By Vina Nadjibulla The signing of the Canada-Indonesia Comprehensive Economic Partnership Agreement (CEPA) last week is a significant boost to Canada’s economic diversification agenda . Indonesia is Southeast Asia’s largest economy, with a population of nearly 300 million, a rapidly growing middle class and an annual gross domestic product of almost US$2 trillion. Its economy is projected to grow at roughly five per cent annually over the coming years.

Indonesia’s needs in food security, clean power, digital and physical infrastructure and responsible mining closely mirror Canada’s strengths in agrifood, energy transition technologies, engineering services and critical minerals. The opportunity is clear and

CEPA is the framework to seize it. Canada-Indonesia commerce has grown, but remains modest relative to its potential. Two-way merchandise trade has hovered around $5 billion in recent years, with

Canadian exports led by cereals, fertilizers, pulp and machinery, and imports including electronics, apparel, rubber products and processed foods.

Stocks of two-way direct investment are meaningful — around $6 billion — but still shy of the scale Canada has with its other Asian partners, including Australia, China and Taiwan.

CEPA is designed to help close this gap. Once implemented, more than 95 per cent of Canadian exports should receive preferential tariffs. The agreement also addresses non-tariff barriers via chapters covering sanitary and phytosanitary (SPS) requirements for food and animal products, technical barriers to trade and good regulatory practices.

The agreement includes environment, labour and investment protection provisions — including investor-state dispute-settlement measures — and strengthens predictability for Canadian service providers and investors. In plain terms, it lowers both the tariff and the hassle costs of doing business.

What makes CEPA especially significant is that it delivers more than market access; it establishes working institutions — joint committees on SPS, critical minerals co-operation and regulatory best practices — that can turn potential into proof. For Canadian exporters, knowing that beef, pulses, wood and machinery won’t be held up by opaque SPS rules or shifting regulatory demands matters greatly.

This new economic agreement also builds on momentum already in motion.

Export Development Canada opened an office in Jakarta in 2023, giving Canadian companies a financing partner on the ground for Indonesia’s enormous infrastructure pipeline — from ports and power to water systems and data centres.

In December 2024, a Team Canada trade mission brought more than 190 companies and organizations to Indonesia, catalyzing business matchmaking and concrete memorandums of understanding (MOUs) across agriculture, clean energy, technology and advanced manufacturing. Those efforts demonstrated both the demand in the market and Canada’s capacity to meet it; CEPA now provides the rules and channels to scale.

None of this is risk-free. Indonesia’s regulatory environment remains complex. Inconsistent enforcement, bureaucratic delays and governance challenges can raise the cost of market entry. Transparency concerns are real.

International benchmarks rank Indonesia around the 100th mark globally in terms of corruption perception, a reminder that strong compliance and credible local partners are essential. Political volatility is also a factor. Recent large-scale protests and debates over the military’s role in civilian life underscore that domestic politics can intrude on business planning. Navigating corruption and regulatory complexity will be critical.

Canada has homework to do, too. Only about one in 10 Canadians say they are knowledgeable about Indonesia, according to Asia Pacific Foundation of Canada polling in 2024. Low awareness and understanding dampen business appetite and make it harder to sustain political focus.

If we want CEPA to deliver, Ottawa and the provinces will need to pair market access with practical support: trade readiness for small and mid-sized enterprises, sector-specific playbooks, mobilization of patient capital and a sustained effort to tell the Indonesia story to Canadian companies and investors.

CEPA — alongside a defence co-operation MOU also signed during President Prabowo Subianto’s visit — is a significant step forward for Canada’s Indo-Pacific agenda and for a high-potential partnership with Indonesia.

Challenges in governance, transparency and awareness are real, and we should approach the market with eyes wide open. But given Indonesia’s immense scale, growth trajectory and growing geopolitical significance in Southeast Asia and beyond, the effort is worth it.

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If Canada uses this moment wisely — leveraging CEPA, building partnerships, investing in infrastructure and fostering institutional trust — we can turn potential into reality not just in Indonesia, but in our wider and, in the current geo-economic and geopolitical context, necessary rebalance toward Southeast Asia and the Indo-Pacific.

Vina Nadjibulla is vice-president, research and strategy, at the Asia Pacific Foundation of Canada.