 ...... 105 Figure 74. Container port throughput, annual, 2008-2014, in TEU ...... 105 Figure 75. Right Infrastructure for the Right Economy ...... 105 Figure 76. Overlapping membership in other regional organizations ...... 106 Figure 77. Perception on security threat ...... 107 Figure 78. Migration IORA vs APEC ...... 107 Figure 79. Risk Assessment ...... 108 Figure 80. Proposed process to IORA Comprehensive Economic Partnership ...... 109

P R E F A C E

The Sixth Bi-annual meeting of the Committee of Senior Officials (CSO) in Yogyakarta, Indonesia, on 22-23 May 2016, identified that economic cooperation opportunities need to be further explored through the possibility of establishing an IORA Comprehensive Economic Partnership Agreement (IORA-CEPA). This idea was further discussed during the 22nd Indian Ocean Rim Business Forum (IORBF), on 13 of October 2016 in Jakarta. The idea of IORA – CEPA has so far been a subject of discussion among IORA member countries. The fact shows that IORA member countries are so diverse in terms of economic structure and development and that of socio cultural background. It then comes to the question: Is the idea of establishing an IORA-CEPA feasible? How are the views of the IORA countries about the idea? Our study of the “Prospect of the Establishment of an IORA Comprehensive Economic Partnership Agreement (CEPA)” was aimed to find the answer and impression from the field by collecting primary data from the credible counterparts and stakeholders such as government officials and business circles in eight IORA member countries. These countries are India, Malaysia, Iran, Mozambique, Singapore, Australia, United Arab Emirates and Mauritius. The study resulted in deeply understanding the views and position of the respective IORA member countries on the prospect of the establishment of IORA CEPA. I wish this study could provide us first hand information on the IORA-CEPA viewed from the angle of its prospects and challenges.

Jakarta, December 2017

Dr. Siswo Pramono,LL.M Director-General/Head of Policy Analysis and Development Agency

Section 1: Introduction

INTRODUCTION

The Indian Ocean region is the third largest of the world's oceanic divisions, covering 70,560,000 Km2 (27,240,000 sq mi), approximately 20% of the water on the earth's surface. The region carries a strategic importance as a lifeline of global trade, energy and many other global economic activities. According to one estimate, annually, more than 80 per cent of global seaborne trade, including crude oil, passes through the Indian Ocean. In terms of shipping lines and container traffic, about 100,000 ships transit through the Indian Ocean and its adjacent waterways. The Indian Ocean is also considered to be the world’s most important energy and trade line belt. Annually, more than 66 per cent of the international seaborne oil trade passes through the region and nearly 40 per cent of the global offshore oil production is operated in the region.

Indian Ocean Rim Association (IORA) is the only regional association linking most countries surrounding the Indian Ocean. It was officially established by the signing of IORA Charter in Mauritius on 6 of March 1997. The Association currently consists of 21 member countries, including Australia, Bangladesh, the Comoros, India, Indonesia, Islamic Republic of Iran, Kenya, Madagascar, Malaysia, Mauritius, Mozambique, Sultanate of Oman, Seychelles, Singapore, Somalia, South Africa, Sri Lanka, Tanzania, Thailand, the United Arab Emirates and Yemen. IORA has also seven dialogue partners: China, Egypt, France, Germany, Japan, the United Kingdom and the United States of America.

The objective of IORA mainly is to promote the sustained growth and balanced economic development in the vast Indian Ocean region as well as in the member countries, as it stipulated in chapter three (3) of the IORA Charter. However, after 20 years of its existence, IORA is still facing challenges in strengthening economic cooperation and enhancing economic development.

According to a research, conducted by Chair of Indian Ocean Studies – (CIOS), the trade and investment flows within IORA are still low and there is not a single trading arrangement among the member countries of IORA, particularly among Asia, Africa and Gulf countries. Economic structures and development of IORA member countries remain so diverse. Based on the World Bank’s data in 2015, it can be seen that most of IORA member countries with more advanced economic development are in the eastern part of the Indian Ocean, while the less developed economies are in the western part of the Indian Ocean. The data shows that, for instance, India and Australia are high-income countries with GDP of USD around 2 trillion and USD 1.3 trillion, while Somalia and Comoros are low-income countries with GDP of USD 6 billion and USD 600 million.

It is undeniable that IORA needs a breakthrough strategy to overcome those challenges, to encourage and strengthened economic cooperation, not only in trade and investment but also in enhancing economic development and reducing development gap among IORA member countries.

In line with such efforts to overcome those challenges, the establishment of IORA Comprehensive Economic Partnership Agreement (CEPA) is one of the thoughts having been rolling within IORA countries. The idea and the concept paper of the IORA - CEPA has been firstly introduced and discussed at the Sixth Bi-annual meeting of the Committee of Senior Officials (CSO) in Yogyakarta, Indonesia, on 22-23 May 2016 and echoed at the meeting of the 22nd Indian Ocean Rim Business Forum (IORBF), on 13 of October 2016 in Jakarta, Indonesia. It has received positive response from the forum and approved by representatives of IORA member states to further explore economic cooperation

12 opportunities available in IORA as well as in the region. However, on the other hand, the idea of IORA – CEPA remains a debatable discourse in other forums, such as the Indian Ocean Rim Academic Group – IORAG (academia forum) and the Council of (Foreign) Ministers - COM (government forum) of IORA.

The establishment of IORA - CEPA is expected not only to boost real economic cooperation within IORA, but also to reduce economic development gap in the Indian Ocean region. In the context of regional architecture, IORA, as a core entity in the Indian Ocean region, is expected to be a driving force in strengthening economic cooperation and development in the Indian Ocean region. Furthermore, in the context of trans-regional architecture, IORA could engage the Indian Ocean region with surrounding regions by developing closer ties with the existing regional forum, such as ASEAN and GCC.

Considering the facts that IORA member countries are very diverse, not only in terms of economic structures and development, but also in socio cultural background, then the question is: can this idea be transformed into reality? How exactly the views of the IORA countries about the idea? Within this context, this study on the feasibility of establishing the CEPA – IORA is conducted.

Research Focus

This research will focus on identifying the possibility of establishing the IORA – CEPA, its opportunities and challenges.

Research Questions :

This study attempts to address any issues and questions regarding the feasibility of establishing the IORA-CEPA. As consequences, the study also looks at the models; prerequisites as well as readiness of IORA’s member countries in establishing the IORA- CEPA.

Method of Research :

The research would be quantitative and qualitative. Information and field data collection were carried out by :

(i) Field visit studies to obtain primary data in IORA member countries, such as Australia, Singapore, Malaysia, Thailand, India, UAE, Iran, Mauritius, Kenya and South Africa. The field visit is expected to collect data and information of IORA’s member countries on the prospects of the establishment of CEPA - IORA; (ii) library studies; (iii) discussion and consultation with experts through Focus Group Discussion (FGD); Expert Group Meeting (PKA); and (iv) partnerships with the Indonesian Embassies in IORA member countries.

The Research would be policy oriented and features practical aspects while remaining based on academic principles.

Section 2:

Chapter II

Measuring Economic Cooperation in Indian Ocean Rim:

An Illustrated Sketch about Regional Architecture

IORA is to Promote a Robust Economic Cooperation While political and socio-cultural areas also represent important focus for Indian Ocean Rim Association (IORA) cooperation, the IORA Charter stipulates that the association was established primarily to help develop the economy of the vast Indian Ocean rim community. History Matters: An Indonesian Perspective For Indonesia, connectivity with Indian subcontinent begins in the 1st century. The earlier cultural linkage, as depicted in the book Pustaka Rājya-Rājya i Bhumi Nusāntara (1682), was between the Kingdom of Salakanagara in Java and various political entities of India. Nusantara is the indigenous name of what is known now as Indonesia archipelago. Ties with India had even increased during the reign of later kingdoms in the 4th century, such as Tarumanagara of West Java and Kutai of East Kalimantan. Trade between Kingdoms in Indonesia with those in Indian Ocean was then boosted with the birth of the Empire of Srivijaya (7th – 13th century), which was centered in South Sumatera; and the Empire of Majapahit (13th – 16th century), which was centered in East Java. From Indian Ocean, trade expanded to Europe.

Figure 1.: Source Young, Gery Keith (2001) Rome’s Eastern Trade: International Commerce and Imperial Policy

As depicted in Figure 1, since the 1st century, trade connectivity has been intensified even further by kingdoms in the Western coast of the Indian subcontinent with the Roman Empire. A trade road from India to Europe evolved; starting from the western part of Indian Ocean went north through the Red Sea to reach Egypt, crossing the Isthmus of Suez (the Canal then, has not yet existed), and reach Mediterranean Sea. The main commodities of this intercontinental trade include gold, wine, ivory, spices, metals, cloths, silk, aromatic flowers, and precious stones. Inter-regional exchanges based on trade complementarily began to flourish. With the increase of trade, another strategic sea-route developed in Indian Ocean, connecting Indonesian archipelago with the eastern coast of Africa. As depicted in Figure 2,

14 this sea-route, known as the Cinnamon Route, was developed by the Nusantara seafarers. The Cinnamon Route, then, has two segments. The short segment, connecting Nusantara with India, was served with Single Outrigger Canoes. The longer segment, connecting Nusantara with Africa, was served with Double Outrigger Canoes.

Figure 2: Source: http://1.bp.blogspot.com/- occGgqNAEI/Vcfsomc6k0I/AAAAAAAAGRI/_c0 4odHsuo4/s1600/cinnamon-spice-trade- route.jpg. Accessed on 12 February 2017

It is worth noting, that double outrigger canoes were typical Austronesian canoes, which were used and widely produced in Nusantara. As such, the canoes were products of homegrown industry in Nusantara. The relief in Borobudur temple, Central Java, illustrated the technical details of such a traditional canoe. Borobudur temple was an ancient monument, built by Shailendra Dynasty from 8th to 9th century. Exploring the past, would help one understand the future. In 2003, a group of Indonesian shipbuilders undertook a daring scientific experiment to understand the characteristic of Austronesian canoes. They reconstructed a “Borobudur canoe” by employing traditional method. The double outrigger canoe was named Samudera Raksa. Upon the completion of the canoe, the shipbuilder team then embarked on a daring, but successful expedition from Jakarta to Ghana. The journey took about 6 months. As such, it is proven that in the 1st century, Indonesian seafarers already had the capacity to trade, using their own-made vessels, across Indian Ocean. And, in so doing, the Indonesian seafarers had also helped develop an effective trade route known as Cinnamon Route. The following Figure 3 and 4 show the technical details of Austronesian canoe as illustrated in the relief of the Borobudur temple (Right) and the reconstructed double outrigger canoe “Samudera Raksa”, sailing the Cinnamon Route in Indian Ocean (Left).

Figure 3.: The Technical Details of Austronesian Figure 4.: The Canoe “Samudera Raksa” was Canoe as Illustrated in the Relief in the built using the information relief in Borobudur Borobudur Temple Temple.

Maritime connectivity in Indian Ocean was robustly developed with the dawn of the Islamic trade. More maritime routes have even been developed since 1500, connecting Indonesian archipelago with northern and eastern parts of Africa. For instance, there are ample of evidences on the existing trade between the Sultanates of Cirebon in West Java with Africa. Such a trade was proven by the existence of earthenware from Kenya and rifles from Egypt, in the Cirebon sultanate.

Figure 5: Source: http://nitibhan.com/2015/12/04/trade-in-east- africa-a-very-short-introduction-to-a-very-long- history/.

Islamic Kingdoms aside, the 18th century marked the dawn of modern shipping industry, connecting Batavia of Dutch East Indies, Galle of Sri Lanka, to Amsterdam, through Cape Town. The shipping industry was mostly developed by the Vereenigde Oost-Indische Compagnie (VOC). The following Table 1 summarizes the earlier trade complementarity among sub-regions of Indian Ocean, as depicted in Figure 6. This earlier traditional trade exchange will, in the future, develop into a more sophisticated Trade Complementarity Index (TCI), as we know it today.

Figure 5.: Source Hofstra University. (https://people.hofstra.edua/geotrans/eng/ch2en/c onc2en/map_VOC_Trade_Network.html)

Another legacy of colonial power, is the existing palm oil industry in Indonesia and Malaysia. In 1848, Dutch imported oil palms from Mauritius and introduced the palm in Sumatra. The Dutch government then developed oil palm plantations in the east coast of Sumatra and Aceh. Since 1911, the Dutch government of East Indies was already the world’s main palm oil supplier, with expanding market in Europe and Indian Ocean rims. An old adage stipulated that “ship follows the trade”. Market expansion in the Indian Ocean has induced the development of trade connectivity and new routes of navigation as depicted in Figure 6.These new routes were known as VOC sea lanes, and many of them are still functional until today. As such, countries in Indian Ocean have been engaging in a robust regional trade in the last 2 millennia. As such, history provides strategic lesson learned for the region to move forward, and create a trade regime in Indian Ocean that all countries would benefit from it.

Dutch East Indies India Ceylon Arabia export import export import export import export import pepper cloth cloth silver Cinnam cloth Coffee Spices cloves ivory pepper on silk mace silver indigo pepper nutmeg silk gems yarn sappan woods arecanu ts ivory cardam om

Tabel 1.: Commodity Trade Complementarity in Indian Ocean

On Diaspora As reiterated in the beginning of this article, people-to-people connectivity makes up the cultural bond among peoples of Indian Ocean. Diaspora would play important role as a cultural glue of the diverse region. Figure 7 shows the extent of Chinese, Indian, and Indonesian diasporas in the Indian Ocean region

Table 1: It is timely and important for the region to devise a socio-cultural . mechanism to harness the cultural reach of the region, of which diaspora would become a base for regional cohesion and business. After discussing various aspects of economy, and supplanting it with discussion on political as well as socio-cultural ties, it is time to end this article by figuring out the likely regional architecture in the Indian Ocean.

Decolonized Indian Ocean Rim

Throughout history, the people of Indian Ocean, have – unconsciously perhaps – developed, in a gradual and “natural” manner, a homegrown regional architecture. In the words of 2016 Yogyakarta Message: “IORA needs to continue its people-centered dialogue approach towards a regional architecture that is open, transparent, inclusive, and evolutionary”. As such, the Indian Ocean architecture has been sustained by three pillars: economic, socio- cultural, and political ties. This is particularly true with the dawn of the decolonization in Asia

17 and Africa, as enshrined in the Dasasila Bandung of 1955. That Indian Ocean has been freed from the yoke of colonialization, means that the modalities (infrastructure, knowledge, and otherwise) of the colonial past will be used as part of the common effort to build the region anew. It has been committed in the last 20 years, and as mandated by the IORA Charter, that countries of Indian Ocean rim will cooperate to promote economic development as well as political stability in this most promising region. Since the Indian Ocean community has been walking together in the same path of history in the last 2 millennia, all seemed to have shared conviction that the economic objectives can be attained. In this context, owing to the objectives of IORA as described in the beginning of this paper, namely to promote a robust economic cooperation, this paper will explore various economic parameters to measure the possibility to sketch a regional architecture to help attain such objectives. Other Parameters: Political Stability and Security All of the economic parameters (GDP, Global Innovation Index, Global Competitiveness Index, Ease of Doing Business, and Trade Complementarity Index) should not be discussed in a vacuum. None economic parameters, political and otherwise, matter. Figure 8 represent new displacement of person associated with political conflicts and natural disasters. A country, with devastating political conflicts (wars, political violence, etc), or a devastating natural disasters, is unlikely to have a sustainable economic development. Thus, IORA, as the only regional organization in the Indian Ocean rim, should be able to provide the region with an effective mechanism, to deal, at best, with these calamities. Figure 8 indicates that the latent security threats in ASEAN and Southern Asia are dominated by natural disasters, as represented by blue circles. A study done in the region concludes that the main threats for the eastern part of Indian Ocean towards the Pacific are cyclones, earthquakes, and tsunami. Whereas, the main threats in the western part of Indian Ocean are wars and political violence of various degrees. The Gulf of Aden is also

marred with piracy, in particular off Figure 8.: Source: http://www.internal- Somalian waters. As such, IORA, too, displacement.org/globalreport2016/. Accessed on 12 February 2017. should develop an effective mechanism to deal with these kinds of threats. Security and stability is a conditio sine quanon for sustainable economic development.

Another important aspect of maintaining security and stability in the India Ocean rim is an effective dispute mechanism. Since the blue economy looms high in the IORA’s agenda, there is then a pressing need for the region to have effective legal mechanism to anticipate

18 the possible dispute relating to the exploration and exploitation of the natural resources, living and non-living, in the Indian Ocean, including the seabed.

As illustrated in Figure 9, one of the encouraging developments in the IORA region is the promotion of Asia’s legal cultures in the Indian Ocean context. Since economic cooperation, and hence competition, in IORA would involve the strategic waters of Indian Ocean, then UNCLOS should be the main

reference for dispute settlement.

Figure 9.: Developed by BPPK

So far, all members of IORA but Iran and UAE are parties to UNCLOS. Iran and UAE nevertheless accept UNCLOS as part of widely accepted international customary laws. Countries with high level trade in Indian Ocean, such as India, Singapore, Malaysia, Thailand, and Indonesia, have in a time in their history resorted in legal mechanisms, including the use of UNCLOS, to settle disputes with other countries, and consistently respected the Court’s decisions. These good practices should become precedence in the dispute settlement in the Indian Ocean context. Indian Ocean as We Know it Today: A Contemporary Sketch It is important to keep the objectives of IORA in mind. Among the main objectives, as stipulated in the IORA Charter, is “…to promote the sustained growth and balanced development of the region...”. Thus, the difficult challenge that the community of the Indian Ocean need to address is the question of development gaps. The development gaps can be detected by mapping out the economic capacity of the respective IORA member countries. GDP is a good starting point to assess such an economic mapping. The following Table 2 provides information on the GDP of the respected member of IORA. One should realize how diverse the region and how complex the economic qualification for every member countries are. For instance, Indonesia is a member of G20, but at the same time also qualified as a lower middle income economy. Whereas, Bangladesh which is also a lower middle income economy, but, at the same time, is also classified as Least Developed Countries (LDC). This is the diversity. Four IORA members, namely India, Australia, Indonesia, and South Africa are members of G20. Those who are qualified as High Income Economies based World Bank definition are Australia, United Arab Emirates, Singapore, Oman, and Seychelles. The region also hosts Upper Middle Income economies such as, Thailand, Iran, South Africa, Malaysia, and Mauritius. Those who are classified as Lower Middle Income economies include India (also member of G20), Indonesia (also member of G20), Bangladesh, Sri Lanka, Kenya, and Yemen.

There are also members of IORA who are classified, based on UN definition (2015), as LDC, and, based on World Bank classification (2016), as Low Income Economies as well, such as Tanzania, Mozambique, Madagascar, Somalia, and Comoros.

Figure 10.: Source World Bank 2015 for GDP.

As illustrated in Figure 10, most of the larger economies happened to be located in the eastern part of the Indian Ocean, while the smaller economies are located in the western part of the Indian Ocean. In this regard, the content of Table 2 has been visualized in Figure 10, to ease readers in grabbing the economic gaps among Indian Ocean countries. As Such, the region should pay more attention to this complexity in figuring out the kind of economic cooperation in the region. “One size fits all” approach will not work but instead, a more integrative approach is expected.

List of IORA Member Countries’ GDP Countries GDP (in billions) India (G20) (Lower Middle 2073 Income) Australia (G20) (High Income) 1339 Indonesia (G20) (Lower Middle 862 Income) Thailand (Upper Middle 395 Income) Iran (Upper Middle Income) 386 United Arab Emirates (High 370 Income) South Africa (G20) (Upper 312 Middle Income) Malaysia (Upper Middle 296 Income) Singapore (High Income) 292 Bangladesh (Lower Middle 195 Income) (LDC) Sri Lanka (Lower Middle 82

Income) Oman (High Income) 70 Kenya (Lower Middle Income) 63 Tanzania (Low Income) (LDC) 45 Yemen (Lower Middle 37 Income) (LDC) Mozambique (Low Income) 15 (LDC) Mauritius (Upper Middle 11 Income) Madagascar (Low Income) 10 (LDC) Somalia (Low Income) (LDC) 6 Seychelles (High Income) 1 Comoros (Low Income) (LDC) 0,6

Source : World Bank 2015 for GDP. World Bank Tabel 2 list of IORA 2016 for Economy Classification based on Income Group. UN 2015 for Least Developed Countries Qualification Assuring the Sustained Growth: Innovation as a Key Factor

Sustained growth throughout the Indian Ocean Rim will help promote balanced development. Innovation is an important way to sustain growth. This following box illustrates the linkage between innovation and economic growth. Thus, innovation is of paramount important to sustain, and improve, the growth of the Indian Ocean economy. This article measures the state of innovation in the Indian Ocean economy, based on the Global Innovation Index Report 2016, as provided jointly by Cornell University, INSEAD, and the World Intellectual Property Organization.

Figure 11.: Source: Global Innovation Index Report

2016 as provided jointly by Cornell University, INSEAD, and the World Intellectual Property Organization. (http://data.worldbank.org/region/least-developed- countries:-un-classification. Accessed on 12

As depicted in Figure 11, the conceptual framework for measurement of innovation index is to observe, in an integrated way, all innovation factors that can propel economic growth. Those calculated include: the overall Global Innovation Index (GII), the Input Sub-Indices (i.e. Institutions, Human Capital and Research, Infrastructure, and Market Sophistication), Output Sub-Indices (i.e. Knowledge and Technology Outputs and Creative Outputs), and Innovation Efficiency Ratio.

The task of this paper is to observe the development of innovation, as a factor that drives growth, among the IORA member countries. The method is by comparing the innovation score of 2010, with the one of 2015. Thus, one can infer whether innovation in the Indian Ocean is progressing or regressing. In other words, for the Indian Ocean region, this article observes the change of score (i.e. increasing or decreasing) of individual countries to see the potential economic progress in the region. As earlier discussed,. Tabel 3 depicts the Country Year Overall Score Rank change of score by comparing the database of Australia DB2015 53.07 19 Australia DB2010 49.85 21 2010 with 2015 The result is that some Bangladesh DB2015 22.86 117 countries experienced positive changes Bangladesh DB2010 28.05 97 (increased) in the overall innovation score. Comoros DB2015 n/a These countries include, Australia (from 49.85 Comoros DB2010 n/a India DB2015 33.61 66 to 53.07), Indonesia (from 27.78 to 29.07), India DB2010 34.52 62 Iran (from 28.41 to 30.52), Kenya (from 29.15 Indonesia DB2015 29.07 88 to 30.36), and South Africa (from 35.22 to Indonesia DB2010 27.78 91 35.85). The shaded blue color represents Iran, Islamic Rep DB2015 30.52 78 Iran, Islamic Rep DB2010 28.41 95 countries with increase in innovation score. Kenya DB2015 30.36 80 The rest of IORA members experienced Kenya DB2010 29.15 89 mostly, less than one point decrease in the Madagascar DB2015 24.79 111 innovation score. Countries with such a slight Madagascar DB2010 25.41 113 Malaysia DB2015 43.36 35 decrease are India, Madagascar, Malaysia, Malaysia DB2010 44.05 31 Mauritius, Singapore, and Tanzania. Thus, the Mauritius DB2015 35.86 53 result is rather encouraging. The shaded red Mauritius DB2010 36.47 53 color represents countries with decrease in Mozambique DB2015 29.84 84 Mozambique DB2010 n/a innovation score. The shaded yellow color Oman DB2015 32.21 73 indicates that data is not available. Oman DB2010 35.51 57 Seychelles DB2015 n/a Seychelles DB2010 n/a Singapore DB2015 59.16 6 Singapore DB2010 59.64 3 South Africa DB2015 35.85 54 South Africa DB2010 35.22 59 Sri Lanka DB2015 28.92 91 Sri Lanka DB2010 30.36 82 Tanzania DB2015 26.35 105 Tanzania DB2010 26.88 104 Thailand DB2015 36.51 52 Thailand DB2010 37.63 48 United Arab Emirates DB2015 39.35 41 United Arab Emirates DB2010 41.99 34 Yemen, Rep DB2015 14.55 128 Yemen, Rep DB2010 20.72 123 In terms of the Global Innovation Index (GII) rankings, about one-third (6) of the IORA member countries are above the median line (top 64) of GII rankings (which is positive). The following Figure 12 helps visualize the rank of IORA members in the GII. The larger the circle, the better the rank. Singapore, which ranked number 6 in the world, would represent the Champion of innovative economy in IORA.

To describe the progress of innovation in Indian Ocean, the following Figure 13 illustrates countries with increasing numbers of GII score against the backdrop of their respective visualized ranks. As such, among countries with the best performance in the region, in terms of GII points increase, are Australia (Rank 19; 3.22 points increase), Iran (Rank 78; 2.11 points increase), Indonesia (Rank 88; 1.29 points increase), Kenya (Rank 80; 1.21 points increase), and South Africa (Rank 54; 0.63 points increase). What is

interesting if one observe the Figure 10 is Figure 12. Source:Global Innovation Index Report 2016 as provided jointly by Cornell University, INSEAD, and the World that, the increase of innovation, albeit Intellectual Property Organization. Modified by BPPK moderate, is rather equally distributed across the vast Indian Ocean region, from Australia to South Africa. To describe the progress of innovation in Indian Ocean, the following Figure 13 illustrates countries with increasing numbers of GII score against the backdrop of their respective visualized ranks. As such, among countries with the best performance in the region, in terms of GII points increase, are Australia (Rank 19; 3.22 points increase), Iran (Rank 78; 2.11 points increase), Indonesia (Rank 88; 1.29 points increase), Kenya (Rank 80; 1.21 points increase), and South Africa (Rank 54; 0.63 points increase). What is interesting if one observe the Figure 10 is that, the increase of innovation, albeit moderate, is rather equally distributed across the vast Indian Ocean region, from Australia to South Africa.

Figure 13.: Source: Global Innovation Index Report 2016 as provided jointly by Cornell University, INSEAD, and the World Intellectual Property Organization. Modified by BPPK

It is now time to view the regional innovation score (average) of IORA in the global context. As depicted in Figure 14, this study calculates the following average regional score: Northeast Asia averages 54.48, European Union averages 49.24, ASEAN averages 37.6, GCC averages 34.54, and IORA averages 33.68. So, IORA is the least developed in terms of innovation. Based on geographical proximity, and also cultural-historical ties, as discussed in the beginning of this paper, it is thus proposed that IORA is to work closely together with ASEAN, GCC, and Northeast Asian economies.

Figure 14.: Source Global Innovation Index Report 2016 as provided jointly by Cornell University, INSEAD, and the World Intellectual Property Organization. Modified by BPPK

From Innovation to Competitiveness:

What is competitiveness? Why is it matter for economic development? This paper starts with definition of competitiveness as shown in the following box. Figure 15 explains the concept even further. The conceptual framework of Global Competitiveness Index (GCI) employs relevant data from various respected institutions, such as Monetary Fund (IMF), the World Bank, and United Nations’ specialized agencies. About 114 indicators are grouped into 12 pillars that are compiled into three sub-indexes. As shown in Figure 15, pillars within Basic Requirement Sub-Index include institutions, infrastructure, macroeconomic environment, and health and primary education. Pillars within Efficiency Enhancers Sub-Index include higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, and market size. Pillars within Innovation and sophistication Factors Sub-Index include, business sophistication and innovation. Pillars within Basic Requirement Sub-Index are key for factor- driven economies. Pillars within Efficiency Enhancers Sub-Index are key for efficiency-driven economies. Last but not least, pillars within Innovation and Sophistication Factors Sub-Index are key for innovation-driven economies. (Source: Global Competitiveness Report 2016- 2017. Klaus Schwab. World Economic Forum)

Figure 15.: Source: Global Competitiveness Report 2016-2017. Klaus Schwab. World Economic Forum

Country Year Overall Score Rank Australia DB2015 5.15 21 Using the GCI’s framework, the Australia DB2010 5.11 16 competitiveness of individual Bangladesh DB2015 3.76 107 Bangladesh DB2010 3.64 107 members of IORA is assessed. Table 4 Comoros DB2015 n/a n/a depicts the change of score by Comoros DB2010 n/a n/a India DB2015 4.31 55 comparing the database of 2010 with India DB2010 4.33 51 2015. The result is that some countries Indonesia DB2015 4.52 37 Indonesia DB2010 4.43 44 experienced positive changes Iran, Islamic Rep DB2015 4.09 74 (increased) in the overall Iran, Islamic Rep DB2010 4.14 69 Kenya DB2015 3.85 99 competitiveness score. These Kenya DB2010 3.65 106 countries include, Madagascar DB2015 3.32 130 Madagascar DB2010 3.46 124 Malaysia DB2015 5.23 18 United Arab Emirates (from 4.89 to Malaysia DB2010 4.88 26 5.24), Malaysia (from 4.88 to 5.23), Mauritius DB2015 4.43 46 Mauritius DB2010 4.32 55 Singapore (5.48 to 5.68), Kenya (from Mozambique DB2015 3.20 133 3.65 to 3.85), Bangladesh (from 3.64 Mozambique DB2010 3.32 131 Oman DB2015 4.25 62 to 3.76), Mauritius (from 4.32 to 4.43), Oman DB2010 4.61 34 Indonesia (from 4.43 to 4.52), South Seychelles DB2015 n/a n/a Seychelles DB2010 n/a n/a Africa (from 4.32 to 4.39), Thailand Singapore DB2015 5.68 2 (from 4.51 to 4.64), Australia (from Singapore DB2010 5.48 3 South Africa DB2015 4.39 49 5.11 to 5.15), Tanzania (from 3.56 to South Africa DB2010 4.32 54 3.57). Sri Lanka DB2015 4.21 68 Sri Lanka DB2010 4.25 42 As such, this is a good news. One can Tanzania DB2015 3.57 120 Tanzania DB2010 3.56 113 notice that there are more shaded Thailand DB2015 4.64 32 blue colors than the red ones. More Thailand DB2010 4.51 38 United Arab Emirates DB2015 5.24 17 than half of IORA members United Arab Emirates DB2010 4.89 25 experienced positive changes in their Yemen, Rep DB2015 n/a n/a Yemen, Rep DB2010 n/a n/a overall competitiveness score. Among those with significant positive changes

in the score include United Arab Tabel 4.: Source: Global Competitiveness Report Emirates, Malaysia, Singapore, and 2016-2017. Klaus Schwab. World Economic Forum.Modified by BPPK Kenya. The rest (less than half) of IORA members experienced mostly slight decrease in their competitiveness score. These countries need more effective capacity building program and trade facilitations.

Figure 16.Figure 16. Source: Global Competitiveness Report 2016-2017. Klaus Schwab. World Economic Forum. Modified by BPPK

In terms of the GCI rankings, more than half (11) of the IORA member countries are above the median line (top 69) of GCI rankings (which is positive). The following Figure 16 helps visualize the rank of IORA members in the GCI. The larger the circle, the better the rank. Singapore, which ranked number 2 in the world, would again represent the Champion of competitive economy in IORA.

Figure 17.Source: Global Competitiveness Report 2016- 2017. Klaus Schwab. World Economic Forum. Modified by BPPK

To describe the progress of competitiveness in Indian Ocean, the following Figure 17 illustrates countries with increasing numbers of GCI score against the backdrop of their respective visualized ranks. As such, among countries with the best performance in the region, in terms of GCI points increase, are United Arab Emirates (rank 17; 0.35 points increase), Malaysia (rank 18; 0.35 points increase), Singapore (rank 2; 0.20 points increase), Kenya (rank 99; 0.20 points increase), Bangladesh (rank 107; 0.12 points increase), Mauritius (rank 46; 0.11 points increase), Indonesia (rank 37; 0.09 points increase), South Africa (rank 49; 0.07 points increase), Thailand (rank 32; 0.07 points increase), Australia (rank 21; 0.04 points increase), Tanzania (rank 120; 0,01 points increase). Thus this is another good news. The data shows a positive development on the increasing competitiveness in Indian Ocean region. More than half of IORA members experienced positive changes in their competitiveness; and more than that, it is encouraging to learn that the increase in competitiveness is equally distributed in the region, from Australia to South Africa.

Figure 18.Source: Global Competitiveness Report 2016-2017. Klaus Schwab. World Economic Forum. Modified by BPPK

It is now time to view the regional competitiveness score (average) of IORA in the global context. As depicted in Figure 18, this study calculates the following average regional score: Northeast Asia averages 5.21, European Union averages 4.72, GCC averages 4.66, ASEAN averages 4.58 and IORA averages 4.34. IORA is still the lowest if compared to other regions. Based on geographical proximity, and also cultural-historical ties, as discussed in the beginning of this paper, it is thus proposed that IORA is to work closely together with ASEAN, GCC, and Northeast Asian economies.

Ease of Doing Business in Indian Ocean

Ease of doing business is an important factor of economic development. This paper will measure ease of doing business by employing “distance to frontier” mechanism. The concept of “distance to frontier” as explained in the following box.

The distance to frontier score aids in assessing the absolute level of regulatory performance and how it improves over time. This measure shows the distance of each economy to the “frontier,” which represents the best performance observed on each of the indicators across all economies in the Doing Business sample since 2005. This allows users both to see the gap between a particular economy’s performance and the best performance at any point in time and to assess the absolute change in the economy’s regulatory environment over time as measured by Doing Business. An economy’s distance to frontier is reflected on a scale from 0 to 100, where 0 represents the lowest performance and 100 represents the frontier. For example, a score of 75 in DB 2016 means an economy was 25 percentage points away from the frontier constructed from the best performances across all economies and across time. A score of 80 in DB 2017 would indicate the economy is improving. In this way the

(box) The Doing Business Report presents results for two aggregate measures: the distance to frontier score and the ease of doing business ranking, which is based on the distance to frontier score. The ease of doing business ranking compares economies with one another; the distance to frontier score benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best performance on each Doing Business indicator. When compared across years, the distance to frontier score shows how much the regulatory environment for local entrepreneurs in an economy has changed over time in absolute terms, while the ease of doing business ranking can show only how much the regulatory environment has changed relative to that in other economies.(Source:http://www.doingbusiness .org/Methodology/~/media/WBG/DoingBusin ess/Documents/Annual-Reports/English /DB17-Chapters/DB17-DTF-and- DBRankings.pdf. Accessed 5 February 2017)To ease description on the above Box, about ease of doing business, the following Figure 19 illustrates some key indicators of ease of doing business. The indicators include: (1) starting a business; (2) dealing with construction permits; (3) getting electricity; (4) registering property; (5) getting credit; (6) protecting minority investors; (7) paying taxes; (8) trading across border; (9) enforcing contracts; and (10) resolving insolvency. Every indicator is provided by practical measurement. For instance, for “starting a business”, the practical measurement includes how simple is the procedures, how long is the time needed to start a business, how much is the cost, and how much is the minimum capital needed, etc

Overall Using the Distance to Frontier (DTF) Economy Year DTF framework, the ease of doing business of Australia DB2015 79.94 individual members of IORA is assessed. Tabel Australia DB2010 80.80 Bangladesh DB2015 40.67 5.depicts the change of overall DTF scores by Bangladesh DB2010 45.32 comparing the database of 2010 with 2015. Comoros DB2015 45.68 Comoros DB2010 44.96 The result is that some countries experienced India DB2015 52.87 positive changes (increase) in the overall DTF India DB2010 48.77 Indonesia DB2015 56.68 score. These countries include, India (from Indonesia DB2010 56.84 48.77 to 52.87), Malaysia (from 74.61 to Iran, Islamic Rep DB2015 56.27 Iran, Islamic Rep DB2010 56.78 78.64), United Arab Emirates (from 70.80 to Kenya DB2015 54.17 74.25), Mozambique (from 52.73 to 53.64), Kenya DB2010 57.46 and Comoros (from 44.96 to 45.68). But, from Madagascar DB2015 43.97 Madagascar DB2010 45.53 Table 5, one can observe that the shaded red Malaysia DB2015 78.64 colors are dominating the regional data on Malaysia DB2010 74.61 Mauritius DB2015 72.41 ease in doing business. Thus, we found a Mauritius DB2010 73.35 “mixed” result in here. The shaded red colors Mozambique DB2015 53.64 Mozambique DB2010 52.73 represent countries with decreasing score of Oman DB2015 64.09 ease of doing business (even though some of Oman DB2010 65.53 these countries experience only a “slight” Seychelles DB2015 57.98 Seychelles DB2010 62.24 decrease in their score). This indicates that Singapore DB2015 85.08 ease of doing business remains an issue for Singapore DB2010 89.77 South Africa DB2015 63.97 IORA.As such, Ease of Doing Business is an South Africa DB2010 67.53 area that IORA needs to work to together to Sri Lanka DB2015 56.82 Sri Lanka DB2010 56.90 improve the regional economic performance. Tanzania DB2015 50.14 While, five countries improved their overall Tanzania DB2010 52.62 Thailand DB2015 72.20 DTF score, six countries experienced less than Thailand DB2010 73.03 one point decrease. Many member countries United Arab EmiratesDB2015 74.25 United Arab EmiratesDB2010 70.80 Yemen, Rep DB2015 44.28 Yemen, Rep DB2010 56.72

Figure 20. Source: World Bank. http://www.doingbusiness.org/data/exploretopics/star ting-a-business/frontier. Accessed on 4 February 2017. Modified by BPPK

In terms of the Ease of Doing Business rankings, half (10) of the IORA member countries are above the median line (top 95) of Ease of Doing Business rankings (which is positive). The following Figure 21 helps visualize the rank of IORA members in the Ease of Doing Business. If we link Figure 17 with Table 5, then one can infer that despite the fact that many IORA members experienced slight decrease in the ease of doing business score, but half of them at least, still ranked above the median line. Singapore, which ranked number 2 in the world, would again represent the Champion of Ease of Doing Business in IORA.

Figure 22 .Source: World Bank. http://www.doingbusiness.org/data/exploretopics/star ting-a-business/frontier. Accessed on 4 February 2017. Modified by BPPKFigure 22.

It is now time to view the regional DTF score (average) of IORA in the global context. As illustrated in Figure 22, this study calculates the following average regional score: Northeast Asia averages 77.12, European Union averages 75.44, GCC averages 63.90, ASEAN averages 63.60 and IORA averages 60.19. Thus, if compared with other region, IORA represents the least developed in ease of doing business. Based on geographical proximity, and also cultural-historical ties, as discussed in the beginning of this paper, it is thus proposed that IORA is to work closely together with ASEAN, GCC, and Northeast Asian economies. More cooperation is needed to improve IORA performance in ease of doing business.

Figure 23. Source: Trade Complimentarity Index, UNCTAD. Modified by BPPK

What is trade complementary? As discussed earlier in this paper, the colonial powers helped shape trade complementary in Indian Ocean region (see Table 1). Until today, TCI remains an important economic indicator in observing the economic progress of IORA The following box explain the basic idea of Trade Complementary Index (TCI).

Tabel 6. Source: Trade Complimentarity Index, Index Importer UNCTAD. Modified by BPPK EXPORTER AU BD KM IN ID IR KE MG MY MU MZ OM SC SG SO ZA LK TH AE TZ YE Australia (AU) _ 0,22 0,19 0,33 0,26 0,21 0,21 0,18 0,27 0,23 0,20 0,24 0,17 0,22 0,12 0,29 0,24 0,30 0,28 0,18 _ Bangladesh (BD) 0,10 _ 0,08 0,07 0,09 0,08 0,10 0,12 0,08 0,11 0,08 0,07 0,08 0,06 0,07 0,10 0,10 0,08 0,11 0,08 _ Comoros (KM) 0,06 0,06 _ 0,08 0,05 0,06 0,05 0,05 0,06 0,06 0,04 0,05 0,13 0,04 0,03 0,08 0,06 0,08 0,09 0,07 _ India (IN) 0,46 0,45 0,32 _ 0,55 0,44 0,58 0,57 0,47 0,59 0,53 0,53 0,49 0,49 0,26 0,46 0,51 0,37 0,54 0,56 _ Indonesia (ID) 0,40 0,30 0,24 0,36 _ 0,34 0,37 0,31 0,36 0,32 0,28 0,29 0,24 0,31 0,23 0,40 0,38 0,37 0,34 0,29 _ Iran (IR) 0,22 0,17 0,09 0,50 0,26 _ 0,20 0,13 0,19 0,12 0,13 0,18 0,09 0,22 0,06 0,30 0,23 0,30 0,17 0,13 _ Kenya (KE) 0,33 0,28 0,31 0,21 0,27 0,29 _ 0,34 0,29 0,35 0,32 0,29 0,32 0,22 0,26 0,33 0,33 0,27 0,34 0,31 _ Madagascar (MG) 0,14 0,14 0,12 0,11 0,13 0,12 0,12 _ 0,13 0,15 0,10 0,11 0,11 0,11 0,10 0,14 0,15 0,11 0,17 0,11 _ Malaysia (MY) 0,50 0,36 0,27 0,37 0,48 0,36 0,43 0,35 _ 0,40 0,38 0,40 0,33 0,64 0,22 0,46 0,43 0,49 0,40 0,37 _ Mauritius (MU) 0,21 0,18 0,16 0,17 0,18 0,18 0,17 0,23 0,16 _ 0,15 0,15 0,16 0,16 0,25 0,22 0,21 0,16 0,26 0,16 _ Mozambique (MZ) 0,23 0,26 0,14 0,21 0,26 0,15 0,22 0,19 0,24 0,20 _ 0,17 0,19 0,22 0,09 0,22 0,25 0,20 0,15 0,19 _ Oman (OM) 0,27 0,19 0,10 0,47 0,27 0,12 0,23 0,17 0,23 0,17 0,18 _ 0,15 0,28 0,07 0,33 0,25 0,30 0,17 0,18 _ Seychelles (SC) 0,12 0,12 0,11 0,08 0,12 0,10 0,11 0,13 0,12 0,18 0,12 0,11 _ 0,11 0,07 0,12 0,13 0,10 0,12 0,11 _ Singapore (SG) 0,45 0,32 0,24 0,33 0,53 0,37 0,48 0,42 0,63 0,44 0,44 0,46 0,38 _ 0,16 0,45 0,41 0,43 0,42 0,45 _ Somalia (SO) 0,05 0,04 0,02 0,06 0,06 0,04 0,03 0,04 0,04 0,04 0,03 0,04 0,03 0,05 _ 0,07 0,04 0,04 0,06 0,04 _ South Africa (ZA) 0,38 0,27 0,27 0,39 0,34 0,34 0,32 0,30 0,35 0,33 0,32 0,39 0,28 0,27 0,18 _ 0,33 0,35 0,43 0,30 _ Sri Lanka (LK) 0,19 0,15 0,15 0,16 0,16 0,18 0,17 0,18 0,15 0,22 0,15 0,15 0,17 0,13 0,12 0,19 _ 0,16 0,24 0,16 _ Thailand (TH) 0,55 0,39 0,38 0,34 0,51 0,54 0,47 0,42 0,53 0,49 0,42 0,49 0,39 0,44 0,28 0,53 0,47 _ 0,53 0,43 _ UAE (AE) 0,41 0,31 0,22 0,67 0,42 0,29 0,38 0,31 0,39 0,35 0,33 0,35 0,29 0,42 0,16 0,47 0,42 0,48 _ 0,32 _ Tanzania (TZ) 0,20 0,28 0,20 0,25 0,23 0,24 0,21 0,24 0,25 0,27 0,20 0,21 0,23 0,15 0,16 0,23 0,26 0,27 0,29 _ _ Yemen (YE) ______

Table 6 indicates the degree of complementarity of the export profile of particular region with the global import. In the TCI framework, no complementarity (and hence, no export) will be represented by 0 (zero) while the maximum complementarity will be represented by 1 (one). Thus, the higher the number (close to 1) the better the complementarity. No one, though, seems to have reached this perfect number. , ASEAN has a complementarity index of 0,7, which is the highest in Indian Ocean. Whereas Southern Asia ranked below ASEAN, with 0,6 followed by GCC with 0,4, Eastern Africa with 0,3 and Southern part of Africa with 0,4. Australia, has a complementary index of 0,3. East Asia (minus Japan) has TCI of 0,6, if Japan is to be added, then Japan alone has a TCI of 0,5. Southern Asia (TCI 0,6), ASEAN (TCI 0,7) and East Asia (TCI 0,6) form an ideal inter- regional linkage sustain by better connectivity. ASEAN and East Asia, as robust economic regions with higher TCI, have attracted major investment on infrastructure. The table shows that most of the major harbors with the size of 500 million tons are concentrated in the regions of East Asia and ASEAN. Smaller harbors at the size of 100 million tons are also concentrated on the Indian Ocean Region, in particular in the part of Southern Asia. As such, the good levels of TCI in Southern Asia, ASEAN and East Asia have induced the accelerated development of maritime infrastructure. At the end, this infrastructure will promote further the increasing connectivity and trade in the regions.

Figure 24 . Source: Trade Complimentarity Index, UNCTAD. Modified by BPPK

Figure 24 visualizes the recorded higher (green line), high (blue line), and moderate (red line) individual TCIs in IORA region. The white circles with characters on it, indicate the exporting countries. The chart gives impression that the exporting countries, with various degree of TCIs vis-à-vis the importing partners, are concentrated in ASEAN (Singapore, Malaysia, Thailand, and Indonesia) and Southern Asia (India and Iran). United Arab Emirates and South Africa also represent important exporting countries of their respective region. Figure 21 captures the main exporting countries as represented by proportional white circles. The larger the circle, the higher the TCI score of the commensurate exporting country. Thus, it is clearly indicated that India, Thailand, Malaysia, and Singapore, and to a lesser degree, United Arab Emirates and Indonesia, play important roles as exporting countries of the region which enjoy a favorable degree of trade complementary in e is yet to be developed. These countries are the potential “forerunner” in the region, if IORA will form an Indian Ocean FTA, or even an Indian Ocean CEPA.

More Focusing on Cooperation and Norm-setting The IORA Charter and the IORA Concord project three clusters of substance, namely Politics and Security, Economy, and Socio-Culture. However, the objectives of IORA, according to the Charter, are primarily geared toward the promotion of robust economic cooperation in the Indian Ocean. Taking the economic emphasis into account Figure 25 represents IORA’s three clusters of cooperation and norms setting. The political and security cluster will prioritize on maritime safety and security. Within this cluster, IORA would promote norms setting relating to, among others, the attainment of Indian Ocean as a zone of peace based on the existing International law, including UN’s Principles. Within this cluster, too, IORA is to promote human rights, democracy, good governance, pluralism, legal culture and rule of law. The economy cluster will prioritize on trade and investment facilitation, and fisheries management. Within this cluster, IORA would promote norms setting relating to, among others, sustainable and inclusive growth, connectivity, blue economy, evidence-based sustainable management of marine resources, SDG principle, and gender equality. The socio-culture cluster will prioritize on disaster risk management; academic, science, and technology cooperation; and tourism and cultural exchange. Within this cluster, the peoples of Indian Ocean are to be given the opportunity to nurture and develop their historical and cultural bonds. The core of the three clusters is the binding principles that derives from regional and international norms as codified in IORA Charter, IORA Concord, UN Charter, and UNCLOS, as well as other norms widely recognized by international community.

Figure 25 . Source: IORA Charter and documents relating to discussion of IORA Concord. Developed by BPPK

Conclusion: Towards an Indian Ocean Architecture As illustrated in Figure 26 this paper concludes by summarizing previous discussion into a sketch of an economic-driven regional architecture as well as trans-regional forums. The point is, in the era of globalization, the Indian Ocean architecture should be part of, and hence, strengthening, the existing global order. Figure 26. Developed by BPPK From above discussion, it is clear that there is the need to strengthen the regional commitments for IORA’s cooperation, particularly in the realms of economic development. The regional architecture, of which IORA is the core, should at best provide connectivity with the existing trans-regional forum. Economic cooperation would serve as the vehicle for such trans-regional cooperation. Nonetheless, IORA should be careful with the existing economic gaps among its member. Thus, strengthening cooperation within IORA, by employing the right strategy, is a necessity. As previously discussed, there are economies in the Indian Ocean that should join the common effort for a better economic tie, be it in the form of an Indian Ocean free trade area, or an Indian Ocean comprehensive economic partnership. Taking ASEAN’s experience into account, it is suggested that IORA would start with a free trade area consisting of a group of economies such as India, UAE, Australia, Singapore, Indonesia, Malaysia, Thailand, Iran, South Africa, and Mauritius. Throughout the discussion, these economies have shown the better capacity and prospect for immediate implementation of an IORA free trade. The rest of the members might join in the later stage but they deserve special program from IORA to help them with trade facilitation and capacity building. As such, learning from ASEAN’s experience the likes strategy of “IORA minus x” can be implemented in the realm of economic cooperation. The point is, the economic progress of this diverse region should be attained by considering the comfort level of the respective member states. In the context of trans-regional forum, IORA should engage in inter-regional outreach in a gradual manner. As previously discussed, there is a need, in time that IORA develops close ties with ASEAN and GCC, to the facts that many potential economies of both ASEAN and GCC are parties to IORA. As geographical and historical proximities matter, ASEAN is a good stepping point for IORA to reach the larger market of Northeast Asia (i.e. Japan, South Korea, and China). It should be noted, extensive historical ties between Southeast Asia and Northeast Asia have developed for at least two millennia. Whereas, GCC is a good stepping point to reach the develop market of Western Europe. It should be noted too, that some Gulf Countries such as, UAE, Bahrain, and Saudi Arabia have developed extensive historical ties with UK and France. In a due course of time, as IORA has successfully consolidated internally, more trans- regional cooperation are expected to develop with SAARC, COMESA, SADC, and many

others.

Section 3:

CHAPTER III

REGIONAL ECONOMIC MAPPING This chapter describes the economic map of IORA member countries in the region and the views of stakeholders in these countries regarding the establishment of IORA and the prospect of IORA-CEPA. A. India India, as a member of G20, ranked eighth in the world’s economy with a GDP accounting for USD 2263.52 billion in 2016. India has 1,342,512,705 population in 2017, with the highest ratio in the age group of 5 to 24 years old. The ratio of labor force age in India is 48% of the total population, while 43.89% belongs to the non worker category and the rest of the population belongs to the retirement age.

The ratio of the population in the productive age is less than the ratio of the non productive as well as the unemployed. Indian workers in India totaled 29,650,000 people, while the unemployed is 48.26 million people. India ranks second as the most populous country. Its population is equivalent to 17.74% of the total population in the world, and 32.8% of which is urban society, with life expectancy reaches 68.5 years.

In terms of literacy, at the age of 15, most of the population can write and read. The basic education of the Indian society is mostly formal education of 12 years or up to junior-high school. The government has spent 3.8% of GDP in 2013 in that sector. 80.5% of Indian population are Hindus, which is dominated by ethnic Indo-Aryan (72%). As for the population density of 446.26 people per square kilometers or 1,167 people per square, India ranks 131 in the world ranking on meter in human development index, with an HDI value 0.549 women and 0.671 men.

Figure 27. India’s Population Composition Source: https://www.populationpyramid.net/india/2017/

Figure 28. India Dependency Ratio

Source: https://www.livepopulation.com/country/india.html

Trade

According to ECI (Economic Complexity Index) data, India ranks 16 as exporting country and it ranked 46 in terms of economic complexity. In 2015, India's total exports reached USD 276 billion and imports reached USD 368 billion,that indicates 2015 with a comparatively negative trade, with India's total imports greater than exports. In 2015- 2016, the negative growth reached 15.48%, this was significant considering the previous year negative growth was only 1.29%. Commodities that were exported by India included oil, amounting to USD 29.2 billion; followed by USD 23.2 billion of diamond; USD 13.4 billion of packaged medicament; USD 9.2 billion of jewellery; and USD 6.55 billion of rice. India's imports are dominated by crude oil amounted to 64.6 billion USD, USD 35.4 billion of gold, USD 17.2 billion of diamonds, USD 13.9 billion of coal briquettes and gas oil amounted to USD 11.7 billion.

India mainly exports to the United States, United Arab Emirates, China, Hong Kong, and the UK. Imported products in India are dominated by China, Switzerland, USA, Saudi Arabia and United Arab Emirates.

Figure 29 . India Trade Partners.

Source: http://atlas.media.mit.edu/en/profile/country/ind/

Banking or Financial Services

India's banking system consists of 26 public sector banks, 20 private sector banks, 43 foreign banks, 56 regional credit bank, 1,589 urban cooperative banks and 93,550 rural cooperative banks. In 2016, outstanding credit to non-banking finance company (NBFCs) reached USD 55.27 billion, growing 25 percent year-on-year. Bank credit to NBFC has touched its highest level in three years. India's banks increasingly focus on adopting an integrated approach to managing risk. According to RBI, the majority of banks has already met the Basel III capital requirements, which has a March 31, 2019 deadline. Most banks have implemented risk management framework, credit and asset-liability derivatives.

Investment

According to DIPP (Department of Industrial Policy and Promotion) Total FDI towards India in April-June 2017 was USD 14.55 billion. According to data, the highest sector in FDI was in the services sector which amounted to USD 1.88 billion, followed by computer software device of 1.32 billion USD. Most FDI capital inflows was from Mauritius (USD 3.29 billion), Singapore (USD 3.01 billion), Germany (USD 798 million), the US (USD 660 million) and the Netherlands (USD 584 million).

Investment in India also grows 25% per year, hence the government strives to improve systems and services in the business. In addition, India is one of the most significant growth of foreign direct investment in the region, which is dominated by investment in infrastructure and real-estate.

The Government of India has undergone efforts to improve investment, such as cooperation between India and Japan in shaping the India-Japan Coordination Forum. The Forum is useful for building and running strategic projects in the northeast. Also, the Government has abolished the Foreign Investment Promotion Board (FIPB) in order to simplifly incoming investment procedures. Ease and investment growth is expected to grow 8.8% in 2018 up to 2019, and it could overtake consumption growth of 7.4% in order to encourage the increase of India’s GDP of India in those years.

As an emerging donor country, India not only receives foreign investment and aid but also provides investment and foreign aid to other countries. India investments has undergone some changes, initially investments were made in countries that were rich in resources, such

36 as Australia, United Arab Emirates and Sudan. Currently, investments are done in countries that provide tax benefits such as Singapore, the Netherlands, Mauritius, and the British Virgin Islands. Indian companies are common to invest in the foreign sector mainly through mergers and acquisitions transactions (M & A).

With the increase in M & A activities, the company will gain immediate access to newer markets and wider and better technologies, which enable them to increase their customers and achieve global reach. According to the Reserve Bank of India (RBI), India's Outward Foreign Direct Investment (OFDI), loan and guarantee issuance reached USD 867.53 million in February 2017 and USD 1.81 billion in January 2017. The prospect of foreign investment in India is positively valued, with the developments of the industry and markets such as infrastructure, agriculture, pharmaceutical and others in Africa can increase its revenue. In addition, India saw an opportunity to make cooperation with the Latin American region by sea and air, with investments in the mining sector, oil, and pharmaceuticals.

Infrastructure

In the infrastructure sector, from 2000-2017 FDI in construction such as housing and infrastructure has reached 24.3 billion. The Ministry of Transport Road and Highways has reported road infrastructure investment of USD 3.17 trillion while the Ministry of Shipping is also on an investment in highway construction totaled to 12 billion USD. The Indian government is expected to invest highly in infrastructure, especially in roads, renewable energy and urban transport before the elections in 2019. Minister for Transport sets target for national highways in 2016-2017 for a total of 15,000 km.

Tourism

India’s tourism is quite interesting and has significant potential. This is due to India’s richness in culture and history, two major factors that become the main attractions for tourists. Further, India also has a lot of biodiversity and areas of natural beauty. These indicators show potential to be a source of income for the country. Travelers are presented with options on several activities for adventure, health, food, culture and others.

Foreign tourists visit in India is increasing each year. In May 2017, foreign tourists increased by 19.9% while the tourists who use e-tourist visas increased by 55.3% in the same month. With the increase in the number of tourists, the number of foreign exchange income also increase of around 32%. India's tourism and hospitality sector are in the top ten sectors in attracting FDI. The E-visa scheme is making the flow of tourists to India more inviting, and by 2030 India is predicted to enter the top 5 global business market.

The launch of several marketing initiatives by the Government of India as Incredible India and Athiti Devo Bhava has given a boost focused on the growth of tourism. The Indian government has also released a new visa category - medical visa or visa-M, to encourage medical tourism in the country.

The total contribution of travel and tourism sector of India is expected to increase the GDP of 136.3 billion USD in 2015 to 275.2 billion USD in 2025. Travel and tourism are the third largest foreign exchange earner for India. Amounting to USD 1.76 billion earned from foreign exchange through tourism during the month of September 2016. The Government has also made serious efforts to increase investment in the tourism sector.

In the hotel and tourism sector, 100% FDI allowed through the automatic lanes. Five-year Tax-free has been offered for 2, 3 and 4-stars hotel that are located around the UNESCO World Heritage sites (except Delhi and Mumbai). Investment in the tourism sector is estimated to reach USD 12.4 billion in the Five-Year Plan to 12; of these, private investment is expected to reach USD 9.2 billion.

Figure 30. Tourism and Hospitality Service Direct Contribution

Energy

Energy entered into India’s core industry and became a major commodity in both import and export spectrum, consequently playing an important role in economic policy. India is expected to become one of the biggest contributors as consumers on non-OECD oil globally. Total oil imports rose 4.24% annually. India's oil consumption grew 8.3% year-on-year to 212.7 million tonnes in 2016, as opposed to global growth of 1.5%, making it the third largest oil-consuming nation in the world.

India is an importer of Liquefied Natural Gas (LNG), the fourth largest after Japan, South Korea and China, and accounts for 5.8% of total global trade. The country's gas production is expected to reach 90 Billion Cubic Meters (bcm) in 2040 from 23.09 bcm in the years 2016-2017. Gas pipeline infrastructure in this country reaches 16240.4 km in November 2016. The oil and gas company owned country (ONGC) dominate the segment upstream (exploration and production), and produced approximately 1,847 thousand metric tons (TMT) of crude oil, to oil output 2,939 MT in April 2017. The company also accounted for 57% of domestic crude oil production in the country in 2016-2017.

Fishery Fishery plays an important role in the economy and also acts as food security. India’s coastline is over 8,000 km with EEZ of over 2 million square meters, thus made fishery a significant sector. In 2017 alone, fishery has accounted for 1.07% of total GDP. Further sea fishing production increased from 520,000 tons in 1950 to 3.15 million tonnes in 2007. Most of the catch consisted of sardines, shrimp followed penaeid and non -penaeid, mackerel, croakers, cuttlefish and others.

India promotes Freshwater Fisheries And Aquaculture Development Agencies (FFDAs) and 39 of Brackishwater Fisheries Development Agency (BFDA). The annual carp seed production reached 25 billion and approximately 12 billion shrimps. High-value ornamental fish farming is becoming increasingly important along with the cultivation of fish as food. With more than 2.4 lakh fishing crafts operating in the coast, small ports total of 62 and 1511 landing center serves to meet the needs of more than 3.9 million fishermen.

Fish product is currently emerging as the largest group in the Indian agricultural exports, with 10.51 lakh tonnes in terms of quantity. It accounted for about 10% of the total exports of the country and nearly 20% of agricultural exports. More than 50 species of fish and shellfish products are exported to 75 countries worldwide.

Market access

In promoting international trade, the Government of India initiated market access initiative (MAI), aiming for a sustainable export promotion. This is done through an approach named focus product-focus country, as one way to develop the market and a more specific product and is accepted in the market. Although it has opened access to its domestic market, India is still relatively lagging behind its neighbors, namely China, as showed by the following table.

Tabel 7. Indian Market Access

Source: : http://www.cppr.in/wp-content/uploads/2015/01/Trade-Report.pdf

Trade Facilitation

India’s trading facilitation is quite satisfactory, ranging from the availability of information, advance rulings, appeal procedures, simplification and harmonisation of documents, and the internal border agency co-operation.

Figure 31. India’s Trade Facilitation Performance. Source: https://www.oecd.org/tad/facilitation/india-oecd-trade-facilitation-indicators- april-2014.pdf

Non-tariff barrier

To facilitate trade and reduce barriers that usually have restrictions on imports, India has abolished licensing requirements on some of the consumer products. In addition to its own requirements, there are differences in the products whether new products, used, remanufactured, refurbished, or in reconditioning. India has also allowed capital goods imports without a license provided that they still have a remaining useful life of 5 years.

For standard goods and certification of goods, the government has established 109 commodities that must be certified by the Bureau of Indian Standards (BIS). Other agencies, such as the Safety and Standards Authority of India (established under the Food Act and the Food Safety Standards in 2006), serves as a legal entity to put the standards for food products and regulate the manufacture, processing, distribution, sale and import of food. The

40 purpose behind this certification is to ensure the quality of goods seeking access to the market, but it is quite known that many countries use them as a protectionist measure.1

B. Malaysia

Malaysia is included in the middle and upper economic class countries. According to a report titled the Growth Report issued by the Growth and Development Commission of the World Bank, Malaysia has recorded an average growth of 7% per year for 25 years. The solid growth is supported by Malaysia's economy diversity and most recently it has become a major exporter of commodities such as electrical equipment, spare parts, palm oil and natural gas. Malaysia’s short-term economic outlook is deemed generally very positive in the future. Some factors supporting this are growing domestic demand, a stable labor market and income growth in Malaysian society. However, significantly, Malaysia’s productivity growth over the last 25 years are still under some regional countries and other global comparators. As an export-oriented country, Malaysia continued to record trade surplus of monthly and yearly basis respectively since November 1997. Malaysia's main trading partners are China, Singapore, Japan, European Union, United States and ASEAN. Malaysia's main exports are electrical and electronic products, manufacturing, oil palm and other dairy products, LNG, crude oil and derived products, apparel and accessories, as well as rubber. The Malaysian government established a policy of subsidies in the economy. The subsidy commitment is realized in order to control the prices of essential goods, including food (sugar, rice, cooking oil, wheat flour) and fuel (petrol, diesel and LPG). Electricity subsidies are also given to around 1 million poor households whose income is under RM 20 (USD 60,000) per month. The government also provides cash assistance amounting to RM 500 (approximately USD 1.5 million) to families earning less than RM 3,000 (approximately USD 9 million) per month under the mechanism of "1 Malaysia People's Aid" (BR1M).

Malaysia’s trade in 2016 remained resilient despite the uncertainties in the global environment. Total trade grew by 1.5% compared to the previous year. The increase was contributed by higher trade with China, which expanded by USD $30.09 billion, the United States of America (USA) (USD16.8 billion), Republic of Korea (USD 8.7 billion), Taiwan (USD 806,8 million) and Saudi Arabia (USD 74,5 million). Significant increases were also recorded with Turkey (USD 68,9 million), Hong Kong SAR (USD 47,3 million), India (USD 453 million), Mexico (USD 402 million), Brazil (USD 372 million), Bangladesh (USD 362 million), ASEAN (USD 345 million) and the European Union (EU) (USD 134 million). Exports rose by 1.1% to USD 320.million and imports increased by 1.9% to USD 230 million, resulting in a trade surplus of USD 29.27 million, the 19th consecutive year of trade surplus since 1998.

Major contributors to export growth in 2016 were expansion of manufactured and agricultural exports by 3.2% and 4.7%, respectively, compensating for the lower performance of mining goods; continued growth for electrical and electronics (E&E) exports driven by strong global demand for electronic devices; rising exports to ASEAN by 5.4% with significant growth to Singapore, CLMV (Cambodia, Laos, Myanmar and Viet Nam) countries and the Philippines; higher exports to Free Trade Agreements (FTA) partners; particularly to Turkey, India and

1 https://www.export.gov/article?id=India-Trade-Barriers

Pakistan; robust export growth to advanced countries, in particular, the USA and Euro zone notably Germany, Belgium, Italy and Hungary; and greater demand from emerging markets such as Mexico and countries in South Asia.

Figure 32. Malaysia Trade Performance

Weak global economic growth affect economic activity in the country of Malaysia which adopts an open economy. The ringgit strengthened versus Rupiah value but decreased compared with regional currencies in 2016. The downward trend in Ringgit value is not expected to result in an economic crisis because Malaysia's reserves is large enough and has a low reliance on foreign funding.

Connectivity

Figure 33 . Malaysia’s Connectivity Achievement.

Malaysia has great connectivity, through land, sea and air. The good connectivity level is assisted by the British colonial legacy and served as a basis in building since the first transport system was established for the benefit of the economic and trade distribution channels. Currently the intra-city connectivity in major cities, such as Penang, Kuala Lumpur, Ipoh, Seremban, Malacca, Johor, Pekan and Kuala Terengganu, already provide access to all parts of the region including remote areas in the region of Peninsular Malaysia. In East Malaysia, namely the State of Sabah and Sarawak, the connectivity between cities is deemed good enough compared to the distribution of small populations in both regions. All

42 towns and big villages are connected by road, while remote areas are accessible by air. River transportation plays an important role in building connectivity, especially along the Baram River to Mulu, connecting villages like Long Panai and Long Traban. And, the majestic Sarawak River provides a lifeline for shipping heavy items from top to bottom which covers an area of Kuching-Samarahan, and serves as a tourist attraction. Transport stream, such as the Kinabatangan River, plays an important role in connectivity, as well as track logging in Sabah and Sarawak. Although connectivity in East Malaysia is not as complete as in Peninsular Malaysia but given area and population distribution between Peninsular Malaysia, Sabah and Sarawak, the area has connectivity land, air and water are pretty good. Malaysia is keen to develop good connectivity projects in Peninsular Malaysia or Sabah, Sarawak. Among them is the toll road improvement projects that have been implemented since 1992, which until now has been built 157.166 km of highways both in Peninsular Malaysia, Sabah and Sarawak. One part of the toll road project is the North - South Expressway within 846 km and connects seven states and several major cities in Malaysia like Johor Bahru, Kuala Lumpur, Ipoh and Alor Setar. Toll lanes is successfully connecting industrial areas and ports in Malaysia and became the main line of 81% of the population on the peninsula with a 89% level of GDP.

Figure 34. Malaysia Connectivity Map. Source: Presentation from the Ministry of Transport of Malaysia on Malaysia: Key Logistics and Transport System (Road and Rail) at the Seminar on the Development of Integrated Transport and Logistics System in the A

In addition to the expansion of the motorway, the Malaysian government is also conducting an increase access to the railway line. Currently, railways and public transport services are operated by Keretapi Tanah Melayu Berhad (KTMB) with a range of 2,262 km of track. KTMB railroads serving the Johor Bahru - Padang Besar and Johor Bahru - Tumpat. KTMB also has a total of 11 terminal facilities in the form of dry-ports, inland container terminals, seaport and freight terminals. Especially for the track Johor Bahru - Padang Besar (804 km) is one of the circuit paths Singapore - Kunming Rail Link Network. Since 2008, Malaysia completing railway projects Electrified Double Track Project between Ipoh to Padang Besar. The project aims to improve the efficiency KMTB profit turnaround rolling stock/existing carriage with a higher frequency levels. Another thing to be expected is an increase in rail passengers, especially on a track Ipoh - Padang Besar.

Figure 35. KTMB Railway NetworkInvestments

In 2016, Malaysia recorded a total investment throughout the year to RM 150.8 trillion, which is divided into the manufacturing sector, the service sector and some other sectors. 74.8 percent of this total is 25.2 percent of domestic investment and foreign investment. States that have contributed the largest investment in Malaysia is the People's Republic of China, Japan, Netherlands, Singapore, and the UK.

Figure 36 Figure 36. Malaysia’s Major Investors

Associated with the investment, the Malaysian government has set the Ninth Malaysian Plan as the distribution of development programs and investment in the whole region of Malaysia. f The Ninth Malaysian Plan program has set five economic corridors per region, namely the Northern Corridor Economic Region (Pulau Pinang, Perlis, Kedah), East Coast Economic Region (Pahang, Kelantan, Terengganu), Iskandar Malaysia (Johor), Sarawak Corridor of Renewable Energy (Sarawak) and the Sabah Development Corridor (Sabah).

Ease of Doing Business & Innovation Index

Malaysia dropped one notch to No.24 in the World Bank's annual ease of doing business ranking. Malaysia in 2017 implemented reforms in certain areas of doing business, such as strengthening access to credit, protecting minority investors and improving trade across borders. Malaysia made starting a business more difficult by requiring that companies with an annual revenue of more than RM 500,000 (SGD 160,900) register as a GST tax payer. In terms of innovation index, Malaysia ranked 8th in Asia and 37th worldwide, according to the Global Innovation Index (GII) 2017 report released by Cornell University. Malaysia was among the top 10 economies in Asia, behind Singapore, South Korea, Japan, Hong Kong, New Zealand and Australia, and that the country was among the middle-income economies that were the closest to the top 25 this year.

Malaysia and IORA

Dissemination of information and public engagement is very important for IORA in establishing construction of CEPA. IORA needs branding and image building as a forum for international economic cooperation. IORA is still not widely known by the people of its member states. It is very important as the appeal of the private sector and the business community to get involved and help promote economic growth within the framework of CEPA IORA. There must also be political will and a high leadership from countries of advanced economies as a driver of IORA CEPA development. Malaysia welcomes the development IORA CEPA, however, there is still a consideration of Malaysia's current focus on some regional economic cooperation framework that is currently being warmly discussed as the ASEAN Economic Community and the Trans Pacific Partnership.

C. Australia

Australia is the country with the largest GDP in the region and ranks 15th largest GDP in the world after Russia and Spain. But since 2014 the economic growth in Australia has decreased due to declining investment coming in, other than that Australia relies heavily on exports in the mining sector but the price of iron ore and coal decreased quite dramatically. Based on data from Australia's GDP in 2016 amounted to 1204.62 billion USD decreased 140.76 than the previous year(Trading Economics).As for the GDP per capita of GDP per capita PPP 55670.90 and 44414.00.

Figure 37 . Australia’s GDP Performance Source: Trading Economics accessed https://tradingeconomics.com/australia/gdp, accessed on 25 September 2017

Australia is liberal in its economic policy, and it is becoming one of the core essence of the Australian government in trade for economic reform. According to Australians, a strong economy is formed through prosperity, security, peace and stability of the country. Australia has a very open market with minimal restrictions on the import of goods and services. This has increased productivity, stimulated growth and make the economy more flexible and dynamic.

Australia's trade is dominated by iron, ore, coal, gold, wheat and crude oil. In addition to the services sector such as tourism and education, other contributors to state revenue is the education sector with a high number of students mainly from Asia studying in Australia. Australia's main export destinations are China (USD 55.1 billion), Japan (USD 18.9 billion), South Korea (USD 11.2 billion), the US (USD 8.26 billion) and the UK (USD 7,41 billion).

Figure 38. Australia Main Trade Partners.

China is an important partner in trade relations with Australia, China is the main destination of exports and imports for Australia. This is highly because Australia's resource advantages in the field of mining, specifically coal, iron, and ore exports to China. China are also the main contributors’ of tourism in Australia with annual increases each year. As for agriculture Australia secured 6.1 billion USD of foreign exchange of agricultural exports. The value of trade with China is greater than with the US which are close allies of Australia, moreover during the protectionist policies of President Trump. The strong economic relationship between Australia and China, have the latter encourage Australia be heavily engage in the initiative of "One Belt One Road” proposal from China to help strengthen regional cooperation. This is an opportunity for Australians wanting to expand its cooperation with the

46 countries in Asia, especially the Southeast Asia region. Apart from China, Australia has also approached Indonesia due to the country’s geographical proximity, Indonesia is important to because it is regarded as Australia's entrance into the Southeast Asian market.2

Figure 39. Australia’s Export Partners.

Australia sees Free Trade Agreements (FTA), both bilateral and multilateral as an economic solution to maintain market access. FTA accounted for 67% of total perdangangan Australia. Here are some FTA Australia has done:. a. ASEAN Australia New Zealand Free Trade Agreement (AANZFTA) b. Australia-Chile FTA c. Australia-China FTA d. Environmental Goods Agreement e. Australia-European FTA f. Union-AustraliaFTA Honkong g. Australia-India Comprehensive Economic Cooperation Agreement (CECA) h. Indonesia-Australia Comprehensive Economic Partnership Agreement (he- CEPA) i. Japan-Australia Comprehensive Economic Partnership Agreement j. Korea-Australia FTA k. Malaysia-Australia FTA l. Australia-New Zealand Closer Economic Relations Trade Agreement m. Pacific Agreement on Closer Economic Relations (PACER) Plus n. Pacific Alliances Free Trade Agreement o. Peru-Australia FTA p. Regional Comprehensive Economic Partnership q. Singapore -Australia FTA r. Thailand-Australia FTA s. Trade in Services Agreement t. Trans-Pacific Partnership (TPP) u. United State-Australia FTA

2 Australia Overview. 2017. OECD Economic Surveys

Investment

Investment became one of Australia's economic driver for innovation, employment, productivity and diversifying the economy to expand in order to support growth. Australian policy-related investments is tailored to the national interest based on a case by case where this approach is considered to maximize the flow of investments.

In 2016 the flow of incoming investment in Australia amounted to 26 billion USD, of which the largest investment of the United States (USD 860.9 billion), the UK (USD 515.5 billion), Belgium (USD 270.1 billion) and Japan (USD 213, 5 billion). The level of FDI increased by 15% to 35% of the total GDP.

However, there was a shift where in 2015-2016 the largest investment into Australia came from China. Incoming investors also dominated the field of development. Chinese interest to real estate grew by 31% from 2014 to 2015, the increase in Chinese investment is supported by the rising value of the Chinese investor approval by 6% in the same year.

Figure 40. Australia’s Investment by Sector

As for the Australian investment all together, incoming investments, since 1986 was dominated by the United States, Britain and New Zealand. From 1983 until 2013 these investments increased by 5% to these countries.

Figure 41. Share of Foreign Investment in Australia

Figure 42. Share of Australia Investment Abroad

To increase investment inflows Australia made amendment which began to be applied in July 2017 by reducing the requirements, the regulatory burden to investors and to change the fee framework to increase transparency and efficiency. Some of the major changes include:(i) Streamlining and simplifying the commercial fee framework; (ii) Introducing a new business exemption certificate; (iii) Introducing two new Residential Exemption Certificates; (iv) amending the treatment of residential land used for commercial purposes; (v) Narrow the scope of the 'low threshold' non-commercial vacant land definition.[1] Approval of investment proposals in Australia in 2015-2016 decreased from 44% to 35%. This is because the increase in the number of approvals for new dwellings (which are usually not subject to the approval requirements) combined with a decrease in approvals for dwellings has been set (which is usually subject to the approval requirements).

Australia and IORA

For Australia IORA is starting to become a priority agenda particulalry when India became chairman in 2011. Australia and other IORA member countries are actively conducting public awareness campaigns, this is due to the fact that IORA is still not so well known among the Australian general public, and low awareness of the Australian community.This is a challenge in itself for Australia to further increase public awareness of the existence of IORA, especially to businesses, which is considered to be one of the main actors enhance economic cooperation in IORA.

Australia focus on IORA is in the interests of blue economy in the Indian Ocean region, maritime security and the increase role of women in the activities of SMEs as a driver of economic actors (women empowerment). Meanwhile, economic cooperation, such as trade and investment is a higher priority for Australia than economic cooperation/trade agreements. Other priorities for Australia are the existing investments framework that it has with partner countries such as the member countries of ASEAN, Japan and other East Asian countries.

In relations to Australias economy, the security of Australia in the Indian Ocean becomes important to support the sector areas of IORA cooperation. Maritime security such as terrorism, piracy, natural disasters in the Indian Ocean rim should be a concern for member countries to increase cooperation as mentioned in the Declaration on Preventing and countering Terrorism and Violent Extremism in the Indian Ocean.

For Australia, IORA should focus on programs and initiatives already existing or sectors with strong institutions. IORA Secretariat would need to be increased as a role of facilitator rather than an originator of the areas of cooperation initiatives. Post-chairmanship of Australia in IORA, the country has commited to improve cooperation through IORA which is constantly developing, some of the efforts made by Australia among others are its active annual contribution, establishing a special fund for IORA towards strengthening bodies, and also the IORA Secretariat. IORA-CEPA

From the field study, one result that was identified was that stakeholders, viewed idea of the establishment of CEPA IORA as less feasible with several considerations (i) lack of ownership of IORA member countries; (ii) the diversity of the country's economic level member is uneven to be formed in a integrated economy; (iii) inadequate regional infrastructure, particularly ports and shipping facility limitations in some member states IORA; (iv) the bureaucracy to form a CEPA, which require long negotiations because of the need for an agreement among member countries. Furthermore, the Australian government is still focused on finalizing FTAs with several partner countries on a bilateral basis. This illustrates a preference of Australia is towards a comprehensive economic cooperation more on a bilateral basis. However, the discourse of CEPA can continue to be discussed and tabled at each meeting in IORA. This is because the IORA CEPA discourse is also a good initiative to support (legal basis) and facilitate economic cooperation in IORA. In this regard there needs to be country initiators to lead talks in the formation of IORA-CEPA, namely those who are able and willing

50 to provide the resources and contributions in developing the proposal. The countries that are expected to take the leadership in IORA includes Australia, Indonesia and India. In this regard, Indonesia took the leadership role as the Chair IORA and successfully organized the IORA Leaders' Summit in Jakarta, March 7, 2017 which resulted in the Jakarta Concord and IORA Jakarta Plan of Action. The result of the meeting was seen as progress to encourage the leaders of member states towards their commitment in IORA. Nevertheless, IORA is still regarded as an organization with a low sense of ownership by the member states, thus, often commitments are made without concrete follow-up. With many FTAs already established among some IORA member countries, one can say that half of an imagined IORA-CEPA is in this sense is already established, these already agreed FTAs can support facilitation of trade and investment as well act as a legal umbrella for comprehensive trade in the Indian Ocean rim. In this regard, IORA can focus on developing trade blocks that already exist in the region rather than start lengthy negotiations CEPA formation. Some sectors that take priority in the establishment of an IORA CEPA from a business perspective include: (i) customs and trade facilitation; (ii) sanitary and phytosanitary measures; (iii) technical barriers to trade; (iv) cooperation and capacity building for developing countries and LDCs; and (v) competitiveness and business facilitation; and (vi) regulatory coherence. For the business community, trade and investment facilitation will provide benefits and ease of doing business if a IORA CEPA is formed. To encourage economic cooperation in IORA, capacity building, confidence building measures and the facilitation in the movement of people, through easy visa and access for businesses IORA members is needed. To that extent, the issue of the establishment of the IORA business travel card, should be a priority to be implemented, as stipulated in the IORA Action Plan 2017-2021. In regards to the status of several of IORA member countries that are WTO members, the Australian side holds that it might be an obstacle to regional economic grouping, but by no means will it hinder policy harmonization in the establishment of CEPA. A. Singapure Singapore is one of the economic powerhouse in Asia with the service sector accounted for 70% of the total GDP of Singapore. The main driving sectors are wholesale and retail trade, financial and business services, and insurance. Other sectors that are also contributing to the economy are industry, agriculture, construction, electronics, biomedical, petroleum and petrochemicals, precision engineering are now also potentially driver of the economic sectors. In 2016, Singapore with a population ofo 5.6 million people, had a GDP of USD297 billion. As a trading hub in the region, Singapore continue to develop the services sector as one of the main sectors driving the economy of the State.

Trading

Singapore is a liberal trade policy. High tariffs imposed only on alcohol, tobacco, petroleum products and motor vehicles. Singapore's main export commodities, for 2016, including machinery and electrical equipment, computers, mineral fuels, including oil, while Singapore's main trading partners are China, Hong Kong, Malaysia, Indonesia, the

European Union and the United States. In 2016, trade with China reached 13.6% of China's total foreign trade followed degan European Union (11%), USA (8.5%) and Hong Kong (7.2%) [4].

Singapore is also actively shaping the framework of strategic cooperation with its trading partners, through free trade agreements (FTA). Bilateral FTAs are considered effective, among others, China, India, Japan, South Korea, New Zealand, Panama, Peru, Australia, Costa Rica, Jordan, USA, and Turkey. While negotiations are ongoing for the FTA with Canada, Mexico, Pakistan and Ukraine. With China, through the China-Singapore Free Trade Agreement, more than 85% of Singapore's exports to China are not subject to tariffs (zero-tariff access). Export commodities were exempted from the tariff in question include petrochemicals, processed foods and electronic and electrical products [5].

Singapore is currently also intensively developing cooperation with Africa. This year, the Singapore government has opened a liaison office in Nairobi, Kenya. Opening an office in Kenya to facilitate the expansion of Singapore's business in the east African region, complementing the other two offices located in Accra (West Africa) and Johannesburg (South Africa). Since 2005, bilateral trade between Singapore and Africa grew 5.2% annually, and up to now there are about 60 Singaporean company that operates in more than 50 countries in Africa.

Investment Singapore is listed as one of the largest investing country in Southeast Asia. The Investment Coordinating Board (BKPM) recorded five countries with the largest contribution of investment in Indonesia in January-September 2016, and Singapore was still leading as the largest investor in Indonesia. Singapore is still in first place, followed by Japan and China, and Hong Kong and the Netherlands. Singapore has an open investment regime with few restrictions in the financial services sector, professional services and media. This investment character puts Singapore as second on the list of the World Bank's Ease of Doing Business 2017 Report Global Competivenss; it also positions Singapore as the most competitive economy globally. The Singapore government is very committed free market access but at the same time takes a leading role in planning economic development through the corporate government-linked corporations and network.

In general, the legal framework and government policies related to investment are highly profitable for foreign investors. Foreign investors are not required to have joint ventures or hand over management control to the interests of local investors in Singapore. Although in general, Singapore's investment can be open and straightforward, however these loose policies exclude government control over sectors such as telecommunications, broadcasting, domestic news media, financial services and accounting, airports and palebuhan and ownership of property.

In contrast, local investors are also encouraged to expand overseas. Under the International Enterprise Singapore, domestic investors can obtain information about potential markets, business contacts and financial support and grants to companies who are ready to go- international. IE has a large global reach and representative offices in major trading partners of Singapore such as China, India and also nine member countries of ASEAN. The main foreign investors in Singapore is the United States, Japan, the British Virgin Islands, the Cayman Islands, the Netherlands and the United Kingdom. While Singapore businesses are

52 invested in China, the Cayman Islands, Hong Kong, Indonesia, Malaysia, and the British Virgin Islands. Figure 43. FDI in Singapore and Singapore’s Investment in 5 partnering countries (2015)

Sumber:http://www.singstat.gov.sg/do

Banking

Singapore is one of the main financial centers in the world and is a financial hub in Southeast Asia. A stable political environment and strong economy with favorable tax policies followed by a good reputation of integrity, have contribute significantly to Singapore's status as an international finance center. It is the third largest in Asia, after Japan and Hong Kong. Financial institutions in Singapore provide many facilities and services ranging from consumer banking, asset management, investment banking and insurance services. The Monetary Authority of Singapore (MAS) acts as Singapore's central bank that sets monetary policy, regulates banks and financial institutions and issues currency.

Singapore’s banking system is advanced and is supported by; the liberalization of the domestic banking market, which strengthens local banks at the regional level through merger and acquisition, foreign banks in Singapore also help the country a regional and globally platform in international banking services. This prompted the competitive level and subsequently the increase of innovation on a reasonable level. Banking services and facilitation are advanced and satisfying for corporate and investment services, these are prime banking services that the banking sector in Singapore are equipped with besides to the traditional function of lending and deposit-taking. Banks in Singapore also support and facilitate the needs of SMEs. The country also has a strict policy related to confidentiality of draft tax policy.

Technology

The transformation of Singapore from a developing trading post in the region into one of the most advanced ports in the world is due to the development of modern infrastructure and rapid technology adoption. Singapore is well connected with the world through top-class airports, ports and telecommunications infrastructure.

Changi International Airport Changi International Airport is Singapore's national airport and air cargo terminal. The success of Changi International Airport has put Singapore on the map as a center of regional aviation. It serves 80 airlines with destinations to more than 180 cities in more than 50

53 countries. Three terminals at Changi Airport together can handle 70 million passengers per year.

Telecommunication

Singapore offers world-class telecommunications infrastructure and has target to bring every citizen to the information highway. According to information released by the Infocomm Development Authority, in May 2009, Singapore is the country with the highest signal in the world, with household broadband penetration rate of 115.2%.

Tourism

Singapore has a stable growth in the tourism sector. Although there are fluctuations, in the sector, tourism in general is moving towards a positive trend. Tourism Growth was driven by the launch of two integrated resorts in 2010 and other attractions such as the Universal Studios Singapore. Events such as the Singapore F1 Night Race 2010 have attracted S $ 160 million in foreign tourism. By 2016, the number of foreign tourists visiting Singapore reached 16.403 million.

(in Thousand Singapore Dollar) Figure 44. Singapore Internasional Arrivals

Singapore and IORA

In general, the Singapore public is not so familiar with, IORA, especially when compared with ASEAN. IORA as a forum for cooperation in the Indian Ocean region is widely better known among government ranks / diplomats. One of the factors on the less priority of IORA in Singapore is the government's priority. Currently the priority of the Ministry of Trade and Industry of Singapore is cooperation on economic / trade and investment agreements that already exist (existing key framework) such as the optimization of the ASEAN Economic Community (AEC), including the successful negotiation Regional Comprehensive Economic Partnership (RCEP). On the other hand, the low recognition of the IORA among the Singaporean public is a problem

54 towards development of economic cooperation under IORA. Therefore, it will take great efforts from every member to raise awareness among the public to support IORA initiative. From field studies in Singapore, the general view is that the issue of the establishment of an IORA CEPA is considered too early but it is a positive idea that needs to continue to be raised at the agenda of each IORA meeting. This is because economic innovation and the establishment of economic groupings can encourage the development of a country although national interest if each member states differ. IORA need to set priority in raising awareness of the the organization in various circles. In the field of trade and investment, in particular, IORA require key continuous events,such as trade expo, in an effort to build awareness of the potential and products of member countries. In regards to status of some member states of IORA that has not become a WTO member, it can be an obstacle in the formation / negotiating a deal, particularly on the part of dispute settlement, thus it would be better if all countries are part of the same trade regimes so that there is a level of comfort. One proposal that emerged regarding the formation of the propose CEPA is to approach it gradually, this given the level of economic ability of IORA member countries are very diverse. IORA must have a strategy of phasing out the developing blocks that have potential towards establishing the CEPA for example the Asia-Pacific region in Phase 1, and the Middle East region in Phase 2, and the Africa region in Phase 3. This is done so that the progress of each phase can be best practices for developing the next region. The IORA CEPA should also have a distintinctive factor than other economic groupings because it need to attract the business community and offer priorities towards developing profit orientated cooperation. The development of an IORA integrated economic cooperation needs a 'leader', that is able and willing to provide the resources and assistance to develop various areas of cooperation. Some countries expected to take the leadership include: India, Indonesia, South Africa, and Australia [7]. In this case, the national interests of each country will be decisive consideration in making IORA a priority. Connectivity and distance, in terms of load factor,is a major obstacle for trade among IORA member countries. Therefore, ASEAN can be used as a lessons learned and best practices for IORA to establish trade agreements that are realistic.

A.iran Iran, with an area totaled 1,648,195 km, is located geographically in a very strategic position at the heart of “Middle-East–Asia Silk Road", connecting the "West" and "East" main trade line and linking 2 (two) water areas, the Persian Gulf and the Caspian Sea. Iran, surrounded and bordered by 15 neighbor countries, is acting as a natural hub for goods production and services as well as serving a vast regional market. With its strategic geographical position, Iran has been an economic hub for trade lines connecting Europe, Middle East and Asia regions since the two (2) BC. Demographics, Education and Labor Iran's population reached 79.9 million (2016) with a population growth rate of 1.24%, which is the largest population in the Middle East region and ranked 17th of world's population. Iran’s life expectancy average-rate 75.4 years. Most of the population lives in urban areas (74%) and rural areas(26%). Iran's population consists of several ethnic groups, namely Persian (the majority), the Azeri, Kurd, Lur, Baloch, Arabs, Turkmen and Turkic tribes, with

55 the majority being Muslims (official religion) - 94.4% (90-95% Shia, Sunni 5-10%) and the rest of other faiths including Zoroastrians, Jews and Christian. Active labor force reached of 25.8 million or 39.4% and the unemployment rate around 3.3 million or 12.4%. Most of the workforce is employed in three (3) major economic sectors, there are services (50%), industry (31.9%) and agriculture (18%). Population below the poverty line reached 8.1 million (2013) and the Gini index of 44.5 (2006) to 46 world order.

Figure 45. Iranian Demographic Pyramid:

 0-14 years : 23,65% (male

Iran's population has been generally educated, among others is reflected in the level of literacy in the age group of 15-24 years which reach the 98%. For primary education Iran is ranked at 11 of the world and for secondary education Iran was ranked at 33 of the world. There are currently approximately 4.3 million Iranian youth studying in higher education. Iran is still facing unemployment and underemployment problem. Limited job opportunities and increasing of educated young generation become a social and economic issues in Iran. Many educated young people seek work abroad and resulted in a "brain drain" in Iran. Finance and Banking Iran is ranked at number 18 in the world's strongest purchasing power countries (Purchasing Power Parity). The GDP Growth rate in Iran amounted to 0.9% (2015). The government's general revenue/income amounted to US $ 34 billion (2015) with a foreign debt of US$ 7571 million. Sources of government revenue mainly comes from taxes (38%) and oil (37%) and other revenue sources. The exchange rate of US$ against the Iranian currency (Rial) is 1: 32.422 Rial (March 2017), with inflation rate of 6.8% (March 2017). Cash transactions should be in Iran’s local currency, Rial. In general, Iran's banking system is well progressing and Iran is the biggest Islamic banking system in the world. Total consolidated assets of Iranian banks reached of US$ 511 billion (2015). Electronic banking systems and ATM cards are widely used by Iranian people. However, Iran still has a limited capacity in international banking transaction as an impact of the world economic santions against Iran. Furthermore, economic sanction against Iran in 2012 has also significantly reduced the government’s revenue and forced the government to cut spending and trigger currency depreciation.

The signing of the Joint Comprehensive Plan of Action (JCPOA) in 2015 has reopen Iran's access to global trade and expected to attract a lot of financial funds as well as foreign investment to Iran which will stimulate Iran’s economic growth.

Trade and Investment In term sof foreign trade, with a large population and quite strong purchasing power, Iran becomes both a potential exporter and potential importer as well. Iran's main products for export (excluding oil) are iron-ore, cement, carpet, fruits, dry food products and petrochemical products, while Iran imports mainly food products, goods electronic products, resource materials, industrial machinery and other high-tech products.

Iran has at least 20 major trading partners with total exports reaching US $42.429 million and imports US $41.539 (excluding oil - 2015). Iran’s largest trading partner is China (exports US $ 7.678; imports US $ 10.477), United Arab Emirates (exports US $ 7.237; imports US $ 7.765), Turkey (exports US $ 3.363; imports US $ 2.988) and India (exports US $ 2.688; imports US $ 2.296 ). In addition, Iran is also exporting to Iraq (US $ 6.225) and Afghanistan (US $ 2,566) - (data 2015 excluding oil).

In general, Iran's trade profile (including oil) as follows:

- EXPORT : o Total Value of Exports : USD 130.544 billion. o Number of products : 2452 o Total partners : 149

- IMPORT: o The total value of Imports : USD 68.319 billion. o Number of products : 3805 o Total partners : 123

Featured Products Export Value in (USD)

oils Petroleum 84,381,572.02

Propane, liquefied 1,958,292.74

Petroleum gases 1,891,183.57

Polyethylene 1,660,571.05

Methanol 1,317,982.65

Main Products Import Value (in USD)

Ingots, iron 2,843,711.55

Maize seed 1,290,246.15

rlld Flatprod 1,261,512.19

Semi-milled 975,359.00

Oil-cake 844,824.53

Produk Unggulan Ekspor Nilai dalam (USD)

Petroleum oils 84,381,572.02

Propane, liquefied 1,958,292.74

Petroleum gases 1,891,183.57

Polyethylene 1,660,571.05

Methanol 1,317,982.65

Global economic sanctions has made Iran be more economically independent and no longer rely on oil. Under economic trade sanctions, Iran’s total trade reached about USD 100 billion and by the lifting of economic sanctions, it is expected that the Iran’s total trade could reach about US$ 250 billion. Within IORA, India is the major trading partner and Iran’s trading volume with IORA countries is less than 20% of total Iranian trade. Regarding to the issue of the World Trade Organization (WTO) membership, Iran is not a WTO member country. However, Iran is one of the biggest economies out of the WTO. In terms of foreign trade negotiations, although Iran is not a member of the WTO, Iran continues to use the principles applied in the WTO. In this regards, Iran has a PTA with the Economic Cooperation Organization (ECO), which consists of ten (10) member countries in South and Central Asia regions and Iran has Trade Cooperation Agreement (TCA) with the European Union (EU). Nowadays, Iran is negotiating PTA with various countries, including Indonesia. At the same time, Iran is also seeking to become member of the WTO and expecting support from WTO member countries, including Indonesia. Iran’s Global Innovation Index

In the year 2016, Iran has improved significantly in the Global Innovation Index (GII), ranking 78th out of 128 countries, compared to a rank of 106 out of 141 in 2015.

In the year 2017, Iran, with a score of 32.09 out of 100, ranks 75th among 127 countries listed in the World Intellectual Property Organization’s latest Global Innovation Index report published on the WIPO website. In a section on Regional innovation leaders, Iran was placed second after India in the Central and Southern Asia region.

Tabel 8 . Global innovation index 2017

Country/ Score Rank Income Rank Region Rank

Economy (0–100)

Peru 32.90 70 UM 19 LCN 8

Brunei 32.89 71 HI 46 SEAO 12 Darussalam

Morocco 32.72 72 LM 7 NAWA 11

Philippines 32.48 73 LM 8 SEAO 13

Tunisia 32.30 74 LM 9 NAWA 12

Iran, Islamic 32.09 75 UM 20 CSA 2 Rep

Argentina 32.00 76 UM 20 LCN 9

Oman 31.83 77 HI 47 NAWA 13

Note: World Bank Income Group Classification (July 2016):

LI = low income; LM = lower-middle income; UM = upper-middle income; and HI = high income. Regions are based on the United Nations Classification: EUR = Europe;

NAC = Northern America; LCN = Latin America and the Caribbean; CSA = Central and Southern Asia; SEAO = South East Asia, East Asia, and Oceania; NAWA = Northern Africa and Western Asia; SSF = Sub-Saharan Africa.

Global Innovation Index 2017 rankings Iran’s Competitiveness Index

Tabel 9 . Iran’s Competitiveness Index 2017

Iran Business Last Previous Highest Lowest Unit

Industrial 11.30 12.80 102.82 -61.29 percent Production

Internet 4703.97 4135.53 4703.97 462.38 KBps Speed

IP Addresses 6878918.00 7179821.00 7634376.00 175430.00 IP

Steel Thousand 1980.00 2230.00 2230.00 166.00 Production Tonnes

Ease of Doing 124.00 120.00 152.00 117.00 Business

Corruption 29.00 27.00 30.00 18.00 Points Index

(Source : Trading Economic)

Iran moves up seven ranks in the World Economic Forum (WEF) report in its global competitiveness among 137 nations, to jump from 76 in 2016 to 69 in 2017.

Among the thirteen countries of the Middle East and North African region, Iran ranks eighth. The details of the report indicate that the country is doing well in some pillars of competitiveness, such as its market size (rand 19) and its macroeconomic framework (rank 44); but, it needs to make improvements in other areas, such as its labor market performance (rank 130) and financial markets (rank 128).

Iran's rank improvement on this index could be attributed to the JCPOA nuclear agreement, which has created hope for a clear future in economic exchanges and cooperation between Iran and western countries.

Comparing Iran's global competitiveness ranking for this year with the previous five years shows that it has had a significant leap forward both in terms of numbers and scope and is now in a better position. The World Economic Forum report gives countries between 1 and 7 points in its competitiveness report. Iran received a score of 4.27 this year, the highest since 2010.

The WEF assesses a country’s competitiveness by its ability to provide prosperity for its citizens and the economic well-being of the country. This in turn improves with the economic investments made in the country. (Source : Persia Digest)

Iran’s Ease of doing business index

Iran is ranked 124 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Iran deteriorated to 124 in 2017 from 120 in 2016. Ease of Doing Business in Iran averaged 134.70 from 2008 until 2017, reaching an all time high of 152 in 2012 and a record low of 117 in 2015.

Actual Previous Highest Lowest Dates Unit Frequency (2017) (2016) (2012) (2015) 124.00 120.00 152.00 117.00 2008 - 2017 Yearly

Tabel 10. Iran’s trend in Ease of Doing Business Iran and IORA

IORA is not yet well known among the people of Iran. It is only few of certain circles of Iranian people are aware of IORA, such as relevant government officials, academics and observers of international relations. Iran sees IORA as an important and strategic association of countries in the Indian Ocean region, both from the economic and political and security point of views. Iran's commitment to IORA cooperation is quite strong, even one of IORA’s cooperation center is located in Tehran, namely the IORA Regional Center for Science and Technology Transfer (RCSTT). As a focal point of IORA’s science and technology cooperation, Iran is very active in developing and strengthening cooperation, not only among IORA’s member countries, but also with dialog partners, such as with Germany and French, in renewable energy and the automotive sector. Iran underlines the tangible benefits for IORA’s economic cooperation, particularly for the people of the member countries. Therefore, Iran stressed more in realistic approach for economic cooperation, such as trade facilitation, based on the six priority areas of IORA cooperation.

In the view of political and security aspect, Iran sees geo-political issue among countries in the region could be an obstacle towards strengthening economic cooperation under IORA. Therefore, IORA is very strategic in the efforts to maintain the security and stability in the region, which is expected to promote cooperation in the region and beyond. Iran and IORA - CEPA: Regarding to the issue of establishing IORA-CEPA, most of relevant stakeholders in Iran are of the views that the IORA-CEPA is still in the far future of IORA cooperation. Beside there are not yet a single trading arrangement among member states of IORA, such as a PTA, complicated long negotiation process toward the establishment of IORA CEPA is a major concern. Iran sees that IORA member countries are not ready for economic cooperation in the form of CEPA. Considering vast disparities on economic development among IORA’s member countries, IORA needs to focus on more realistic approach as basic foundation in strengthening IORA’s economic cooperation, before moving further into CEPA. Therefore, Iran underlines on a more concrete targets in strengthening IORA’s economic cooperation, through a gradual mechanism, such as trade facilitation. Trade facilitation could include cooperation on eliminating tariffs and non tariff barriers, cooperation in banking, transportation as well as custom procedures. In the context of IORA’s economic integration process, it can start with sectoral cooperation. IORA can obtain lessons learned from the European Union economic integration. In this context, IORA can start economic integration process with PTA through gradual mechanism, where member countries that are ready can join at the first stage. Iran’s challenges towards establishing PTA/FTA/CEPA include:

 Iranian economy is still inward-looking, in particular for non-oil and the gas sector;  The State/Government’s role in the Iranian economy is still dominant and strong. It is estimated that government shares 85% of total Iran’s GDP;  The role of private sector is weak due to tight regulations. The share of private sector to Iran's economy is only 15% of GDP;  There is no internal consensus making. Not all relevant government sectors/ministries agree with trade liberalization;  Rigid export-import rules of business, such as red tapes and government intervention;  Banking issues, such as foreign funding/financial transfers.

A.United Arab Emirates

The United Arab Emirates (UAE) was formed on the 2 December 1971; it was established as a federation of seven emirates making up the government. The Federal Supreme Council is the highest legislative and executive institutions in the country.

One Emir is elected President of the UAE. The seven Emir’s are Abu Dhabi, Ajman, Dubai, Fujairah, Rasal-Khaimah, Sharjah and Ummal-Quwain. Abu Dhabi is the state capital and with Dubai are the two commercial and cultural center, of the UAE. The official religion of the state is Islam and its official language is Arabic. In general, people of UAE are not so familiar or have even heard of IORA. The organization is rarely under media coverage in the country. The UAE society is more familiar with the GCC(Gulf Cooperation Council),which is almost present daily in the local media.

IORA as a forum for cooperation between the countries in the Indian Ocean region is generally known in the ranks of government, particularly at the Government Center in Abu Dhabi, but in the ranks of the government particularly in of the Government of Dubai knowledge of IORA is not too deep.

UAE Economies UAE is a fairly reasonably stable country in the midst of a region that is often experiencing upheaval, not only has it proven resilient when facing conflict but also it has proven to be stable against the fall in oil prices, its main commodity. The GDP of the UAE economy is dominated by activity in the Abu Dhabi area one of the commercial centers. It is expected that economic growth will increase by 2.5% in 2017. The population in UAE in 2016 was approximately 9.4 million people, which is dominated by expatriates which is approximately 80% of the population. There is also an imbalance between the number of men and women in the country. By that number most of the expatriates are from India (about 2.6 million people), followed by Pakistan (1.2 million people). [3] While the median age in UAE increased, and in 2016 was estimated at the age of 33.3 years, higher than the average in the region.

The UAE has a flexible economy, meaning that it is not dependent on oil like some other middle east economies. If prices for oil decrease UAE can rely on its banking sector and increasing tourism sector to help the economy. In this regard the economy of UAE is quite diverse and not dependent on one sector such as oil which accounted for only 30% of the overall GDP. This is due to many restructuring efforts in various sectors such investment and tourism.

UAE has succeeded in improving its global rankings on Ease of Doing Business in 2017 to rank 26. The country’s efforts in reforming the business sector has surpassed all of the other countries in the Middle East and North Africa region. Tabel 11 . UAE Ease of Doing Business

Starting a Business

Time (days) 8

Procedures (number) 4

Dealing with Construction Permits

Time (days) 49

Procedures (number) 11

Getting Electricity

Time (days) 28

Cost (% of income per capita) 24.7

Tax Rate

Total tax rate (% profit) 15.9

UAE is highly dependent on exports, in 2016 exports dominated as much as 72.7% of its GDP, and this is widely due to the fact that the UAE is a re-export hub for the countries in the region. Asia is an important market for the UAE, Japan and India are both primary exports market for UAE, in 2016 the two countries accounted for 33.95% of UAE exports abroad.

UAE has a fragmented banking sector. There are 46 domestic and foreign banks operating (21 domestic banks and 25 foreign banks) in the country. The banking sector from Abu Dhabi and Dubai control around 90% of total domestic assets in the UAE. Although the banking sector can be said to be inclusive, foreign banks have become increasingly active in the UAE economy in recent years. In this regard, prior to 2003, market access for foreign banks can be said to be limited because it can not open more than eight branches, after 2003, foreign banks were allowed to open more than eight branches with special permit from the governments. UAE has the Dubai International Financial Corporation (DIFC), which is a district and major global financial hub for the middle east. With the DIFC, UAE offers one of Dubai’s independent free-zones, which means it offers companies 100% ownership without the need for a local partner. There are no restrictions on the repatriation of capital and 0% tax, as well as 100% ownership of foreign banks.

Tourism is one of the main economic activities in the UAE, the total contribution of the tourism sector in the UAE's GDP in 2016 amounted to 12.1% or USD 43.3 billion. Through the tourism sector, the flow of investment into the UAE is ever increasing. In 2016, 7.1% (USD 7.1 billion) of the total investment coming in is the tourism sector.

UAE strategic location makes this country into a hub as well as a regional market. Its location is very promising because through the UAE connectivity to middle eastern countries is easliy accommodated. The existing infrastructure has also been developed and is one of the best in the region.

In the UAE, it is prohibited to import irradiated food, while the import of alcohol, tobacco and pork are governed by a strict quota system. All products based on beef or poultry must be accompanied by a health certificate from the country of origin. As a member of the Gulf Cooperation Council, the UAE is under the Unified Economic Agreement which is an agreement where all agricultural products, animals and natural resources should be exempt

63 from customs duty or other tax among the member countries. GCC is also currently in talks with the European Union, Japan and the United States on a free trade agreement in the future.

With the adoption of the general rate for the GCC countries, customs clearance in the UAE is set at 5% of the CIF value of most products. However, non-alcoholic products are subject to import duties of 50% and tobacco products 100% customs duty.

Energy UAE has crude oil reserves of about 97 billion barrels which is largely held in Abu Dhabi. In 2016, UAE has been producing oil at 158 billion tons per year.

Strategic value of the Indian Ocean and IORA As a country that prioritizes in business, economics and trade, UAE has a great interest towards the Indian Ocean. However, the UAE has not benefited much from IORA. UAE Department official sees IORA as a organization still in its early stages of development.

IORA formation CEPA Dubai welcomes the potential for economic cooperation in various forms both FTA with Indonesia and IORA-CEPA. Dubai as a hub would be better off with the ease of movement of goods and people, good connectivity, access to a wider market for being a hub. cross- regional trade

Some of the views of government officials, private sector, on the idea of the establishment of IORA CEPA:  The IORA CEPA discourse or cooperation should bring concrete benefits, such as increased ease of doing business, market access, transparency in investment projects, the protection of Intellectual Property Rights (IPR) among others.  In interviews and discussions, the business sector considers addressing members of IORA that are not yet members of the WTO. There should be a mechanism of standard rules that apply to all member states, resulting in a fair play that allows any company of a Member State IORA to develop or expand its business.  In some discussions, we could not find any concern or challenges on the complexity of multiple economic integration and cooperation in the Indian Ocean region. The UAE has mentioned that at this this time the GCC has already a cooperation framework in talks, it is expected that IORA CEPA can bring benefits such as the GCC in terms of ease of doing business and the reduction of tariffs. For the business sector, the question about the benefits of participating in a framework of economic cooperation is a key issue.  The Formation of IORA CEPA will yield a variety of benefits, but will also bring challenges that need to be studied further, among others, the need for effective regulations, the different length of investment approval process in IORA member countries and the ease of doing business in every member country.  Further there is a need to identify each challenge in each country such as economic growth, and infrastructure development as matters related to tariff and non- tariffbarriers.

A. Mozambique

Mozambique is one of the countries in Africa with fluctuating economic power. At the time of independence in 1975, Mozambique is one of the poorest countries in the world. This situation was exacerbated by the civil war that hit the country in 1977-1992. In 1987, Mozambique began a macroeconomic reform to further stabilize their economies. Political stability after the elections in 1994 and international donors are also an important factor in the effort to stabilize the country. Fiscal reforms such as the implementation of value addition tax and customs service reforms, contribute to increase government revenue. Nonetheless, more than half of Mozambique's population is still below the poverty line. Workers in the public sphere are not paid a fair wage. Economic growth in Mozambique grew in the range of 6% - 8% in 2015, and make Mozambique as one of the African countries with the best economic growth. However, in 2016 economic growth slowed to 3.5% due to declining export revenues. In the future, Mozambique's economy is expected to increase. Based on the analysis of the Italian oil and gas company, ENI, Mozambique saves gas reserves at 85 trillion FT³ in the Rovuma Basin. Meanwhile, the Government has also discovered new mines in Tete province that holds 18 billion tons of coal. Both of these are expected to be able to boost economic growth in Mozambique. Revenue from natural gas alone is expected to increase Mozambique’s finance to USD 39 billion in 2035.

Figure 46. Gas reserves in MozambiqueTrade

Mozambique has trade with some countries. In the table below, it appears that Mozambique trade more with its traditional partners. There are several factors that make these countries became major trading partners of Mozambique, one of which is the connectivity factor.

Tabel 12. Trade Between Mozambique and Partners

Figure 47 . Mozambique Principle Export Destination and Imports Origin (Avg. 2011-2015)

In terms of international trade, connectivity of sea becomes the most important thing. Mozambique’s position located on the East Coast of Africa, the four ports in Mozambique (Maputo, Beira, Nacala, and Pembra) have a central role to be the entry point for the southern African region and even the central part of Africa. These ports are also important part of the SADC transport corridors to connect areas of Hinterland.

The existence of India, the United Arab Emirates, Japan and China on the list above, is due to the presence of these countries that are already highly active in the trade traffic. Traditionally, these countries are also trade partners with other countries in the Indian Ocean region. Mozambique’s strategic positioning and connectivity, are made use by these countries, either as an end or entry point.

Figure 48 . Ports in Mozambique and Their Central Role as Entry Point to the Hinterland

Connectivity has a central role in terms of trade in the Indian Ocean Region. As discussed in the previous chapter, the Indian Ocean is an area which has many important trade lanes; 80 percent of the world oil trade ship through the Indian Ocean. Ports in Mozambique, contribute to the important role of the Indian Ocean as one of the world's major trade lanes. Cultural, historical, and complementarity commodities factors are also important to be taken into account. Mozambique mining major commodities are aluminum, coal, natural gas, and minerals. While for the agriculture sectors, Mozambique’s main commodities are sugar, cotton, cashew nuts, and sesame seeds.

Complementarity commodity becomes crucial when seen from Mozambique’s trading activities. Mozambique is more active to trade raw materials with its trade partners. For example, on table below, it appears that the Netherlands and the UK are the main partners trade from Mozambique for aluminum, China and India are the main trade partners for coal, while South Africa is a major importer of natural gas from Mozambique. On the plantation products, Portugal became the main importer of sugar products, and Indonesia is a major importer of cotton products from Mozambique. This indicates that the complementarity and connectivity factor play an important role in determining trade partners for international trade undertaken by Mozambique.

Trade relation between Mozambique with these countries is also reflected in the trade complementarity index (TCI). 8 of the 10 countries with the largest trade with Mozambique have a TCI above 0.4. Mozambique’s complementarity index with countries located in Europe (Portugal, the Netherlands, and the UK) and the United States, has been relatively high, it is becoming a fact supporters of the large trade value between Mozambique with these countries, although it is unlikely if seen from the geographical standpoint.

Tabel 13. Trade Complementarity Index

Investment Mozambique government is currently seeking to increase their investment, especially for industrial value-added commodity raw materials. Agriculture and fisheries sector is a mainstay they are still limited in its capacity to export raw materials. Currently, the agricultural sector is still the primary sector contributed to 25.3% of Mozambique's GDP. Agriculture sector is the most important sectors as it is providing employment to 80%. Through investment, Mozambique wants to develop its industries as well as for the development of infrastructure, such as roads, ports and electricity generation sources. In particular, Mozambique also focus on the promotion of investment in tourism and fisheries. Both of these sectors are considered to have great potential to be developed. Tourism in 2015 accounted for only 2.8% of total GDP, while the fisheries sector contributes up to 7%. Fish processing industry in Mozambique is a priority to be developed in an investment scheme offered by the Government of Mozambique.

Mozambique GDP growth recorded an increase in the period 2009-2014 (until 6.6%), but a decline in GDP growth dramatically and reached its lowest point in 2016 (3.6%), this can be understood as a result of the economic slowdown that were also swept many countries in the world. In Figure.6 below, it is shown that the economic growth decline in Mozambique is lower than the average of low-income countries. Nevertheless, Mozambique is predicted to experience growth in the next three years. Although it has not emerged as a major economic power in Africa, Mozambique has the opportunity to achieve it.

However, as already mentioned in the above explanation, Mozambique has the opportunity to grow into an economic power in Africa. Mozambique’seconomic improvement relies on investment and industrialization, hence it is crucial to create healthy business climate. Mozambique faces challenges to create healthier business climate; challenges are mainly lie on inconsistent policy implementation and law enforcement. Mozambique is expected to gain results if these challenges can be addressed and reflected in the society. Mozambique’s relations with neighboring countries are also a major factor in economic growth South Africa is still a key supplier for products and commodities circulating in

68 southern Africa. For Mozambique, 50% of its consumer goods are imported from South Africa. Mozambique is also the main entry point for Hinterland areas such as Zimbabwe and Zambia, or even the east coast such as Tanzania. Mozambique has leveraged its strategic position and adequate port as one of the leading sector for economic growth.

Figure 49. Mozambique Economic Growth and Prospects.

Prospect IORA-CEPA Among the public and the media in Mozambique, IORA is still considered an unpopular organization. Mozambique needs to do public engagement and public awareness campaigns that aggressively accommodate the participation of related economic sectors to support of a cooperation within the framework of IORA, including IORA-CEPA. In this case, Mozambique needs to approach and conduct intensive dissemination of information to the private sector, academia, and society in general. For example, the Indian Ocean Rim Business Forum (IORBF) is also considered not entirely used optimally to improve relations between business people in the Indian Ocean region. Matchmaking and exhibition of business model are considered better suited to increase engagement and awareness of businesses towards the cooperation within the framework of IORA, including the notion to initiate IORA-CEPA.

To increase community involvement in IORA framework, projects initiated in IORA should be result-oriented so that its own society in general benefit from IORA. Financial problems can be overcome by a triangular cooperation with dialogue partners, considering these dialogue partners have strong financial support, which had not been optimally exercised.

The Government of Mozambique welcomes the initiative of the establishment of economic cooperation within the framework of IORA. But it was further learned that Mozambique and other IORA member states have their own priorities and capacities. There is a need of an effort to harmonize and align the interests among member states before planning economic cooperation more broadly. For stakeholders in Mozambique, the initiation of economic cooperation IORA needs to include agendas such as customs and trade facilitation,

69 investment, environment, cooperation and capacity building, development, regulatory coherence, transparency and anti-corruption, SMEs, and dispute settlement. As an initial step, the cooperation that can be done is by establishing a Preferential Trade Agreement (PTA). Cooperation in the form of PTA can be developed into more advanced forms, including CEPA, if the PTA has been considered a success. Stakeholders in Mozambique also mentioned that priorities currently aimed more at sub- regional cooperation, namely the Southern African Development Community (SADC), which until now was considered not able to avail the facility of Free Trade Agreement (FTA) optimally. This wil set particular kind of challenge for Mozambique, if they want to be involved in economic cooperation in a broader context.

Stakeholders in Mozambique are also taking within the framework of sectoral economic cooperation. Related to this, the blue economy sector cooperation can be done as a first step, especially because IORA member countries own common understanding to this sector. In addition, there are some priorities in line with the IORA six priority areas, such as fisheries management, disaster risk management, tourism and culture, and gender empowerment, all of which can be covered in blue economy sectors.

Cooperation within the framework of IORA is also expected to encourage the flow of foreign investment into Mozambique. The government of Mozambique is currently doing intensive efforts to promote investment. This is done because the ability of Mozambique industry is still limited to the export of raw materials. Several attempts have been made by the Government of Mozambique to increase investment, including the establishment of Special Economic Zone, providing tax incentives and legal guarantees. However, business people of Mozambique said that there are still many challenges as follow: extremely dominant Government, less conducive legal system, complicated and inconsistent procedure, rampant corruption, and a lack of government commitment to build an adequate infrastructure.

Related to Mozambique’s readiness to engage in IORA economic cooperation, Mozambique's performance in a variety of indicators such as trade complementarity index (highest in Indonesia and Bangladesh: 0.26), Ease of doing business (137), the Global competitiveness index (133), and Global Innovation index (107) shows relatively below average results. In response, the Government of Mozambique argued that the ranking does not describe the state of their business as a whole. There are some aspects of Mozambique advantages that were not taken into account in these indicators. The Government of Mozambique continues to strive to conduct business reforms, including to build infrastructure and reduce corruption.

A. MAURITIUS

Mauritius is a country in the Indian Ocean region with an area of 2,040 square kilometers with category of Upper Middle Income. Geographically, the country is included in the sub- Saharan region of Africa.

Since independence in 1968, Mauritius has developed from an agricultural-based economy to become a low-income economy with moderate revenue growth driver with diverse sectors such as industry, finance and tourism.

National Accounts Gross Domestic Product (Purchasing Power Parity) Mauritius 2016 showed an increasing trend compared to the previous year from USD 11.51 billion to USD 11.95 billion. The upward trend in GDP is expected to continue in 2017 and 2018. Meanwhile, economic growth has also increased from 3.5% in 2015 to 3.6% in 2016. In 2017 and 2018 the economy is expected to grow respectively by 3 , 9% and 4.0%. Mauritius per capita income of $ 9424 (2016) of USD 9,115 (2015). The trend is expected to increase.

The service sector became the largest employment providers, namely 67.1%, followed by industry (25.4%) and agriculture (7.5%). Service Sector also provides value added (value added), the largest for the economy, amounting to 74.8%.

Population As of July 1, 2017, the population of Mauritius amounted to 1,264,887, with a growth rate of 0.1% when compared to the same period the previous year. Population distribution is located in the Island of Mauritius (1,221,975 inhabitants), Island of Rodrigues (42 638 inhabitants), and Agalega and St. Brandon (274 inhabitants). Of the population of Mauritius, 604 780 were men and 617 195 women, or sex ratio of 98%. Meanwhile, the population density is only 630 people per square kilometer.

Mauritius has a very large productive age when compared to non-productive age. In 2016, out of 1,263,473 inhabitants, 896 987 inhabitants are of productive age and life 366 486 non- productive age.

Figure 50 . Mauritius Population Composition

Labor Mauritius has a workforce of 581,000 people (2016) with the number of workers unemployed amounted to 538 600 inhabitants and 42 400 inhabitants, or the unemployment rate at 7.3%, which represents a decrease of 0.6% compared with the same period the previous year.

The tertiary sector absorbs most of the labor. Of every 100 workers, 67 are employed in the tertiary sector (including trade, accommodation services and food, transport and storage and all other service industries), 26 were employed in the secondary sector (including manufacturing, electricity, gas, supply of air conditioning and clean water, waste management and construction), and 7 are employed in the primary sector (including agriculture, forestry, fishing, mining and quarrying).

Trading Mauritius has economic and trade policies that are very open, with the trade-to-GDP ratio of almost 110% (2015). This country is a member of the WTO, as well as a number of other regional economic groups.

Mauritius's trade volume is greater with countries that have trade agreement cooperation compared to countries that do not have a trade agreement. Among the IORA countries, India is the largest source of imports. Meanwhile outside IORA, China is the largest trading partner. The Government of Mauritius has a policy of turning the country into an open economy and able to compete globally and integrate fully into the world trade system through its trade policy. The customs are very low and Mauritius has no trade barriers. Most tariffs for imports in Mauritius have been liberalized. Thus, the proposed cooperation with the IORA country is more focused on non-tariff. 95% of goods imported by Mauritius have been exempted from import duties. Mauritius imports many food and dairy products. Mauritius's import value is higher than the export value. This has an impact on the trade deficit. Based on the latest data, the amount of trade deficit reached more than USD 2 billion in 2016. Mauritius's major trading partners are the European Union (especially France and Britain), China, India, South Africa and the United States. Mauritius exports clothing, textiles, sugar, cut flowers, fish, and radio transmission equipment. Sugar cane occupies 90% of agricultural land and represents 15% of Mauritius exports. Service exports continue to increase. As far as the service sector is concerned, the country has a positive trade balance. Mauritius imports petroleum products, fish, cars, medicines and radio transmission equipment. Mauritius has products that are prohibited to be exported in accordance with Consumer Protection Regulations 2017: Rice, Wheat or Meslin Flour, Sand, Limestone, Cement, textile and textile articles for export to the United States and Canada and rough diamonds. Meanwhile, the negative list for imports includes rice, gold, oil derived from bituminous minerals crude, and fireworks and the like.

Foreign Trade Indicators 2012 2013 2014 2015 2016

Imports of Goods (million USD) 5,354 5,397 5,610 4,792 4,654

Exports of Goods (million USD) 2,649 2,869 2,650 2,457 2,361

Imports of Services (million USD) 2,382 2,143 2,426 2,176 2,068

Exports of Services (million USD) 3,364 2,734 3,119 2,654 2,867

Imports of Goods and Services (Annual % Change) 1 -1 8 6 n/a

Exports of Goods and Services (Annual % Change) 4 -6 11 -0 n/a

Trade Balance (million USD) -2,456 -2,270 -2,260 -1,862 n/a

Foreign Trade (in % of GDP) 120 110 113 108 n/a

Imports of Goods and Services (in % of GDP) 66 62 62 59 n/a

Exports of Goods and Services (in % of GDP) 54 48 51 49 n/a

Tabel 14. Mauritius Foreign Trade Indicators

Mauritius Trade with IORA Country With IORA countries, Mauritius has a high export volume with Madagascar, South Africa and the United Arab Emirates. Meanwhile, imports mostly come from India and South Africa. As an exporter, Mauritius has a very low trade complementarity index with all IORA Countries. Meanwhile as importer, the highest trade complimity with India. Technical barriers to trade need to get attention, which consists of: connectivity, low complementarity, logistics, complex rule of origin, and SPS. Responding to these obstacles, each IORA country is considered necessary to perform specifications based on a politically acceptable competitive advantage. In addition, there needs to be leadership, and make IORA member states think alike and make IORA member states think alike.

Tabel 15. Mauritius Exports to IORA Countries, 2007-2016 (in Thousand Dollars)

No Country 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 %IORA 2016

1 Australia 4,359.215 7,090.750 5,369.563 7,371.099 8,564.967 8,596.497 9,008.046 10,269.188 15,027.903 16,459.802 2.83

2 Bangladesh 1,952.577 1,754.552 2,146.532 2,404.284 3,462.707 5,709.124 13,795.806 13,819.790 14,384.572 11,957.764 2.06

3 Comoros 5,498.527 5,956.897 3,249.253 2,405.014 3,968.956 5,386.374 4,587.663 5,247.531 5,543.826 4,100.449 0.71

4 India 10,618.786 16,843.442 10,328.587 16,916.644 16,050.951 18,345.326 17,632.663 16,604.378 21,332.289 15,943.291 2.74

5 Indonesia 1,763.974 335.812 1,223.831 3,886.623 4,614.538 1,452.128 1,435.243 1,379.362 1,119.258 897.228 0.15

6 Iran 36.566 65.561 8.584 18.484 382.068 764.148 1,057.698 412.982 721.968 388.558 0.07

7 Kenya 7,676.274 8,622.956 6,971.092 12,219.589 9,756.533 9,123.207 9,955.911 5,308.582 22,192.110 36,978.686 6.36

8 Madagascar 123,995.869 123,387.537 112,773.670 101,050.645 140,036.984 155,652.921 146,696.461 173,560.728 161,457.376 160,822.346 27.67

9 Malaysia 7,208.427 5,798.677 6,221.035 8,549.875 7,050.019 3,400.156 5,143.605 5,445.292 4,191.946 4,697.314 0.81

10 Mozambique 525.200 1,803.401 2,544.450 1,502.799 1,298.064 788.604 2,425.945 1,218.599 1,211.465 2,228.189 0.38

11 Oman 297.198 463.113 691.984 2,531.362 593.272 550.339 2,044.689 2,406.047 2,762.086 871.642 0.15

12 Seychelles 18,581.590 26,999.104 28,948.666 20,283.923 30,287.051 29,713.411 30,589.492 28,268.410 27,150.783 27,803.736 4.78

13 Singapore 9,000.970 8,553.104 10,145.783 13,637.515 14,941.971 17,868.213 21,559.035 25,749.070 33,219.534 32,204.816 5.54

14 Somalia ...... 65.294 0.01

15 South Africa 64,444.605 75,535.843 80,257.146 83,742.668 174,110.977 220,797.939 196,735.665 188,416.614 214,302.696 178,851.791 30.78

16 Sri Lanka 366.122 2,838.686 1,561.989 1,793.202 2,102.309 1,103.165 1,314.519 947.789 845.166 1,436.475 0.25

17 Tanzania 856.597 1,813.740 1,154.331 2,627.478 2,487.957 7,573.157 4,165.803 1,960.446 6,163.963 4,161.305 0.72

18 Thailand 7,288.677 14,776.156 7,059.325 14,955.005 5,974.943 6,737.571 11,535.225 12,498.038 12,481.017 17,907.994 3.08

19 UAE 78,681.722 63,893.776 5,777.301 14,525.094 11,309.215 14,813.903 33,396.434 285,915.273 306,766.981 63,334.226 10.90

20 Yemen .. 8.345 ......

TOTAL 343,152.896 366,541.452 286,433.122 310,421.303 436,993.482 508,376.183 513,079.903 779,428.119 850,874.939 581,110.906 100.00

WORLD 2,228,669.209 2,401,466.187 1,765,792.104 2,261,495.000 2,565,000.000 2,649,115.000 2,868,763.000 3,093,875.000 2,481,092.724 2,193,836.161 26.49

Source: UNCTAD processed by BPPK

Tabel 16. Mauritius Imports from IORA Countries, 2007-2016 (in Thousand Dollars)

%IORA 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 No Country 2016

1 Australia 88,671.564 112,661.398 105,299.408 138,141.640 134,386.512 129,319.372 142,899.253 142,316.096 115,198.707 91,182.474 5.05

2 Bangladesh 480.164 1,955.729 1,371.096 2,080.653 3,134.536 4,442.503 4,936.799 5,845.564 3,624.488 5,131.153 0.28

3 Comoros 24.050 24.397 6.707 27.340 20.863 1,105.594 1,992.804 405.754 1,847.244 3,001.496 0.17

4 India 825,945.495 1,116,639.414 703,225.544 983,630.439 1,207,848.014 1,301,552.329 1,299,895.065 1,212,289.206 808,371.749 767,959.237 42.49

5 Indonesia 91,155.676 108,423.060 94,121.594 97,421.048 103,338.691 100,537.146 90,996.689 81,262.426 67,137.558 75,986.583 4.20

6 Iran 2,864.845 4,399.139 23,378.194 8,965.392 6,746.886 650.122 443.084 331.412 439.354 236.391 0.01

7 Kenya 12,938.489 36,573.816 34,317.714 43,120.446 45,069.217 55,753.468 44,813.637 41,334.705 34,984.121 35,309.984 1.95

8 Madagascar 17,819.382 23,140.808 17,088.994 18,466.534 15,722.089 22,423.746 24,482.597 37,763.805 41,960.574 51,841.778 2.87

9 Malaysia 101,263.117 120,541.216 107,543.853 112,986.300 115,878.077 152,625.441 127,155.251 102,859.641 83,185.928 93,513.245 5.17

10 Mozambique 3,258.022 6,681.305 8,457.375 4,069.552 25,503.068 28,289.021 18,475.828 12,054.329 17,074.520 13,877.650 0.77

11 Oman 1,088.240 1,872.621 2,052.148 2,885.282 1,903.101 2,376.345 2,049.614 5,590.663 6,223.121 7,036.796 0.39

12 Seychelles 37,194.342 20,283.935 4,532.370 13,909.602 6,138.771 15,951.518 48,803.473 36,974.315 47,100.317 72,354.492 4.00

13 Singapore 42,943.327 38,693.774 31,278.200 33,956.332 35,681.874 38,262.895 34,643.414 62,592.911 27,374.245 39,023.027 2.16

14 Somalia 88.897 48.360 .. 0.093 0.188 ...... 2.781 0.00

15 South Africa 286,782.381 377,174.921 321,808.618 370,539.206 365,234.830 377,908.892 333,322.385 369,833.215 288,036.985 348,506.807 19.28

16 Sri Lanka 2,528.610 2,237.314 2,228.932 3,962.061 3,893.777 4,031.041 3,189.281 4,734.846 2,497.728 2,628.565 0.15

17 Tanzania 1,366.496 4,542.377 988.830 3,501.441 3,024.431 7,875.641 12,922.522 12,053.480 18,291.582 20,155.186 1.12

18 Thailand 69,169.807 110,011.935 98,307.267 101,323.188 111,018.495 115,241.439 112,252.126 120,812.877 92,309.857 93,155.081 5.15

19 UAE 47,737.283 20,282.611 25,310.837 37,873.808 69,363.266 100,985.808 97,024.149 104,946.125 68,896.570 86,312.304 4.78

20 Yemen 351.195 821.287 435.561 127.897 142.267 15.760 29.202 158.496 184.087 .. …

TOTAL 1,633,671.382 2,107,009.417 1,581,753.242 1,976,988.254 2,254,048.953 2,459,348.081 2,400,327.173 2,354,159.866 1,724,738.735 1,807,215.030 100.00

WORLD 3,900,897.165 4,669,746.933 3,725,099.048 4,402,331.731 5,158,618.169 5,772,006.384 5,395,450.448 5,607,223.157 4,458,341.504 4,654,906.199 38.82

Source: UNCTAD processed by BPPK

Tabel 17. Trade complementarity Mauritius with Indian Ocean Rim Association Members (2013)

IMPORTER

EXPORTER AU BD KM IN ID IR KE MG MY MU MZ OM SC SG SO SA SL TZ TH AE YE

Australia (AU) - 0.22 0.19 0.33 0.26 0.21 0.21 0.18 0.27 0.23 0.20 0.24 0.17 0.22 0.12 0.29 0.24 0.18 0.30 0.28 -

Bangladesh (BD) 0.10 - 0.08 0.07 0.09 0.08 0.10 0.12 0.08 0.11 0.08 0.07 0.08 0.06 0.07 0.10 0.10 0.08 0.08 0.11 -

Comoros (KM) 0.06 0.06 - 0.08 0.05 0.06 0.05 0.05 0.06 0.06 0.04 0.05 0.13 0.04 0.03 0.08 0.06 0.07 0.08 0.09 -

India (IN) 0.46 0.45 0.32 - 0.55 0.44 0.58 0.57 0.47 0.59 0.53 0.53 0.49 0.49 0.26 0.46 0.51 0.56 0.37 0.54 -

Indonesia (ID) 0.40 0.30 0.24 0.36 - 0.34 0.37 0.31 0.36 0.32 0.28 0.29 0.24 0.31 0.23 0.40 0.38 0.29 0.37 0.34 -

Iran (IR) 0.22 0.17 0.09 0.50 0.26 - 0.20 0.13 0.19 0.12 0.13 0.18 0.09 0.22 0.06 0.30 0.23 0.13 0.30 0.17 -

Kenya (KE) 0.33 0.28 0.31 0.21 0.27 0.29 - 0.34 0.29 0.35 0.32 0.29 0.32 0.22 0.26 0.33 0.33 0.31 0.27 0.34 -

Madagascar (MG) 0.14 0.14 0.12 0.11 0.13 0.12 0.12 - 0.13 0.15 0.10 0.11 0.11 0.11 0.10 0.14 0.15 0.11 0.11 0.17 -

Malaysia (MY) 0.50 0.36 0.27 0.37 0.48 0.36 0.43 0.35 - 0.40 0.38 0.40 0.33 0.64 0.22 0.46 0.43 0.37 0.49 0.40 -

Mauritius (MU) 0.21 0.18 0.16 0.17 0.18 0.18 0.17 0.23 0.16 - 0.15 0.15 0.16 0.16 0.25 0.22 0.21 0.16 0.16 0.26 -

Mozambique (MZ) 0.23 0.26 0.14 0.21 0.26 0.15 0.22 0.19 0.24 0.20 - 0.17 0.19 0.22 0.09 0.22 0.25 0.19 0.20 0.15 -

Oman (OM) 0.27 0.19 0.10 0.47 0.27 0.12 0.23 0.17 0.23 0.17 0.18 - 0.15 0.28 0.07 0.33 0.25 0.18 0.30 0.17 -

Seychelles (SC) 0.12 0.12 0.11 0.08 0.12 0.10 0.11 0.13 0.12 0.18 0.12 0.11 - 0.11 0.07 0.12 0.13 0.11 0.10 0.12 -

Singapore (SG) 0.45 0.32 0.24 0.33 0.53 0.37 0.48 0.42 0.63 0.44 0.44 0.46 0.38 - 0.16 0.45 0.41 0.45 0.43 0.42 -

Somalia (SO) 0.05 0.04 0.02 0.06 0.06 0.04 0.03 0.04 0.04 0.04 0.03 0.04 0.03 0.05 - 0.07 0.04 0.04 0.04 0.06 -

South Africa (SA) 0.38 0.27 0.27 0.39 0.34 0.34 0.32 0.30 0.35 0.33 0.32 0.39 0.28 0.27 0.18 - 0.33 0.30 0.35 0.43 -

Sri Lanka (SL) 0.19 0.15 0.15 0.16 0.16 0.18 0.17 0.18 0.15 0.22 0.15 0.15 0.17 0.13 0.12 0.19 - 0.16 0.16 0.24 -

Tanzania (TZ) 0.20 0.28 0.20 0.25 0.23 0.24 0.21 0.24 0.25 0.27 0.20 0.21 0.23 0.15 0.16 0.23 0.26 - 0.27 0.29 -

Thailand (TH) 0.55 0.39 0.38 0.67 0.51 0.54 0.47 0.42 0.53 0.49 0.42 0.49 0.39 0.44 0.28 0.53 0.47 0.43 - 0.53 -

UAE (AE) 0.41 0.22 0.22 0.34 0.42 0.29 0.38 0.31 0.39 0.35 0.33 0.35 0.29 0.42 0.16 0.47 0.42 0.32 0.48 - -

Yemen (YE) ------

Source: UNCTAD

Trade Arrangements Mauritius has a number of trade agreements both multilaterally, regionally and bilaterally, as follows:

Multilateral Trade Agreements Regional Trade Agreements Bilateral Trade Agreements

WTO AGOA Pakistan

GSP Scheme Interim EPA with EU Turkey

IOC USA

COMESA

SADC

IORA

Tabel 18 . Mauritius’ Trade Arrangements

Investment Mauritius is keen to be an investment hub that lies between Africa and Asia. In recent years, the country's economic diplomacy has sought to create and strengthen partnerships with developing countries (such as India, Turkey, etc.), as well as offering technical assistance to several African countries. Agreements with Ghana, Senegal and Madagascar have been approved to create a special economic zone (SEZ) in those countries and open up market opportunities for Mauritius exports. FDI inflows in 2016 to Mauritius amount to USD 350 million, which marks an increase compared to 2015 (UNTCAD, World Investment Report 2017). However, most FDI is diverted to India (45% of India's FDI inflows come from Mauritius), as both countries have signed double taxation treaties. In addition to the Government's incentives for investment (such as tax incentives, payment facilities, etc.), Mauritius offers investors a stable economic and political environment, modern infrastructure, a solid judicial system, a stable financial system and a highly skilled and dynamic workforce . Only the news sector is subject to restrictions: foreign companies can not own more than 20% of capital in this area. The tourism sector attracts most FDI, especially the Integrated Resort Scheme, which deals with the construction of luxury villas, golf courses and other facilities in the resort area. Its main investors are the United States, India, Britain, Cayman Islands and Hong Kong. By 2017, total investment is expected to grow by 5.3% after growing 3.7% in 2016. The investment rate (investment to GDP ratio) increased to 17.6% in 2017, from 17.3% in 2016. Although FDI inbound to Mauritius is small, only about USD 350 million, however FDI stock is higher, ie USD 4,605.9 million in 2016. In 2016, FDI stock contributes up to 38.5% of GDP. The main obstacles faced in increasing investment cooperation with IORA countries are the lack of information on business opportunities, the still weak business network, the connectivity that still needs to be improved, the obstacles still in the movement of people. To address these obstacles, Mauritius stakeholders propose solutions: create an e-flatform for sharing good information on business opportunities, regulations in each IORA country

77 and business contacts. In addition, the need for a visa facility that ensures the smooth movement of people. Connectivity Mauritius has only one (1) seaport of Port of Port Louis. The harbor has a strategic position in the southwestern part of the Indian Ocean, at the intersection of routes between the Far East with Africa, South America, Europe and Australia. There are about 35,000 ships crossing the Indian Ocean per year, but only 10 percent stop in Mauritius. The port serves transshipment, export and import, bunkering and oil, yachts, and fishing boats. Mauritius has a pretty good connectivity with IORA countries that are trading hubs such as Malaysia, Singapore and South Africa

Tabel 19. Liner Shipping Connectivity 2016

No Countries Index Source 1 Australia 0.3597338 UNCTAD

2 Bangladesh 0.2290501

3 Comoros 0.2543155

4 India 0.419401

5 Indonesia 0.2668368

6 Iran 0.2852888

7 Kenya 0.2688796

8 Madagascar 0.3132599

9 Malaysia 0.4657813

10 Mozambique 0.3239347

11 Oman 0.4072827

12 Seychelles 0.2197388

13 Singapore 0.4488993

14 Somalia 0.2013189

15 South Africa 0.4536667

16 Sri Lanka 0.4181198

17 Thailand 0.3429047

18 UAE 0.4290413

19 Tanzania 0.2606623

20 Yemen 0.195125

processed by BPPK

Dwelling time in Port of Port Louis is diverse. For export, dwelling time is about 2-3 days and for imports up to 5 days (where businessmen take advantage of free of charge storage facility maximum 5 days). 99% of Mauritius exports through Port of Port Louis. The Government of Mauritius is developing Port of Port Louis to meet the needs of transshipment. Since 2000, transhipment traffic has increased sharply. In 2014 transshipment reaches 300,000 TEUs. In addition there are 250,000 local cargo TEUs. As of June 2016, the port capacity has increased to 750,000 TEUs. It is expected that the capacity will be increased to 1 million TEUs in 2025 and 1.9 million TEU by 2040. The port has a depth between 6 - 16.5 meters for various purposes such as fishing boat ports, cruise ships, oil tankers and container shipping. Mauritius Competitiveness The level of competitiveness of Mauritius is quite good when compared with other sub- Saharan countries. Basic health and education have the highest scores, such as the size of the market because the small population is considered a weakness of Mauritius's competitiveness. Global Competitiveness Score (General Index) 4.49 Global Competitiveness Ranking (2016-2017) 45 (Global Competitiveness Ranking 2015-2016 ranked 46 score 4.43) Basic Requirements Rank 39, Score 5.05 Institutions Rank 36, score 4.51 Infrastructure Rank 41, Score 4.74 Microeconomic Environment Rank 59, score 4.89 Health and Primary Education Rank 48, score 6.06 Efficiency Enhancers Rank 62, score 4.19 Higher Education and Training Rang 52,score 4.86 Goods Market Efficiency Rank 26, Score 4.90 Labor Market Efficiency Rank 57, score 4.39 Financial Market Development Rank 44, score 4.29 Technological Readiness Rank 66, Score 417 Market Size Rank 118, score 2.71 Innovation and Sophistication Factors Rank 48, score 3.85 Business Sophistication Rank 37, score 4.36 Innovation Rank 67, Score 3.34

Figure 51. Mauritius’ Innovation Index

Score Rank

Global Innovation Index 2017 (out of 127) 34.8 64

Innovation Output Sub-Index 22.5 82

Innovation Input Sub-Index 47.1 47

Innovation Efficiency Ratio 0.5 109

Global Innovation Index 2016 (out of 128) 35.9 53

Tabel 20. Mauritius’ Ease of Doing Business

Year 2017 2016

Indicators Rank DTF Rank DTF Ease of Doing Business Overall 49 72.27 42 72.18 Starting a Business 48 91.65 43 91.63 Dealing with Construction Permits 33 76.55 32 76.51 Getting Electricity 110 63.22 107 63.18 Registering Property 98 61.99 98 61.14 Getting Credit 44 65.00 42 65.00 Protecting Minority Investors 32 65.00 30 65.00

Paying Taxes 45 82.96 43 82.96 Trading across Borders 74 78.67 74 78.67 Enforcing Contracts 34 68.65 33 68.65 Resolving Insolvency 39 69.06 37 69.06 Source: World Bank

Tabel 21. Country Comparison For the Protection of Investors

Sub-Saharan Mauritius United States Germany Africa

Index of Transaction Transparency 6.0 5.0 7.0 5.0

Index of Manager’s Responsibility 8.0 4.0 9.0 5.0

Index of Shareholders’ Power 6.0 5.0 4.0 8.0

Index of Investor Protection 6.5 4.3 6.5 6.0

Investors consider the problems faced in doing business in Mauritius such as government bureaucracy and inefficient innovation capabilities and lack of skilled labor.

Figure 52 . Problematic Factors for Doing Business

Banking System Mauritius has a relatively equipped developed banking sector with 23 banks that currently have a license for conducting banking business. Of the 23 banks, two banks providingservices, private bankingwhile one bank do Islamic banking. Data is sourced from the Global Partnership for Financial Inclusion showed that 82 percent of Mauritius aged 15 years and over have a bank account.

According to the Banking Act of 2004, all banks are free to do business in all currencies, including the Mauritius Rupee. There are also eight institutions non-bank depositors, as well as some places of the money changers and foreign exchange dealers. There is no limit government official to open a bank account in Mauritius, but some banks may require a reference letter or proof of stay. Bank of Mauritius, the country's central bank, supervision and regulation of banks and non-bank financial institutions authorized to accept deposits. Bank of Mauritius has approved the Core Principles for Effective Banking Supervision as defined by the Basel Committee on Banking Supervision.

The banking system is dominated by two domestic groups that have been established, namely the Mauritius Commercial Bank (MCB) and the State Bank of Mauritius (SBM), which together control around 65 percent of all banking assets Mauritius. Maubank, the third largest bank in the country, began operating in January 2016 after the merger of Mauritius Post and Cooperative Bank and National Commercial Bank. Bank of China obtained a banking license in March 2016 and began operations on September 27, 2016. Other foreign bank presence in Mauritius, including HSBC, Barclays Bank, Bank of Baroda, Habib Bank, Banque des Mascareignes, PT Bank Maybank Indonesia, Deutsche Bank , Standard Bank, Standard Chartered Bank, State Bank of India, and Investec Bank. On January 31, 2017, total assets of commercial banks amounted to USD 34.7 billion.

According to the Annual Report of the Bank of Mauritius in 2016, the ratio of nonperforming loans to total outstanding credit of 7.1 percent by the end of June 2016, up from 5.0 percent in June 2015.

Views on IORA CEPA Stakeholders in Mauritius support closer economic cooperation mechanisms within IORA within the framework of the Comprehensive Economic Partnership Agreement (CEPA). IORA CEPA is considered instrumental as an economic framework (framework), especially in the context of marine economics. A number of Stakeholders stressed the need to explore 'new approaches' in developing the IORA economic framework. In a 'traditional' way, economic integration begins with sectoral cooperation, then proceeds to integration phases like Preferential Trade Arrangement (PTA), Free Trade Arrangement (FTA), and evolves into CEPA. On the other hand, the new approach offered by respondents begins with CEPA which provides a new framework of cooperation then followed by PTA and FTA. The CEPA discussion with the 'new approach' will first rule out the discussion of tariff barriers and focus more on cooperation: (1) trade facilitation, (2) trade in services, (3) investment, (4) economic / development cooperation, 5) dispute settlement mechanism. Tariff barriers will be discussed at the end of the process of economic integration.

In addition to emphasizing the development of a robust framework, IORA CEPA can be implemented using a variable geometry approach. This is based on the fact that IORA member countries vary greatly in terms of economy, level of development, political and governance system, culture and have different interests. Nevertheless, there are stakeholders who have different views on the new approach. Stakeholders are more supportive approach that has been commonly done that begins with PTA cooperation first new to the FTA and CEPA. Membership of IORA countries in regional groupings will complicate the CEPA discussion nevertheless CEPA is still possible. Mauritius is part of regional grouping like COMESA and SADC. WTO membership is not considered an absolute requirement in IORA CEPA. However, IORA CEPA should have a dispute settlement mechanism. Stakeholders also emphasized the need for harmonization of investment-related regulations as an important part of IORA CEPA's cooperation. Also emphasized the importance of the commitment of member countries to integrate the IORA economy. In addition, it is realized that the importance of packaging in submitting the IORA CEPA proposal so that it can be accepted by member countries. Economic agendas that need to be addressed in IORA CEPA include: trade in goods, customs and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade, trade remedies, investment services, electronic commerce, government procurement, intellectual property, environment, cooperation and capacity building, competitiveness and business facilitation, development, SMEs regulatory coherence, transparency and anticorruption, administrative and institutional provision, and dispute settlement. However, there is a need for caution in discussing labor because it is a sensitive issue in all countries. For Mauritius the employment sector is open to foreigners in the fields of construction, hotel industry and ICT. In addition, IORA should synergize the efforts of economic integration with regional initiatives such as the Belt and Road Initiative and Asia Africa Growth Corridor. IORA must also be able to capitalize relationships with partner’s dialogue, one of which is to strengthen Capacity Building program. Economic cooperation among IORA member countries is very important, but should be based on a common interest consisting of maritime resilience, maritime resources and marine security. Sectoral cooperation in addition to the trade sector that can be explored further namely fisheries (fishing strategies), connectivity, including broadband connectivity. Respondents also highlighted the obstacles to Ocean Economy's funding cooperation. Cooperation within the framework of IORA that needs to be encouraged is business facilitation. Related to this, respondents suggested the establishment of a public private platform agency in each member country that aligns the ease of doing business. This platform is a form of commitment of member countries in improving investment and trade climate. In this regard, respondents also emphasize the importance of leadership Economic integration is done between ready-made countries so as to give other members the opportunity to peer-to-peer learning. IORA needs to find mutually acceptable solutions in the face of various barriers to cooperation such as connectivity barriers and economic disparities among member countries. IORA should also be able to facilitate the movement of businesses, such as business travel card facilities. IORA needs to focus on the projects.

Section 4:

CHAPTER IV

RIGHT MODEL FOR ENHANCING ECONOMIC COOPERATION IORA Economic Integration In general, economic integration is an agreement between two or more countries designed to reduce or eliminate trade barriers. Tariffs and quotas are some of the things that are subject to the economic integration model. In addition, there are also aspects such as Government spending, intellectual property rights, and competition policy. Ideally, economic integration is also intended to boost market access from industry and increase the reach of consumers. Consumer profits are also an important target in the scheme of economic integration, with more products on the market, consumers will have more options, including for more competitive prices. Competitive advantages and specialties from every country in the world are also expected to help the realization of global prosperity. In this case, commodities between one party and another should be complementary and generally in an equal economic condition. Some of the challenges that followed were concerns that a country with a stronger economy would enjoy more unequal gains compared to the weaker economy. For example, developed countries impose free trade with developing countries for value-added products while developing countries are only freed from tariffs of raw materials. In this case, it will only perpetuate industrial superiority in developed countries without providing balanced mutual benefits. However, IORA countries have the potential to strengthen their respective economies through a comparative advantage approach. Countries with strong economies in IORA have advantages in labor-intensive goods and information technology services and communications, while other countries have advantages in broader products, such as oil, cotton, rubber, fisheries; others excel in labor-intensive manufactures, textile industries, shoes, while others have advantages in such as office equipment or telecommunications equipment. This fragmentation of products, combined with trade facilitation and cost-efficient logistics, can enhance the competitiveness of countries of IORA as a whole. In this case, economic integration through the free trade scheme can be an effort to improve the welfare in the Region. Free Trade Economic Integration The free-trade scheme is usually aimed at, among other things: increasing market access; promotion of economic policy; and enhance strategic relationships between parties. There are several steps that can be considered. Preferential Trade Agreement (PTA) itself in some literature is categorized as an early stage in the form of economic integration. In particular, the decline or elimination of tariffs at this early stage is sometimes made limited to some commodities and is reciprocal. PTA can also be divided into several forms depending on the economic capacity of one party. This PTA is known as the Generalized System of Preferences (GSP). GSP allows developed countries to apply different tariffs depending on the economic capabilities of their trading partners. This scheme, although open to developing countries, can also be done with the Least Developed Countries (LDC). In IORA countries, Australia, Thailand, and India have issued PTA policies through this scheme. The African Growth and Opportunity Act (AGOA) is one of the unilateral PTA

85 schemes issued by the US to boost the economies of several African countries. Through this scheme, some commodities from Africa can enter the US market without tariffs. Similarly with textile and garment products, although there is a special quota imposed. The implementation of PTA among developing countries is possible in the enabling cause, which is based on Article I General Agreement on Tariffs and Trade (GATT). Enabling cause allows flexibility for the parties to limit the sector and reduce barriers such as what is deemed appropriate to be implemented. Agreement is possible to do in partial scope. The relevant sections of Article I GATT for PTA in the enabling cause are as follow:

1. Notwithstanding the provisions of Article I of the General

Agreement, contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties.

2. The provisions of paragraph 1 apply to the following:

. . .

(c) Regional or global arrangements entered into amongst lessdeveloped contracting parties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff measures, on products imported from one another.

Free Trade Agreement (FTA) is a more complex stage than PTA. It is generally an agreement between two or more countries, to facilitate trade and eliminate trade barriers. In general, FTAs can be beneficial because:

 Eliminate tariffs for exporters

 Expand and improve export services

 Open investment opportunities and provide a stable yet competitive environment for investment

 Simplify excise procedures and lower production costs

 Address contemporary trade issues; tax-free for e-commerce For the implementation of IORA, the FTA conducted among ASEAN member countries is a good example. The ASEAN Free Trade Area (AFTA) is currently underway. Through the Common Effective Preferential Tariff (CEPT) scheme, tariffs for more than 99 percent of products in the CEPT list of ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, the

Philippines, Singapore and Thailand) have been reduced by 0-5 percent. Meanwhile, 80 percent of products from four other countries have been included in the CEPT list, and 66 percent of them are subject to 5-10 percent tariff. AFTA also includes efforts to eliminate non-tariff barriers. The AFTA-States party establishes a special committee to identify non-tariff barriers (including quotas, packaging, domestic subsidies, etc.) in each country, including verification and cross-notification processes; database development; and others. In order to make the CEPT scheme attractive to investors, it has also agreed on specific rules and procedures to: 1) standardized calculations for ASEAN content, 2) principles and guidelines for determining market prices, 3) treatment for local raw materials, and 4) improved verification processes. The enactment of AFTA is a good example to be replicated in IORA as well. Like IORA, ASEAN comprises many different forms of governance, economic power, and commodities. Complementarity of commodities from ASEAN countries can also be maintained because commodities that are considered sensitive such as rice are not included in the CEPT list. Which is also applicable in IORA. FTAs can affect many aspects of the economy, it is almost impossible to identify all of them in the early stages. It takes many rounds of negotiation and consultation to identify needs and consequences. Domestically, every country will need a lot of publications or hearings to prepare negotiating materials. Not only with direct-linked agencies but also with agencies that may be affected by FTAs. In general, the parties concerned with; agriculture, trade and industry, education, intellectual property, professional associations, or certification bodies, it is necessary to sit together to discuss their respective interests. Consistency with the World Trade Organization (WTO) agreement is also an important requirement to note (Article XXIV General Agreement on Tariffs and Trade on Custom Union and FTA, and Article V General Agreement on Trade in Services on economic integration). In addition, the dispute settlement mechanism problem also needs special attention so as not to overlap with other mechanisms. Under article XXIV GATT, procedural stages for PTA or FTA are as follows: 1. Formed on two or more custom territories 2. Establishment of rules of origin to determine which products are regarded as products of origin of each party to be included in the agreement. 3. Elimination of other restrictive trade tax and trade regulation on the products included. 4. Ensure that in the implementation of the above stages there is no increase in barriers to third parties. 5. Report to the WTO any consent to initiate the agreement. Some opinions state that since the FTA requires a long process, as an initial stage of economic integrity, IORA countries can be encouraged to enter into trade agreements with ASEAN first, as the system is already well established. As has been done by India which already have signed agreement of FTA and Comprehensive Economic Partnership Agreement with ASEAN.

Comprehensive Economic Partnership Agreement (CEPA) Basically, there is no general definition of CEPA, however there are many examples of cases that can be learned to explore the understanding of CEPA itself. CEPA is usually carried out between two countries and is a follow-up of an agreed FTA cooperation. In principle, CEPA is aimed at enhancing cooperation and stakeholder participation in activities related to trade and investment, as well as for the purpose of reducing distance in terms of economic capacity between the parties. The cooperation covered by CEPA includes trade in goods and services, investment, technical cooperation, intellectual property, business competition, food, creative industries, telecommunications services, health, agriculture, dispute settlement, e-commerce and small and medium enterprises. In addition to the widespread coverage, another thing that distinguishes between FTAs with CEPA lies in the details of the agreement between the parties. For example, one of the aims of CEPA is to reduce the inequality of trade values, this could make trade liberalization a priority at a more general level -not eliminating tariffs but only reducing-. This has led some experts to claim that the CEPA is an "contaminated" FTA, although some argue that CEPA is an FTA +, given its broader scope than that of trade. Some examples of CEPA that have been agreed are CEPA between India with South Korea, and Japan with Singapore. In general, the steps taken to agree on CEPA resemble the FTA stages with some additional rounds of negotiations to agree on various fields. For example, to date negotiations between Indonesia and Australia (IA-CEPA) have been through up to 9 rounds from 2013. There are several examples that can be learned for the formation of CEPA that are regional- bound, such as Regional Comprehensive Economic Partnership (RCEP) and Trans-Pacific Partnership (TPP).

Tabel 22 . Comparison TPP-CEPA (source: https://www.brookings.edu/wp-content/uploads/2014/01/11-asia-pacific- economic-integration-presentation-basu-das.pdf)

Discourse formation of IORA-CEPA Given the wide scope, the FTA's approval is a major prerequisite in negotiating for CEPA implementation. Thus, the discourse on the formation of IORA-CEPA must go through measurable stages and long negotiations. Negotiations to establish the CEPA between the two countries clearly require in-depth review and lengthy negotiations, especially if CEPA will be conducted within the regional scope. Seeking harmonization for many economic interests and capabilities has a risk of degrading the quality of the CEPA cooperation later on.

Sectoral

Taking the European Union (EU) as a prime example, the EU economic integration began with the European Coal and Steel Community (ECSC), this is evidence that regional economic integration can be started from sectoral cooperation in a certain region. The main reason the ECSC was established by six European countries, Belgium, France, West Germany, Italy, the Netherlands and Luxembourg, after the Second World War was in order to regulate the production of coal and steel.

From the results of the field study, a number of proposals surfaced for IORA economic cooperation. First focuses on sectoral cooperation before stepping into a trade liberalization and economic integration process.

The consideration towards a preferred sectoral cooperation is due to the economic disparities that are too steep and with the low trade complementarity among the member states. Such disparities definitely have an effect on the readiness of each member in any discussion of trade liberalization. Furthermore the low level of connectivity, especially countries in Africa, will have an impact on the effectiveness of a trade liberalization policy.

Tabel 23. List of countries by income in 2016 (in US $ billion)

Upper Middle Lower Middle (Lower Middle Income) Low Income High Income Income Income (LDCs) (LDC),

Australia, in Thailand,396, India 2275 Bangladesh,218 Tanzania, 48 1270 Madagascar, UAE,383, Iran 423 Indonesia, 943 Yemen, 31 10 South Singapore, 295 Sri Lanka 83 Mozambique, 12 Somalia, one Africa,291, of Oman, 72 Malaysia, 297 Kenya, 69 Comoros,1, Seychelles 1 Mauritius, 12 Source: World Bank

Based on the categories of income, IORA member countries are divided into the category of high income, upper middle, income, lower middle income and LDCs. Seven of the 21- member IORA still are listed as LDCs which will eventually require special treatment in the implementation of trade liberalization.

Figure 53. Percentage of countries by income category

table and graph shows the disparity of income between countries IORA high enough.

Differences in terms of the size of the economy, including countries in the category of LDCs, will make economic integration among countries IORA less attractive given the small potential trade creation which is likely to be generated.

In addition, low trade complementarity among member countries will also lead to potential trade diversion. Among the members of IORA, the exporting countries of India, Malaysia, Singapore and Thailand, has a trade complementarity that is quite good and significant with other member countries.

Furthermore, member states have mapped the areas that are considered important towards enhancing cooperation within the framework of IORA. With the first IORA Summit in Jakarta on the 5-7 March 2017, the Summit produced the Jakarta Concord and the IORA Action Plan from the year 2017-2021. The summit agreed on cooperation in priority areas such as (1) the safety and maritime security, (2) the facilitation of trade and investment, (3) management of fisheries, (4) disaster risk management, (5) academic cooperation, science and technology, (6) tourism and culture, (7) the blue economy, and (8) women's economic empowerment.

Sectoral cooperation is expected to bring increased networking among IORA member countries, which in turn will be a solid foundation for the economic integration process. The ASEAN integration process is a perfect example of bottom-up process driven by the private sector to encourage economic integration in Southeast Asia. Thus the private sector plays a very important to be a pillar in economic integration.

The results of the field study conducted indicated that a number of stakeholders, especially the private sector, wanted a more realistic approach to economic cooperation among IORA member countries. Promotion of sectoral cooperation and facilitation of trade is regarded as a very realistic first step.

A number of proposals in sectoral cooperation and trade facilitation were raised, namely: cooperation blue economy, tourism, mining, capacity building, and the Free Trade Zone Cooperation. Cooperation within the framework of trade facilitation will be further discussed with a APEC model / trade facilitation.

Blue / Ocean Economy Blue Economy has become a major agenda of IORA. IORA member countries adopted the Jakarta Concord on blue economy as guidance in developing and implementing the blue economy approach to support sustainable development and provide socio-economic benefits to coastal communities in the Indian Ocean Region.

In a global sense, the blue economy has also received significant international attention. The 2030 United Nations Sustainable Development Goals stressed on the blue sustainable economic development and the use of marine resources as a key element in future development. Through a systematic approach, the blue economy is expected to drive sustainable growth while maintaining environmental sustainability.

More than three billion people rely on marine and coastal biodiversity as a source of their livelihood. Specifically marine economy provides jobs, directly and indirectly for more than 200 million people worldwide. Statistics of the Organization for Economic Cooperation and Development (OECD) show that as of 2030, value added contribution to global sea commodities will double, reaching more than USD 3 trillion, covering fisheries aquaculture, fish processing and port activities.

Meanwhile, the Indian Ocean has a very comprehensive resource that needs to be explored and exploited for the benefit of our society. The number of fishing in the Indian Ocean totals to about 13 million tons per year. But that number only represents 13% of total global fishing. On the other hand, more than 40% of fishermen in the world live in this region.

Many marine economic sectors have potential that could be the foundation an IORA sectoral cooperation, these include: fisheries, fishery product processing, tourism, shipping, shipbuilding, mining, and energy. Development of these sectors would have to focus on the aspects of sustainability, standardization, certification and technological development.

Nevertheless, it should realize also that concern a country's marine economy will largely depend on considerations of the geographical position, connectivity/seaports, the demographic that is related to the number of people living in coastal areas, and strategic considerations including a search of sustainable natural resources. Therefore, cooperation must be based on a common platform to ensure the resilience of the sea, the sustainability of marine resources, and maritime security.

In Iran, the fisheries and the aqua culture sector is capable of absorbing more than 200 thousand workers. The volume of fish caught Iran is about 1 million tons of which 600 thousand tons comes from fishing and 400 thousand tons of aquaculture. Iran is currently increasing the capacity of the fisheries by focusing on the development of fishing methods.

Meanwhile for Indonesia, the marine economy is able to contribute 22% to the national GDP. This is below the potential of the marine economy in Indonesia where from 11 marine sectors, it has the potential of delivering US $ 1.2 trillion per year. With about 140 million of the 250 million of the Indonesian population live in coastal areas, the maritime economy has the potential to provide employment for 40 million people or one third of the total workforce in Indonesia.

On the other hand, Africa as a continent, had been more focused on the terrestrial environment in developing the it’s economy and forget the very significant resources provided by the marine environment that each country has. However, it has undergone many changes since the adoption of the African Union in 2063 and the 2050 African Integrated Maritime Strategy (AIMS), in which both documents emphasize on the development of marine economy. In October 2014, South African President Jacob Zuma launched a project named Operation Phakisa (meaning"HurryUp"),which focuses on the marine economy. For Australia, the blue economy is predicted to grow to $ 100 billion by 2025. However, Australia recognizes the need to act to safeguard the sustainability of the marine economy.

Many potential sectoral cooperation that can be explored by placing the sea as a common platform. Transfer of knowledge and skills regarding methods of fishing such as longline methods and catch processing can potential sectoral cooperation for strengthening the marine economy. In addition, a number of IORA countries such as Indonesia, have excelled in the development of seaweed. The development of this industry can be transmitted to other countries such as Mauritius that invites Indonesia to jointly develop seaweed.

A number of other IORA countries have advantages in terms of technology development. During the field study, Mauritius proposes the use of Deep Water Ocean Application. The Mauritius Research Council has conducted research to develop Deep Project Water Ocean Application that is planned to be used as a form of air conditioning. This project is very important for IORA member countries to learn from Mauritius in developing storage coolers for fish catches (cool storage) and for other purposes. Mauritius is also developing renewable energies such as wave and wind power. And also the development of non-fossil energy sources that can promote economic growth through the utilization of renewable energy and supporting sustainable development.

In the development of marine economy IORA, member countries that are advanced in the implementation of the blue economy are encouraged to share experiences and strategies towards state measures based sustainable marine economy. In addition, Member States encourage the exchange of emergency information such as a tsunami warning center in the Indian Ocean region, works for profiling disaster vulnerability of countries in the Indian Ocean region, sharing information and experiences related to mitigation and adaptation towards climate change to address environmental vulnerabilities.

However, the main challenge for the development of marine economy is the issue of funding. It is a crucial part in transforming ideas into efforts of marine economic development/action. Learning from the experience of ASEAN in the development of the Master Plan on ASEAN Connectivity, the development of the Blue Economy Master Plan can be the first step in concrete terms to identify and prioritize projects and areas of cooperation that are tangible, especially in fishing and aqua culture, maritime and connectivity ports, marine tourism, and human resource development. It is expected that the master plan for the Blue Economy can help IORA in convincing institutional lenders to fund projects within the framework of IORA Blue Economy Master Plan. Tourism Tourism is the world's largest industry with a share of 10% of the world GDP in 2015. The level of tourist arrivals continued to increase by 4.4% or a total of 1,184 million. This sector generates $1.5 trillion in the form of export earnings. The World Tourism Organization expects growth in tourist arrivals will reach 1.8 billion travellers in 2030. Travel and tourism contributed US $ 7.2 trillion to global GDP. The statistics one tourism as a form of employment shows that one out of 11 jobs is related to the tourism sector. Tourism is one of the key sectors for poverty reduction through employment and business opportunities.

In IORA member countries, tourism is a very important industry to support national economic growth. In 2015, the total tourist arrivals in IORA countries reached 135 million, representing only 1.12% of the total tourist arrivals in the world. This shows that IORA countries still lag behind other countries in the world in the tourism sector.

In Iran, tourism became the third largest industry that grew 4.3% annually, contributing to Iran's economy which amounted to US$6 billion. Meanwhile, for Mauritius, tourism contributed 7.5% of total GDP in 2015. In Mauritius, tourism is still a source of employment and is very important, while the number of jobs that are directly related to the tourism

92 industry reached 30,000, while jobs are indirectly related to the tourism sector as much as 100,000.

Cooperation in marine tourism is also a potential sector that IORA can develop. Indian Ocean region has a huge potential for the development of the tourism sector with a wealth of natural and cultural richness. Cooperation can take the form of tourism, cruise tourism and travel packages. Each IORA member countries offer something unique which may be beneficial for the development of tour packages along the circumference of the Indian Ocean.

In the case of cruise tourism, member states should improve port infrastructure capable of facilitating the transit of cruise vessels. Meanwhile, for the development of travel packages (multi-destination tourism), needs much creativity and innovation so that the uniqueness of each country can be hallmarks of the program in addition to offering sea travel destinations such as beaches and diving.

As a pilot project that can be carried out in tourism cooperation among the countries that have connectivity support is tourism sector cooperation in beach tourism with an emphasis on the cultural uniqueness of each country and the history of relations between the countries on the Indian Ocean rim.

Cooperation in the development of the tourism sector, multi-destination tourism, is in need for connectivity support. In addition to sea connectivity to support cruise tourism, also need to increase water connectivity to support the mobility of people / tourists.

Besides, the need collective awareness about sustainable tourism destination management is paramount important. It is realized that tourism provides tremendous economic benefits, but it needs to be considered regarding the excesses inflicted on the environment and socio- culture of the tourist destinations.

The role of the business community is very important in sectoral cooperation approach. Although it is very gradual, the sectoral approach is to be able to provide a solid structure for building economic integration. Planning sectoral cooperation should be conducted in an inclusive manner in which the need to empower local communities, women, as well as Micro Small and Medium Enterprises (SMEs). However, the goal of economic integration is to establish a common market, the unification of the macroeconomic policy, harmonizing the implementation of sectoral policies, creating a relationship of interdependence which in turn can increase peace and security for shared prosperity in the region. APEC Model / Trade Facilitation Initiative is very important economic integration to be built through existing institutions. But at the same time, it is necessary to also develop economic cooperation and regional integration that emphasizes on coordination and harmonization of macroeconomic policies, reduction in trade tariffs and elimination of non-tariff barriers, and facilitation of movement of capital, freedom of movement of labor, and improvement of business climate.

Attention to the issue of development should also be emphasized, particularly those related to gender mainstreaming, health, education, population and protection of the environment.

The levels of economic progress with the pace of development vary among member countries will be accommodated through the 'multi-speed / variable geometry approach' where this is consistent with efforts to expand participation of regional stakeholders in integration.

In trade facilitation, great attention is given to the most countries that have cut tariffs and liberalize their trade quotas. These concerns are also linked to fast growth in global the value chain .

In trade facilitation, it should be underlined the importance of providing both infrastructure, hard infrastructure and soft infrasstructure. Hard infrastructure such as ports, airports, roads and railway lines, for example is very critical in linking one country to another. Meanwhile, the development of trade-related soft infrastructures as important as hard infrastructure, such as border management, and logistics management.

Learning from the experience of APEC, cooperation was built with the aim of integrating the Asia Pacific region and ensure the movement of goods, services and people can travel easily between APEC member countries. Member countries facilitate this movement through faster customs procedures, better business climate, and adjusting regulations and standards in the region.

After more than 25 years, APEC provides a real contribution to the Asia Pacific region which is seen them from the high economic growth, with real GDP nearly doubled, which only amounted to USD 15 billion in 1989 to $ 30 trillion in 2012. Meanwhile, average of income per capita of population of the Asia-Pacific region increased by 36%, so as to lift millions of people from poverty and create a middle class that is increasingly growing.

With APEC, Asia-Pacific region is getting closer to reducing barriers to trade and harmonize regulations to boost trade. Between 1989 and 2012, the total trade in the APEC region have increased trade by 61/2 times with 2/3 of trade going on between the member countries.

APEC initiative to synchronize the regulatory system in the region is key for economic integration in the Asia-Pacific region. The products can be easily exported only with the adoption of common standards across economies / countries, rather than using different rules. Harmonization of regulations, including regulations related to the digital economy into the common standards.

As one form of trade facilitation, APEC using innovations in information technology to create new ways of doing business. Digital economy members of APEC is also possible to centralize the import-export process, speeding up the time required for goods to cross the border. Known as the single window, virtual system that linked all government agencies involved in the import-export process, enabling companies to incorporate documents electronically.

APEC has made cross-border business travel easier. Since 1999, the APEC Business Travel Card (ABTC) allows pre-approved business travellers to enjoy the service out into the country members of APEC to be more easily and quickly through a special lane for APEC in various major airport, and multiple short-term entry to 19 APEC members countries. As a result, the total costs associated with immigration for APEC card holders fell 38%, or a savings of $ 3.7 million in 2011 and 2012.

APEC makes business in the region become more efficient. APEC Launches Ease of Doing Business Action Plan in 2009, with the aim of making the business is cheaper, easier and faster. Between 2009 and 2013, members of APEC improve the ease of doing business in Asia-Pacific at 11.3 percent for all initiatives, including starting a business, getting credit, or apply for permits. For example, construction permits issued faster 18.7 percent from 169 days to 134 days in the last four years.

In addition, APEC also boosts competitiveness and the ability of Small and Medium Enterprises participation in the global market. APEC has launched a variety of initiatives to help the development of SMEs in the region. In 2005, innovation Center of SMEs in APEC was established in Korea to help improve the competitiveness of SMEs in the region through business consulting. Between 2009 and 2012, as many as 96 companies in 7 countries of APEC receive business consulting assistance to improve management and manufacturing practices. Initiative of APEC Start-up Accelerator (ASA) was launched in 2012 to promote entrepreneurship and innovation to connect start-ups in the area with angel / venture capital funding and also with successful entrepreneurs who act as mentors. Through APEC SME Working Group, APEC also help small-scale producers in rural areas to connect to the global market through the project One Village, One Product.

Since its inception in 2011, APEC has undertaken various activities in an effort to improve business ethics, especially in the health sector. In 2014, APEC initiative has produced a code of conduct adopted and implemented by some 60 biopharmaceutical and medical devices industry associations and its related companies in 19 countries in Asia-Pacific, which represents more than 14,000 companies.

Meanwhile, to improve SME resilience to natural disasters, APEC has made the training of more than 250 experts to assist SMEs for sustainable business planning and minimize disruption due to natural disasters.

APEC also works to ensure an inclusive economy in the region. APEC builds a project linking the micro businesses owned by women to be able to access to global markets. APEC Digital Opportunity Center was established in 2004 to provide computer training to rural and urban communities that are considered vulnerable. With more than 100 centers in the 10- member APEC offers training in information technology, the APEC Digital Opportunity Center (ADOC) focuses on transforming the digital divide into a digital opportunity.

Funded by a multi-year project under the Energy Working Group, APEC helps urban planners to develop a low-carbon urban planning. The cities reduces the carbon footprint by adopting a carbon emission reduction targets and energy saving initiatives and the use of renewable energy.

APEC also support smart electricity grids that enable clean energy sources that can be connected to the existing structure and can be distributed to people in rural areas.

In 2014, APEC members are committed to taking concrete steps toward regional economic integration by agreeing on a roadmap for the Free Trade Area in the Asia-Pacific Proposed Trade Facilitation in IORA IORA can take the model of APEC in approach trade liberalization and economic integration, among other thing, it focuses on trade facilitation.

From the results of the field study, several activities were deemed capable of providing an effective impact among other things cooperation free trade and industrial zone, increased connectivity, business travel card, and the creation of e-information platforms.

In terms of increased connectivity and trade facilitation, Iran offered cooperation between free trade and industrial zone (FTIZ) to promote increased trade between countries IORA. FTIZ offered by Iran in particular for IORA countries is Chabahar Free Trade and Industrial Zone. In this regard, Iran IORA encourages countries to sign the Declaration of Chabahar. Chabahar Free Trade Zone has the potential to be utilized by IORA countries in penetrating into Central Asia and even Europe. FTIZ is located adjacent to the Port of Chabahar. This

95 port has a very strategic position for facing directly into the Indian Ocean. The port was developed with the cooperation of Iran with Afghanistan and India.

Figure 54. Free Trade Zone in Iran

Figure 55. Connectivity Sea in Iran

It cannot be ruled out the possibility that the same mechanism with FTIZ Chabahar can be implemented by other member states that have the potential to be a hub for IORA to penetrate markets other parts of the world. Thus the increased connectivity and trade facilitation is not only intended for market development within IORA in the region, but also to the global market. Meanwhile, stakeholders from business circles are very pragmatic in looking at the possibility of closer cooperation in the context of CEPA IORA. They see the main obstacle in improving cooperation with the countries IORA to include a lack of information about business opportunities, weak business networking, connectivity, and there are still obstacles in the movement of people. To deal with these obstacles, the proposed solutions include creating e-platform for sharing good information related to business opportunities, the regulations in each country IORA, and business contacts.

In addition to the need for facilities / to ease visa, including the issuance of IORA business travel card, which is able to ensure the smooth movement of people to support the improvement of business relations at IORA. However, a number of countries realize their reservations towards such a scheme in view of the concerns the utilization of these facilities by people who are considered to be unauthorized. Capacity building is also a concern IORA countries. Interest of all stakeholders in the country conducted a field study emphasized the importance of capacity building to bridge the development gap especially LDCs with other IORA members. Capacity building is also intended to improve the ease of doing business in the country IORA. Stakeholders suggested an entity which is a public private platform in each member state. The platform in question is a form of commitment of member states to improve the climate for investment and trade.

Furthermore, given that most businesses in IORA are SMEs so properly for IORA to give special attention to SMEs that can make a difference in the lives of people in the IORA countries. Related to this, the support for market access and innovative funding mechanisms are needed to encourage the growth of sustainable marine economy, including in the field of renewable energy, sustainable aquaculture, ecotourism, biotechnology and construction of coastal infrastructure. Bilateral Cooperation within IORA Bilateral cooperation among IORA member countries will also determine the success of regional integration. The high bilateral economic cooperation will show the level of interdependency. However, bilateral PTA / FTA / CEPA have the potential to be obstacles to regional economic integration, if not managed properly. Appropriate Cooperation Economic integration within the framework of the fundamental challenges facing IORA include: (a) the disparity in levels of economic development, including 7 LDCs among member states, (b) a number of countries have small size economy, and (c) low trade complementarity, on the other hand, regional economic integration is expected to provide an opportunity for market expansion, economies of scale,and diversification of the economic base.

To obtain the formula / modalities of economic integration, according to IORA, a number of fundamental things that need to be taken into consideration, among others: Share of population of countries IORA (potential market), intra-IORA (interdependence), the contribution IORA the world economy (trends economic growth), and the level of investment (private sector confidence to invest).

Share of population IORA countries reached more than 30% of the total world population. This number represents a potential market for trade and investment development of intra IORA.

Figure 56. Comparison of the total population IORA countries and the World

Despite the huge market potential, based on data as of August 2017, intra-IORA only reached 3.12% compared to 11.41% of total trade with the world IORA countries.

Figure 57 . Export to IORA compared to Export to the whole world (Percent)

On the other hand, the contribution to the world economy of IORA is only 9%. Compared with the total population reaching 30% IORA, the contribution is relatively small.

Figure 58. Contributions IORA the world economy

Although the contribution is not proportional to the potential that exists, however, in the last 10 years IORA contribution to the world economy showed a gradual increase from 5.2 percent at the beginning of standing to 9.3% in 2016.

Figure 59. Contributions economy among IORA countries in the last 10 years (GDP Current Price)

One important note is that growth in IORA sub-region is above average of the world’s growth. Among those sub-regions, South Asia records the highest economic growth and projected to continue to lead the economic growth within IORA.

Figure 60 . Economic growth in IORA subregion

Nonetheless, a more integrated economy will likely to be vulnerable to economic shocks, in terms that such shocks occur in of the subregion, which will affect the whole region, as shown during the 2009 economic crises. Meanwhile, in investment sector, the total of world’s foreign direct investment to IORA member states accounted only 11%; indicating the lack of trust among businesses to invest in IORA.

Figure 61 Figure 61. Inward investment to IORA member states, 2016

Also, the low inward investment also affected by the low rate of innovation progress, progress of competitiveness and rate of ease of doing business, that still far from expectation.

Figure 62: Progress of Innovation in Indian Ocean is still relatively low (2010 and 2015)

Among IORA member states, Singapore and Australia have the highest progress of innovation while other countries recorded less progress. The low rating could be one of the indicators that the productivity level is also low, thus correlated with low production efficiency.

Figure 63. Global Innovation Score 2015

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Strong innovation is essential to boost economic growth. IORA (excluding Somalia, Seychelles and Comoros) scores 33.68, while Singapore has the highest Global Innovation Score with 59.16. Regionalism around IORA has low score, namely South Asian Association for Regional Cooperation (SAARC) with 26..07 and Southern African Development Community with 29.19.

Figure 64. Progress of Competitiveness In Indian Ocean (2010 and 2015)

The development of competitiveness shows quite encouraging progress in which most member countries show improvement. This can provide a good foundation for economic integration. On the other hand, economic integration will also have an effect in the improvement of competitiveness.

Figure 65. Global Competitiveness Rankings 2015

Although still lagging behind East Asia and Western Europe, however, IORA's global competitiveness ranking is only slightly behind compared to ASEAN (minus Myanmar and Brunei).

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Figure 66. Ranking of Ease of Doing Business di IORA (2010 and 2015)

On the other hand, the ease of doing business ranking of IORA countries tends to decrease. Of the 20 IORA countries (minus Somalia), most of the 2015 rankings decreased compared to 2010. This development is worrisome considering the ease of doing business is fundamental to the economic progress of a country.

Figure 67. Average Overall DTF 2015

Distance to Frontier IORA region also shows the backwardness compared to East Asia and EU region. Meanwhile, from the trade side, there are still indicators showing trade barriers, such as lack of openness to trade, low complementarity and connectivity trade.

In IORA there is a high disparity in openness to trade. There are countries that apply trade barriers (tariff and non-tariff) to protect national industries. On the other hand, there are countries with small populations but high trade values due to their dependence on trade to meet democratic needs, or to promote economic growth (in terms of trade-hub countries). Countries with dependence on imports tend to apply trade liberalization by lowering export and import tariffs. Openness to Trade data shows countries that are expected to be supporters of trade liberalization based on the level of openness to trade.

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Figure 68. Level of openness to trade

Sumber: UNCTAD

Nevertheless, there are other considerations besides openness to trade that influence attitudes and decision making related to trade liberalization in IORA region, such as foreign policy orientation. Trade complementarity can also be a consideration for possible trade liberalization in IORA.

Figure 69 . Export Complementarity IORA member states, 2013

India is the country with the highest complement of exports compared to other IORA member countries. The export complementarity is uneven in IORA. Such inequality will affect the integration process whereby countries will benefit from the integration process and there are countries that will feel disadvantaged. The same is applied to import complementarities.

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Figure 70. Import Complementarity IORA member states, 2013

The low level of trade complementarity will have a negative impact on the integration process since the level of dependency among member countries is still low.

Figure 71 . IORA Trade Complementarity Index and Connectivity

Figure 72 . Shipping Line Connectivity Index 2016

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The low level of trade complementarity is exacerbated by the lack of connectivity, especially for IORA countries in the African continent. The imbalance of connectivity will reduce the benefits of economic integration gained by countries with low connectivity levels.

Figure 73 . Shipping Line Connectivity Index 2016

Figure 74. Container port throughput, annual, 2008-2014, in TEU

Figure 75. Right Infrastructure for the Right Economy

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Connectivity linkages, trade and economic complementarity, largely determine the process of economic integration and the future of IORA. Therefore, IORA needs to establish the connectivity of the IORA countries.

In addition to the indicators mentioned above, a number of things that could be factors inhibiting the process of economic integration in the region of IORA include:

1. Lack of political will to build supra-national institutions and to implement agreements and mandates. Each IORA country has priority interests so that not all member countries have a focus on economic integration within IORA. From the results of field studies, most stakeholders in the surveyed countries see the public as yet unaware of the IORA. This is related to the lack of direct implications of IORA in the economy of society / business actors. Thus IORA has not been too popular for domestic constituents in some member countries.

2. High dependence on tariffs as a source of fiscal revenue. A number of IORA countries still apply high tariffs on imports and exports. The high tariff adoption considers protecting local products and also as a source of state income derived from tariffs / taxes.

3. A very ambitious target with an unrealistic time frame to reach the target. This will lead to unrealistic expectations. In the field study, stakeholders expect realistic targets in the development of closer trade and economic cooperation with IORA countries.

4. Weak regional structures. This can be seen from the weakness of industrial structure and the absence of intra-industry linkages. World investment rate to IORA countries is also only 11%.

5. Overlapping membership in other regional organizations will be able to duplicate the mandate and structure, leading to inefficient use of resources. IORA member countries are bound by other regionalisms as well as a number of free trade agreements and Custom Union.

Figure 76. Overlapping membership in other regional organizations

6. Unsuitable mechanism for sharing costs and benefits in regional arrangements, which can undermine member commitment to regional cooperation. Given the fact that member countries have different levels of economy will impact on different levels of commitment and contribution to economic integration. Considering that, some IORA countries should be able to emerge as leaders in promoting regional cooperation.

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7. Endemic political instability, where in some cases, can lead to civil conflict. The IORA region has different threats to human security characteristics between the eastern and western regions of IORA. The Eastern Region faces more threats from natural disasters. While in the west, threats to human security tend to stem from conflict, especially internal conflict. Differences in perceptions of these threats will affect the level of confidence in regional countries.

Figure 77. Perception on security threat

8. It is undeniable that migration plays an important role in promoting the process of regionalism and economic integration. The existence of diaspora can be one of the factors of increasing the proximity of economic relations. National Geographic data 2015 shows that unlike APEC, migrations from IORA countries mostly go to non-IORA countries (especially to Europe). On the other hand, the migration that occurs in APEC has a tendency among APEC members. Figure 78. Migration IORA vs APEC

9. IORA member countries, particularly in the West Indian Ocean region, are still regarded as countries with high levels of risk. This may undermine private sector interest in capitalizing on such economic integration.

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Figure 79. Risk Assessment

By considering aforesaid matters, the closer form of economic cooperation that can be done by IORA can use the following pattern:

1. Closer economic integration IORA can be done gradually through multi-speed and multilevel integration. Economic integration is done first by member countries that are ready and fully equipped (multispeed) while preparing other members. Thus the level of integration will have several levels (multilevel). Related to that, the early stages of integration can be done through economic development facilitation, trade facilitation and sector cooperation. These three forms of cooperation must be jointly undertaken to provide a foundation for strengthening the economic structure of each member country.

2. To reduce the economic gap among member countries, especially LDCs, the capacity building to LDCs countries can bridge the economic gap between IORA members.

3. In addition, preferential trade may also apply to LDCs countries. The application of preffential tariff is based on the ability and willingness of each member.

4. Free trade Arrangement and Comprehensive Economic Partnership Agreement implemented based on variable geometry approach in IORA CEPA integration process. This approach is considered appropriate given the IORA member countries vary greatly in terms of economy, level of development, political system and government, culture, and interests. This approach allows for multispeed and multilevel integration.

5. Economic integration cooperation is carried out between blocked countries (block-by- block) so as to provide opportunities for other members to peer-to-peer learning.

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Figure 80. Proposed process to IORA Comprehensive Economic Partnership

Furthermore, from the results of the field study, there is an idea to apply 'new approaches' in developing IORA economic frameworks.

In a 'traditional' way, economic integration begins with sectoral cooperation, then proceeds to integration phases like Preferential Trade Arrangement (PTA), Free Trade Arrangement (FTA), and evolves into CEPA. On the other hand, the new approach offered is to build partnership cooperation through CEPA mechanism, then followed by PTA and FTA. Economic integration is possible to depart from the umbrella agreement in the form of IORA CEPA before entering into the discussion of tariff reduction. The 'new approach' is considered to shorten the process compared to the traditional approach. However, it is emphasized that the CEPA to be established must have a workable realistic structure.

The CEPA discussions with the 'new approach' will first rule out the discussion of tariff barriers and should focus more on cooperation: (1) trade facilitation, (2) trade in services, (3) investment, (4) economic / development cooperation, and (5) dispute settlement mechanism. Tariff barriers will be discussed at the end of the process of economic integration.

The packaging of the IORA CEPA framework proposal will also determine whether or not the mechanisms are accepted by member countries. IORA needs to focus on projects that have multiplier effects. The community needs to be given an understanding of the benefits that can be obtained from IORA CEPA through the development of partnership cooperation in trade, investment and services.

Going forward, IORA must synergize the efforts of economic integration with regional initiatives such as the Belt and Road Initiative and the Asia Africa Growth Corridor. IORA should also be able to capitalize relations with its dialogue partners, one of which is to strengthen capacity building programs.

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Section 5:

CONCLUSION

The economic development data of IORA countries illustrates considerable economic and development gap between IORA member countries. Therefore, the establishment and implementation of appropriate strategies in an effort to strengthen economic cooperation become a necessity. Based on the reflection of the economic relations in the area of the Indian Ocean (Chapter II); Regional Mapping (Chapter III) and finding the right model of increasing economic cooperation in IORA (Chapter IV), it can be concluded several important points as follows:

IORA needs to search for new breakthrough strategies to enhance economic cooperation and promote development, specifically in efforts to achieve the main objective of IORA as mentioned in chapter 3 (three) of The IORA Charter. The economic findings and the developments of the IORA member countries illustrate the current gaps in the economy among the members. Therefore the idea and implementation of the appropriate strategy to strengthen economic cooperation is imperative.

In this era of globalization, an effort of strengthening economic cooperation under IORA is heavily influenced by the current regional cooperation in the region. Enhancing regional cooperation will eventually help improve global economic cooperation. IORA as a core regional cooperation in the Indian Ocean could further act to link other regional cooperation that have been established, such as ASEAN and GCC.

In the effort to strengthen economic cooperation, IORA could engage and learn from the other existed economic cooperation forum, such as ASEAN, which the economic cooperation agreement mechanism was gradually implemented in the region. ASEAN started with the top economies first, before embracing other members.

The economic potential within IORA is seen as robust and able to push towards strengthening a more intensive economic cooperation. In doing so, IORA needs to highlight some of the main economic aspects that can be a force in efforts of strengthening economic cooperation, among these are Innovation; Competitiveness (of products and services); the ease of doing business and Trade Complementarity.

In the context of IORA, studies on the development of the four aspects of the economy (Innovation; Competitiveness of products and services; the Ease of Doing Business and Trade Complementarity) between 2010 - 2015 show very poor results. In regards of Innovation, data shows that most of the countries of IORA are still below the line of the average global Innovation Index. In terms of Competitiveness, data shows that IORA has the lowest value when compared with other areas. In the Ease of Doing Business, studies show that the development of these aspects in IORA are still low when compared with the other areas. While on the complementary aspect of trade among IORA countries, the data vary between countries, both export and import.

The concept paper of strengthening economic cooperation through IORA Comprehensive Economic Partnership Agreement (IORA - CEPA) which proposed by IORA Secretariat was firstly presented at the IORA 6th Bi-Anual Committee of Senior Officials (CSO) in Yogyakarta on 22-23 May 2016. The concept paper which was further discussed at the 22nd meeting of

110 the Indian Ocean Business Forum(IORBF), on 13 October 2016 in Jakarta, earned a various responses from IORA member countries. CEPA is the concept of economic cooperation with a wider scope than the concept of Free Trade (Free Trade Area - FTA). In addition to the free trade and tariffs sectors, CEPA also covers other economic issues such as technical cooperation, settlement of disputes, copyright (intellectual property rights) and others. The idea of CEPA is a true comprehensive concept that still in process.

Most IORA member countries consider that strengthening of economic cooperation through IORA - CEPA is still far to be realized, given the complicated and the number of issues that must be synchronized to reach an agreement on the concept of CEPA. Some countries tend to view that the facilitation and cooperation in real sectors as more logical choices to strengthen economic cooperation at the early stage, such as facilitating free trade zone and investment. These member countries are Iran, Malaysia, Singapore, the United Arab Emirates, Mozambique, Australia and India, while Mauritius supports the concept of CEPA to improve and strengthen economic cooperation IORA. it is time for IORA to find a right concept of collaboration that can be used as a breakthrough strategy in strengthening economic cooperation in the region. Some of these options include Preferential Trade Agreement (PTA); Free Trade Area (FTA) such as the ASEAN Free Trade Area (AFTA); or a CEPA agreement, similar to the Regional Comprehensive Economic Partnership (RCEP) involving all ASEAN members and six (6) ASEAN dialogue partners or the Trans-Pacific Partnership (TPP).

Recommendation

Noting the rapid changes of the dynamic world, IORA needs to anticipate issues in the region and prepare for the future of IORA’s economic cooperation.

To be able to compete on a global level, IORA member countries need to increase the capacity of the four main economic aspects, such as Innovation; Competitiveness (of products and services); Ease of Doing Business; and Trade Complementarity. IORA should encourage member countries to increase national capacity in those aspects. IORA need to consider the proposed CEPA cooperation concept, particularly in relation with economic cooperation objectives as stipulated in the IORA Charter.

Taking into consideration the diverse economic of member countries, IORA need to find more realistic and suitable models of cooperation, as of the most member countries see the concept of IORA - CEPA is still far to be realized.

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COST AND BENEFIT OF INDIAN OCEAN RIM ASSOCIATION (IORA)

TRADE COOPERATION FOR INDONESIA

Aziza Rahmaniar Salam & Ridho Meyrandhoyo Middle Researcher and Policy Analyst at the Center for Assessment of International Trade Cooperation Agency for Assessment and Development of Trade Ministry of Trade of the Republic of Indonesia

Policy Issues:

1. Indian Ocean Rim Association – IORA, formerly known as the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), is an intra-regional organization in the India Ocean region, established in March 1997 in Mauritius. IORA was established based on at least four pillars, namely the economic, maritime security and safety, education, and cultural pillars. The main objective of its establishment is to promote sustainable and balanced economic growth of all member countries and to create a strong foundation for regional economic cooperation through trade facilitation and eliminate trade barriers.

2. In the Jakarta (IORA) Concord declaration, signed at the IORA Summit in Indonesia in 2017, the leaders agreed to enhance trade and investment cooperation through IORA intra-trade in goods, services, investments and flow of technology cooperation. The agreement signed by IORA’s state leaders has led to a speculation of an IORA economic integration. Since most of the IORA member countries are African, Middle East, and West Asian countries with limited economic bilateral cooperation with Indonesia, it is expected that this cooperation can further improve Indonesia’s market access to those countries.

3. Against this background, Indonesia needs to conduct an internal study on the costs and benefits of the IORA trade cooperation for Indonesia.

Trade Performances of Indonesia and the World and Indonesia and the IORA Member Countries

4. The main exports of Indonesia to the world are still dominated by natural products and its processed products, such as CPO, coal, natural gas and rubber. CPO recorded the highest export trend (216%) during the last five years, while jewelry recorded the most negative export trend and decreased by 24%. Indonesia’s main export destination is the United States with total export amounted to USD 15.7 billion in 2016 or 11.8% of the total share of Indonesia's exports to the world. This is followed by PRC with the export value of USD 15.1 billion or 11.4% of all shares of Indonesian exports. In addition to these two countries, Indonesia also exports to Japan, India, Singapore, Malaysia, South Korea, Philippines, Thailand, and the Netherlands.

5. In line with Indonesia’s export to the world, Indonesia's export to IORA member countries is also dominated by CPO, which shares 7,7% of Indonesia's total export, even though the trend has been negative for the last 5 years. In 2012 Indonesian CPO export to IORA has reached USD 4.26 billion, while in 2016 it dropped 24% to USD 3.23 billion.

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6. Other Indonesian products exported to IORA member countries are coal, jewelry, chemicals and tin. Minerals fuel and oils (HS 27) are the commodities with the largest share of Indonesia’s export to IORA (22%). Meanwhile, the commodity with the greatest increase in exports were jewelry (HS 7113.19). In 2012, Indonesian jewelry export to IORA member countries has reached USD 27.3 million. In 2016, this number increased sharply to USD 1.2 billion.

7. Indonesia’s main imports from IORA member countries are minerals fuel and oils with 14% share of all Indonesia’s import from IORA. However, the trend of the exports was negative over the last 5 years. In 2012, Indonesia imported minerals fuel and oils for USD 13.2 billion, while in 2016 it fell to USD 5.7 billion or decreased by 56%.

8. Indonesia’s main export destination to IORA member countries is Singapore which accounted for 27% of Indonesia’s total exports to all IORA member countries. Besides Singapore, other largest Indonesia’s export destinations are India (24%), Malaysia (16%), Thailand (13%) and Australia (8%). Meanwhile, the other 15 member countries of IORA only contribute 12% of Indonesian exports.

9. Within the IORA member countries, Indonesia has the largest trade surplus with India, amounting to USD 7.2 billion, followed by Bangladesh to USD 1.1 billion, and South Africa to USD 437 million.

10. The economic integration in the Southeast Asian and African regions are diverse, and some of its members are intersect with IORA. There are various regional economic cooperation in Southeast Asia and Africa, including the IORA. Some IORA member countries are also members in other regional economic cooperation. For instance, while being a member in IORA, South Africa is also a member in Southern Africa Customs Union (SACU). Similarly, Oman is also a member in the Gulf Cooperation Council (GCC). Therefore, if South Africa and Oman make a trade cooperation with IORA in the form of PTA, FTA, or CEPA, it must also consider their commitment with SACU and GCC.

Costs and Benefits Analysis of the IORA Trade Cooperation to the Macro and Sectoral Economics

11. The analysis is conducted by using Computable General Equilibrium (CGE) model, with 2 (two) simulations, namely the 50% Tariff Reduction (Sim 1) and the 100% Tariff Reduction (Sim 2) with the following results: 11.1. Impact on Macro Economy

Benefits  The simulation of 50% and 100% tariff reductions showed positive impact to the real GDP of both Indonesia and IORA. In the 50% tariff reduction simulation, there is an increase of real GDP by 0,035%. Meanwhile, the Indonesian GDP will increase at the highest level of 0,075% when the 100% tariff reduction is applied.

 The 50% tariff reduction increases Indonesia’s welfare by USD 2.1 billion and IORA’s welfare by USD 1.3 billion. The 100% tariff reduction simulation will increase Indonesia’s welfare ups to the highest level by USD 5.6 billion. However, the same reduction will decrease IORA’s welfare by USD 53 million.

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 The 50% tariff reduction will increase both Indonesia’s and IORA’s investmet by 2% and 0.04% respectively. Meanwhile, the 100% tariff reduction will increase Indonesia and IORA’s investment by 0.83% and 0.03%.

Cost  In the 50% tariff reduction simulation, Indonesia will experience a trade balance deficit by USD 1.2 billion, while IORA will have a trade deficit up to USD 743.9 million. In the 100% tariff reduction simulation, Indonesia will experience trade balance deficit up to USD 2.8 billion and IORA will experience deficit by USD 1.8 billion.

Tabel 24 . Simulation Result 1 and 2 on Indonesia Macro Economy and IORA

Balance of Trade (USD Welfare Real GDP (%) Investment (%) Country Million) (USD Million) SIM 1 SIM2 SIM1 SIM2 SIM1 SIM2 SIM1 SIM2 Indonesia 0.035 0.075 -1215.760 -2897.252 2147.610 5662.500 2.06186 0.83563 IORA 0.037 0.048 -743.996 -1848.641 1328.780 -53.660 0.04282 0.03811 ROW 0.000 0.000 1959.756 4745.898 -1195.810 -2431.510 -0.03752 -0.01561

Source: GTAP output

11.2. Impact on Sectoral Economy

Benefits  In both 50% (Sim 1) and 100% (Sim 2) tariff reduction simulations, Indonesian export will experience an increase in the several main sectors/products, such as grains and crops sector; mining and extraction; processed food; textiles and wearing apparel; light manufacturing and heavy manufacturing. The most significant positive export performance was shown by the food processed sector, reaching 69,3% (Sim 1) and 192,7% (Sim 2).

 Whitin the intra IORA’s regional trade, both the 50% and 100% tariff reduction simulations have resulted to the increases on Indonesian imports. Sectors that experienced the highest increase in imports are processed food, grains and crops and livestock and meat products. However, the increase in imports does not necessarily considered as a negative impact, because these products could be used as intermediate goods that can be useful in increasing exports in the near future.

Costs  In both 50% and 100% tariff reduction simulations, the costs to the Indonesia’s sectoral economics are the decreases of exports in livestock and meat products as well as services sector, such as utilities and construction; transport and communication and other services.

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Tabel 25. Simulation Results 1 and 2 on Sectoral Export Performance (%)

SIM1 SIM2 Sectors IORA ROW IORA ROW GrainsCrops 23.470 -12.270 43.38892 -29.31252 MeatLstk -10.180 -12.010 -26.1136 -28.86074 Extraction 5.700 -2.220 11.06551 -5.11658 ProcFood 69.350 -6.050 192.7959 -15.23651 TextWapp 18.420 -6.090 35.2312 -15.51493 LightMnfc 19.180 -6.850 36.80025 -17.10557 HeavyMnfc 4.390 -6.510 4.57608 -16.26911 Util_Cons -5.390 -5.430 -13.6756 -13.67698 TransComm -5.310 -5.300 -13.4834 -13.3447 Other Services -5.590 -5.610 -14.0634 -14.00175 ` Source: GTAP output Tabel 26. Simulation Results 1 and 2 On Sectoral Import Performance (%)

SIM1 SIM2 Sectors IORA ROW IORA ROW GrainsCrops 17.670 5.600 46.81393 17.58951 MeatLstk 14.040 -1.750 34.64585 -1.03339 Extraction 4.950 -1.430 8.82769 -4.03901 ProcFood 19.410 1.940 49.06773 7.33479 TextWapp 10.030 -0.130 21.52444 -0.35099 LightMnfc 10.670 1.580 24.82172 4.7815 HeavyMnfc 7.830 -0.830 17.32244 -1.06469 Util_Cons 3.340 3.320 9.08148 8.82623 TransComm 2.770 2.720 7.65508 7.28733 Other Services 2.650 2.660 7.25926 7.04262 Source: GTAP output

12. Based on the result of the above mentioned simulation, the most moderate and possible option to be implemented by Indonesia is Simulation 1 (50% tariff reduction). The reason is because Simulation 1 has less trade balance deficit impact and provides greater increase in the investment rather than Simulation 2 (100% tariff reduction). Indonesia Cooperation with IORA, AAGC and OBOR 13. Within the IORA, Indonesia has had free trade agreements with 9 countries, namely Malaysia, Singapore, and Thailand through AFTA (ASEAN Free Trade Area) cooperation, Australia (through AANZF, IACEPA, and RCEP), India (through ASEAN-India and RCEP), Iran (through Indonesia – Iran PTA). Currently, Indonesia is exploring the possibility of bilateral trade cooperation Preferential Trade Agreement (PTA) with South Africa, Sri Lanka, and Bangladesh in the near future.

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14. Aside from IORA, it is also important for Indonesia to consider the rapid development of the Asia-Africa Growth Corridor (AAGC). The AAGC is an infrastructure development concept, initiated by India and Japan, to compete with One Belt One Road (OBOR), initiated by China, which at the same time, it has broaden the geopolitical influence of those countries in Asia and Africa regions.

15. On the one hand. the idea of AAGC is to connect Africa with India and other countries in Southeast Asia and Oceania by creating a new maritime corridor. The idea of AAGC has 4 principles which are: (a) development and cooperation projects; (b) improving the quality of infrastructure and connectivity; (c) capacity building and skills; and (d) people-to-people partnerships.

16. On the other hand, OBOR is a development strategy initiated by China, aimed at establishing maritime connectivity to contribute prosperity in the region. OBOR is also China’s strategy to have a bigger role globally with China-based trading networks. OBOR’s basic idea includes a wide range of trade regions, including Asia, East Africa, Middle East and Europe.

17. Although no membership has been specified in the AAGC, it is anticipated that the AAGC would have a positive multiplier impact on IORA. The reason is, it has broader scope of cooperation to be run, especially for economic growth, investment, and infrastructure development. On the other hand, OBOR iniative could also be used as a roadmap to achieve IORA objectives, such as maritime connectivity and infrastructure development.

18. Although Indonesia has had regional free trade agreements, such as ASEAN+6 and currently is in the process of completing bilateral agreements with several IORA member countries, it still needs to take into account its strategic position towards the AAGC, OBOR, and IORA cooperation. Through these three cooperation, Indonesia has great potential to become maritime axis and logistics center of the world, especially in the Pacific Ocean and Indian Ocean regions. Conclusions and Recommendations 19. Assuming that IORA becomes a free trade area in the future, the best benefit that will be obtained by both Indonesia and IORA is by applying the 50% tariff reduction, where there will be an increase in real GDP and welfare. Even though it has relatively lower increase on the real GDP and welfare compared to 100% tariff reduction, the 50% tariff reduction provides lower trade balance deficits and higher investment increase for Indonesia.

20. The cost to the economy of Indonesia and IORA member countries as shown by the simulations is the trade balance deficit. However, it does not mean that Indonesia should withdraw from the scheme of trade agreement, because it will loose greater opportunity to gain market access and other trade schemes.

21. Since, there is still a substantial income gap between IORA member countries, the establishment of trade scheme and cooperation should consider the economic level of each individual member countries so that all IORA member countries could get the optimal benefit of the potential trade cooperation. The economic cooperation aspects should be throughly considered.

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22. It is also important to be noted that some of IORA member countries, such as South Africa and Oman, has established custom union with Southern African Customs Union (SACU) and Gulf Cooperation Council (GCC). Therefore, these countries have an internal free trade agreement with the same external custom tariff. In this regards, it should be a special provision governing the IORA members who are incorporated in other custom union.

23. Based on the result of the analysis and economic situation of IORA member countries, the most appropriate trade cooperation for IORA is the Free Trade Agreement Plus (FTA+) Scheme. This scheme includes cooperation in the field of trade in goods, services, and the element of economic cooperation. In terms of trade in goods, tariff reduction scheme should be implemented gradually through several stages, starting from 50% tariff reduction, by taking into account the economic situation of each IORA member countries.

24. Considering the intersect areas and interconnected fields of cooperation among IORA’s, AAGC and OBOR, it is also important for Indonesia to follow the development of both AAGC and OBOR. So, Indonesia could be consistent in implementing policies that are relevant to the aims of Indonesian maritime axis, AAGC, OBOR and at the end to the IORA’s objective as well.

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Editors

Board of Editors

Chief Editors Chair of Committee

Dr. Siswo Pramono, LL.M Dr. Arifi Saiman, MA. Director General/Head of Policy Director of Centre of Policy Development Development and Analysis Agency and Analysis Ministry of Foreign Affairs, Republic of on Asia-Pacific and African Regions Indonesia

Editors Committee Members

Harya Kakerasana Sidharta, Drs. M. Zakaria Al-Anshori, Ph.D PLE Priatna Ernawati, MDIP/MSA Mangantar Simon Hutagalung, M.A. Prakoso Wicaksono, S.Sos, M.IR Iwa Mulyana, SH, LL.M Winandriyo K. Anggianto, S.IP Sigit Aris Prasetyo, M.Hum. Cecilia Axel Toumahu, M. PACS Eva K. Situmorang, S. Hum Arindya Anindita, MPSS Sthevia Idira Putri, MIS Sri Nirmala SH, Mkn Wahyu Riadi, M.Si Suryani, S.IP

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Facilitators

H.E. Amb. Y. Kristiarto S. Legowo Ambassador of the Republic of Indonesia in Canbera

H.E. Amb. Sidharto Reza Suryodipuro Ambassador of the Republic of Indonesia in

New Delhi

H.E. Amb. Octavian Alimudin Ambassador of the Republic of Indonesia in

Tehran

H.E. Amb. Rusdi Kirana Ambassador of the Republic of Indonesia in

Kuala Lumpur

H.E. Amb. Tito Dos Santos Baptista Ambassador of the Republic of Indonesia in

Maputo

H.E. Amb. Husin Bagis Ambassador of the Republic of Indonesia in

Abu Dhabi

H.E. Amb. Ngurah Swajaya Ambassador of the Republic of Indonesia in

Singapura

Arzaf Fachrezy Firman Consul General of the Republic of Indonesia

in Dubai

Yayan Ganda Hayat Mulyana Consul General of the Republic of Indonesia

in Sydney

Saut Siringoringo Consul General of the Republic of Indonesia

in Mumbai

Firdaus Dahlan Director of IORA Secretariat, Mauritius

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List of Abbreviation ABTC APEC Business Travel Card AEC ASEAN Economic Community AFTA ASEAN Free Trade Area AGOA African Growth Oppurtunity Act APEC Asia-Pacific Economic Forum ASEAN Association of Southeast Asian Nations ATM Automatic Teller Machine BC Before Christ BCM Billion Cubic Meter BFDA Brackishwater Fisheries Development Agency BIS Bureau of Indian Standards BKPM Badan Koordinasi Penanaman Modal BPPK Badan Pengkajian dan Pengembangan Kebijakan CEPA Comprehensive Economic Partnership Agreement CEPT Common Effective Preferential Tariff CIOS Chair of Indian Ocean Studies CIF Cost, Insurance, and Freight COM Council of Ministers COMESA Common Market for Eastern and Southern Africa CSA Central and Southern Asia CSO Committee of Senior Official DTF Distance to Frontier DIFC Dubai International Financial Corporation DIPP Department of Industrial Policy and Promotion ECI Economic Complexity Index ECO Economic Cooperation Organization

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EEZ Economic Exclusive Zone EU European Union FDI Foreign Direct Investment FFDA Freshwater Fisheries And Aquaculture Development Agencies FIPB Foreign Investment Promotion Board FTA Free Trade Area FTIZ Free Trade And Industrial Zone G20 Group of 20 GATT General Agreement on Tariffs and Trade GCC Gulf Cooperation Council GCI Global Competitiveness Index GDP Gross Domestic Products GII Global Innovation GSP Generalized System of Preferences GST Goods and Services Tax HDI Human Development Index HI High Income IA-CEPA India Australia-Comprehensive Economic Partnership Agreement IMF Internasional Monetary Fund INSEAD Institut Européen d'Administration des Affaires IORA Indian Ocean Rim Association IORAG Indian Ocean Rim Academic Group IORBF Indian Ocean Rim Business Forum IPR Intellectual Property Rights JCPOA Joint Comprehensive Plan of Action KLIA Kuala Lumpur International Airport KTMB Keretapi Tanah Melayu Berhad LCN

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Latin America and Carribean LDC Least Developed Countries LM Low Middle Income LNG Liquid Natural Gas LPG Liquid Petroleum Gas M&A Mergers and Acquisitions transactions MAS Monetary Authority of Singapore MT Metric Ton NAWA Northern Africa and Western Asia NBFC Non-Banking Finance Company OECD Organisation for Economic Co-operation and Development OFDI Outward Foreign Direct Investment ONGC Oil and Gas Company-owned Country PACER Pacific Agreement on Closer Economic Relations PPP Purchasing Power Parity PTA Preferential Trade Area RBI Reserve Bank of India RCEP Regional Comprehensive Economic Partnership RCSTT Regional Center for Science and Technology Transfer RM Ringgit Malaysia SAARC South Asian Association for Regional Cooperation SADC Southern African Development Community SDG Sustainable Development Goals SEAO Southeast Asia and Oceania SGD Singapore Dollar SME Small Medium Enterprises TCA Trade Cooperation Agreement

TCI

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Trade Complementarity Index TEU Twenty-foot Equivalent Unit TMT Thousand Metric Ton TPP Trans Pacific Partnership UAE United Arab Emirates UM Upper Middle Income UN CHARTER United Nations Charter UNCLOS United Nations Covention on the Law of the Sea UNCTAD United Nations Conference on Trade and Development UNESCO United Nations Educational, Scientific and Cultural Organization UK United Kingdom USA United States of America USD United States Dollar VOC Verenigde Oost-Indische Compagnie WEF World Economic Forum WIPO World Inteleectual Property Organization WTO World Trade Organization

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