Arab Business Empire in Indonesia

THREE Arab brothers from Padang, West Sumatra, arrived in Batavia in the 1920s. They were all businessmen with abundant wealth, the result of their parents' inheritance and their business profits. However, their main mission in Batavia was not to do business, but to introduce Batavian citizens to Arabic distinctive musical and theatrical traditions.

“Apart from being business-minded, they, Sayid Idrus, Sayid Syehan, and Sayid Abubakar, were also artistic; they loved entertainment,” Mudrik bin Shahab told Historia. According to Mudrik, they belong to the bin Shahab clan. “They are still related to Ali Menteng.” Ali Menteng was a renowned journalist and a pioneering figure in Indonesia.

In Batavia, they lived with their relatives, or sometimes outside kampung Arab (Arab neighborhood). The colonial government had abolished wijken (neighborhoods according to origin) and passenstelsel (a system that requires people of certain ethnicities to carry a pass while traveling) in 1919. The Shahab brothers chose to live in Sawah Besar while running a business in Sumatra. They also bought a plot of land to be used as a performance hall. Their troupe performed regularly and permanently in the building.

People liked their performances and called it Komedi Bangsawan (Comedy of the Nobles). “Because this art form originally emerged from noble palaces, such as Deli Palace in Medan and Siak Palace in Riau,” wrote Alwi Shahab in Betawi Queen of the East.

Their theater eventually grew and with an increasing amount of audience. The Shahab brothers also thought of starting business in Batavia. They built shops along the road to the theater, and even opened a movie theater in the same building in the 1930s. This was a new business for Arabs in Batavia. Through this, they also broke the dominance of Chinese entrepreneurs.  

“The movie theater, Alhambra, played movies from Egypt. It's different from other theaters which often showed Chinese or Western films,” said Mudrik.

Importing movies was no big deal, because the Shahab brothers had a network all the way to Egypt. The movies attracted the Betawi people, who came in groups from all over the city by renting an oplet, a small car used as public transportation.  

Mudrik enjoyed Alhambra's shows several times in the 1950s. He said, “This movie theater was for common people. The ticket price was not too expensive: 3 rupiah to sit in first class; 1.5 rupiah for second class; and half a rupiah for third class.” Despite the price, Alhambra filled the Shahab Brothers' pockets with money.  

Unfortunately, the Egyptian Revolution in 1952 destroyed that sweet victory. The supply of movies to Alhambra stopped, forcing the theater to screen Western films like any other theater. There was no more uniqueness, making the audience gradually recede. Finally, the theater closed in the 1960s and the building was sold.

“The closure had no major effect on the Shahab brothers. The entertainment business was just a sideline for them,” said Mudrik, chuckling. One went bankrupt, others remained. This is common among Arab descendants in Indonesia. They have businesses on various fronts: rents, shops, land-housing, textiles, and horse trading.

Building Business in a Faraway Land

Arabs played an important role in the Nusantara's trade center in the 10th century by forming long-distance trade networks across the oceans, stretching from Egypt, China, and India to Java and Sumatra. Some made a living from the spice trade, while others sold jewelry and luxury goods. This lasted until the arrival of the Dutch in the 17th century.

The Dutch, through the East India Company (VOC), quickly gained control of several trading centers on the coasts of Sumatra and Java. The VOC implemented monopolistic practices in long-distance trade, which pushed the Arabs out as a result. The scope and territory of the Arab business decreased. However, some of them managed to survive.

“In the 18th century the Arab sayyids from Hadramaut (now part of Yemen) had influence in trade in the western archipelago, especially Siak, Palembang, Perlis, and Pontianak,” wrote M.C. Ricklefs et al. in Sejarah Asia Tenggara dari Masa Prasejarah sampai Kontemporer (History of Southeast Asia from Prehistory to Contemporary Times).

They specialized in shipping services, with ships sailing in the waters of Java, Palembang, and Malacca. “The average ships owned by Arabs was only just over 50 tons, but some of their vessels were much larger,” wrote William Gervase Clarence-Smith in ‘Middle Eastern Entrepreneurs 1750-1950’, published in Diaspora Entrepreneurial Networks edited by Ina Baghdiantz McCabe et al.

Their navigational skills supported the shipping business. The VOC didn't see the Arab shipping business as a threat, so the business survived until the 18th century.

The decline of the VOC at the end of the 18th century brought about changes in the economic system of the Indies. At the same time, long-distance maritime trade declined. The Dutch no longer saw maritime trade as a source of income and turned to the agrarian sector.

To extract profits from the agrarian sector, the colonial government implemented a forced cultivation system in 1830, followed by the introduction of a money economy. This system forced the natives to be outward-oriented (earning profits from export), pay taxes, and exchange goods and services for large amounts of money. This system crushed the traditional native economy, which was inward-oriented to fulfill their own needs, or known as subsistence.

Two economic systems then emerged. J.H. Boeke in Prakapitalisme di Asia (Precapitalism in Asia) called it economic dualism. There is a gaping hole in these two systems. How could farmers' products reach outside the village? The Arabs, as well as the Chinese, saw this gap. The colonial government knew these two groups could emerge as a threat, but they had little choice because they had to fill their coffers immediately. So, they accepted the two groups as intermediaries between the export and subsistence economic systems; between the government elite and the natives; between the outside world and the village. The gap was successfully closed.  

Since then, Arabs, mostly Hadrami, have stopped trading in spices and luxury goods. “Since the 19th century, their economic activity has been based on trading agrarian products (rubber, coffee, sugar, and tea) grown by the natives. They also provided credit in cities and villages,” wrote J.M. van der Kroef in Indonesia in the Modern World I. In another work, “The Indonesian Arabs” published in Civilisations Vol. 5 No. 1 1955, van der Kroef said Arabs served as “intermediaries between the colonial government and Indonesian peasants in the economic network of money, modern consumption, and production needs.”

Hadrami's Business Diversification

Acting as the "middleman" brought great benefits for the Hadrami people because many farmers relied on them to sell surplus crops. “The peasants lacked capital, skill, and incentives, combined with little to no familiarity with market demands,” van der Kroef wrote. There was no other choice for the farmers besides sharing profits with the Hadrami.

Unlike the Arabs, the farmers were stuck in a tight spot. In Java, their welfare declined in the mid-19th century. Clifford Geertz in Involusi Pertanian (Agricultural Involution) called it shared poverty. To buy their daily needs, farmers again depended on the Hadrami. They did this by borrowing money despite the high interest rates. This became the side business of the Hadrami people. From these two business practices, the Hadrami people strengthened their economic power.

“In 1860, both in the product part (crops) and in the import part, (many Arab traders at that time were intermediaries between importers and small traders) Arab traders held a firm position,” wrote Abadulkadir Alsegaf in “Balans Perdagangan Arab di Indonesia” (Arab Trade Balances in Indonesia) published in Insaf, November 1937.

The Hadrami people made huge profits. They put some of it aside for other business capital, such as a credit shop for daily necessities. They sent the rest of their profits along with a letter to their relatives in Hadramaut, announcing their success overseas. This later became one of the motivations of the Hadrami migration to the Indies, in addition to the opening of the Suez Canal and the invention of the steamship.

The Dutch East Indies was almost like a promised land that gave many advantages. The Hadrami people didn't hesitate to invest in various lines of business, including land-housing, horse trading, and the textile industry. Although the colonial government applied discriminatory rules against Arabs at that time, the Hadrami business was unstoppable.

A number of Hadrami in the Dutch East Indies had reputations as multimillionaires by the late 1930s.

Surviving the Recession

The Hadrami were leading in the residential land business in Batavia and Surabaya. One of the barons, named al-Saqqaf, came from a Singaporean Hadrami family. “By early 1860, the family owned 12 houses in Surabaya, three in Batavia, and vacant land in both cities,” Clarence-Smith wrote. They bought or built housing and then rented it out.

This business flourished in 1885. According to Rajeswary Ampalavanar Brown in “The Decline of Arab Capitalism in Southeast Asia” published in The Hadhrami Diaspora in Southeast Asia edited by Ahmed Ibrahim et al., the Hadhrami controlled 20 percent of the investment in this field in Surabaya and 15 percent in Batavia. For the entire Indies region, the value of their investment reached 16 million guilders.

This dominance was also evident in the horse trade in Sumba and Sumbawa. There is no exact record of when the Hadrami started this business there. But Zollinger, a Dutch official, noted that they controlled the business after the 1840s. “This shows that they had been actively trading horses in Sumbawa for some time before that. In contrast, Hadrami domination of the horse trade in Sumba began in the 1840s,” Clarence-Smith wrote in “Horse Trading: The Economic Role of Arabs in the Lesser Sunda Islands 1800-1940” published in Transcending Borders: Arabs, Politics, Trade and Islam in Southeast Asia.

The textile industry was also in the clutches of the Hadrami people. However, it wasn't easy to master this business because there were competitions from the Chinese. “The Arabs were less prominent than the Chinese in processing raw materials for export,” Clarence-Smith wrote. So, the Hadrami chose to focus on the domestic market. Their textile industry was centered in Pekalongan from the 1860s and expanded to Surakarta in 1930, when the recession hit the Dutch East Indies.

The recession became a new challenge for the Hadrami. Some Hadrami entrepreneurs lost money, and their businesses were swept away by the recession. However, many were also able to survive, especially those who didn't only put their money in just one line of business, but also did business without the help of the colonial government and other foreign partners. “Their business strategy was very individualistic. It is driven by the instinct of seeing a gap in the prospective sector,” Rajeswary wrote.

No wonder the Hadrami people remained wealthy during the recession. “A number of Hadrami in the Dutch East Indies had reputations as multimillionaires by the late 1930s,” Clarence-Smith wrote in “Hadhrami Arab Entrepreneurs in Indonesia and Malaysia” published in Weathering the Storm edited by Peter Boomgaard and Ian Brown.

New Hadrami entrepreneurs emerged even during the recession. Two names stood out: Brahim Baswedan and Bin Marta, both are from Surabaya. About Baswedan, the daily Jawa Pos, January 23, 1985 wrote, “in the 1930s, before Indonesian entrepreneurs were familiar with real estate, Baswedan, who had seven sons, had already started pioneering housing development projects in Surabaya.”  

Bin Marta had a different story. “The bin Marta family emerged as Surabaya's most successful Hadrami wholesalers,” Clarence-Smith wrote. They also had a textile business under the Alsaid bin Awad Martak Firm. “By the late 1930s, the firm was the largest non-European textile company in Java,” Peter Post wrote in “The Formation of Indigenous Elite Business by the Late Twenties”, published in KITLV Journal 152 No 4 (1996).

The Fading of Business

After the recession, the Hadrami people entered a new era in which they held Indonesian nationality. The Indonesian National Economic Congress in 1956 recognized them as indigenous entrepreneurs. Unlike the colonial period, the government supported them although this support did little to sustain their businesses.

The Baswedan family business, for example, had been in decline since the 1960s due to too much competition in the market, old machinery, and unprofessional management. The company finally closed down completely in 1980. “Some of the equipment had also been sold,” Farouk Baswedan, Brahim Baswedan's grandson, told Jawa Pos.

A similar situation befell Hadrami businessmen in Jakarta. Zeffry Alkatiri, a researcher of the Arab community in Jakarta, has his own analysis of the economic decline of Hadrami descendants. In his research report, Ketersisihan Pedagang Arab oleh Pedagang Cina di Empat Wilayah Jakarta Tahun 1960–1990 (The Exclusion of Arab Traders by Chinese Traders in Four Jakarta Areas in 1960-1990), he mentions at least five causes: lack of regeneration, lack of good management, lack of capital unity, loss of strong networks, and not caring about consumer desires.

They lost out to the Chinese who later took on their economic role, in addition to being supported by the New Order. The economic power of Arab descendants was ultimately lost. “In the field of economy and trade their role is no longer significant,” Hamid Algadri wrote in Snouck Hurgronje: Politik Belanda Terhadap Islam dan Keturunan Arab (Snouck Hurgronje: Dutch Politics Toward Islam and Arab Descendants).

Although now they only do small business, they are far from dead. Some Arab businessmen have emerged, even close to power, despite still being less powerful than Chinese businessmen.