Sun, 03 Aug 2008
The recent Indonesia Regional Investment Forum 2008 brought together more than 200 international investors with a shared objective: to explore investment opportunities in one of the fastest growing economies in Asia. They liked what they heard: a number of them told GlobeAsia they have serious intentions to invest here.

Fouad Hayel Saeed as been extremely busy shuttling betweeen Kuala Lumpur and Jakarta these past few months. The managing director of Pacific Inter-Link Sdn Bhd, a holding company based in Malaysia, is scouting around for investment opportunities in Southeast Asia’s biggest economy.

Fouad and several hundred investors from around the world were in Jakarta recently to attend the Indonesia Regional Investment Forum (IRIF) 2008 where the government of Indonesia was laying out the red carpet.

With global markets awash with liquidity, Indonesia with its rich natural resources stands to gain. Kenneth Courtis, former vice chairman of Goldman Sachs said in a speech that more than $950 billion from windfall oil profits is currently circulating the globe looking for investment opportunities.

Another speaker, Japanese economist Kenichi Ohmae, said Indonesia can be a new magnet for global investors. “We have known already that the investment magnet in the world is known as BRIC (Brazil, Russia, China, India), but these countries have overheated. Now, investors are looking for new destinations,” he stated.

Fouad himself says there are good reasons why investors are making a beeline for Indonesia.

“We have a lot of plans for Indonesia,” he told GlobeAsia. The company aims to invest in palm oil plantations in Sumatra and Kalimantan; establish an Islamic bank; and explore opportunities in mining and power generation.

Opportunities galore

Pacific Inter-Link is not a new player in Indonesia. The company, says Fouad, has been operating in the country since 1997, primarily in the palm oil industry. It has established factories in North Sumatra, Riau and Banten.

“When the crisis hit Southeast Asia, we found a lot of opportunities in Indonesia and we felt that it was the right time for us to pursue investments in the country,” he says.

Pacific Inter-Link currently exports close to two million tons of palm oil to the Middle East, Africa, Russia, Turkey and the Ukraine. Through subsidiary PT Pacific Indomas, it produces cooking oil, soap, tea and dairy products for export to Middle Eastern countries.

Abdulrahman Al Harthi, CEO and managing director of Mena Financial Group, a Dubai-based private bank, is also excited about the opportunities in Indonesia. The bank recently participated in a $7 billion 3,000-MW power plant project in Sumatra which will supply energy to Malaysia.

He told GlobeAsia that an estimated $20 billion worth of Middle Eastern funds is looking for assets in Southeast Asia. Indonesia is one of the hot spots in the region. “We believe this is the right time to come in given the government’s restructuring efforts and its anti-corruption drive.”

The Dubai financial institution is currently active in Malaysia and is also on the lookout for investment opportunities in Cambodia and Vietnam, where it is scouring for the right partners.

Khaled M. Al-Aboodi, CEO of the Islamic Corporation for the Development of the Private Sector (ICD), a member of the Islamic Development Bank group, revealed that he hopes to establish the largest Syariah bank in Indonesia in partnership with Bank BNI.

He has met President Susilo Bambang Yudhoyono several times since January and hopes to complete the feasibility study within the next two months.

The Syariah bank, which will be capitalized at $500 million, will be set up by the end of 2008, Khaled added. “Indonesia has a lot of natural resources and we hope to contribute to the development of the country.”

Khaled said he is interested in financing infrastructure projects in Indonesia, especially the Bekasi-Cawang-Kampung Melayu (Becak-Kayu) toll road project. ICD also plans to invest in the country’s telecommunication and energy sectors.

Meanwhile, Sime Darby chairman Tun Musa Hitam said he is committed to remaining in Indonesia for the long term. The Malaysian palm oil company has invested more than $1.2 billion to date in Indonesia.

“Our initial investment was only $400 million, but it was tripled in line with the expansion of our plantation business,” said the former Malaysian deputy prime minister.

Investment Realization

The Indonesian government offered projects worth $19 billion to the 200 international investors who gathered at IRIF 2008. Over the past six years, investment realization has increased steadily every year.

In 2007, direct domestic investments (DDI) realized totalled $3.6 billion while Realized Foreign Direct Investments (FDI) hit $9.08 billion. The total investment value rose by 53% in 2007 compared to 2006, which was only $8.24 billion for both DDI and FDI.

In terms of FDI, according to the Indonesian Investment Coordinating Board (BKPM), the biggest investments came from neighboring countries: Singapore (38%) with $3.4 billion in investments was top, followed by the United Kingdom (18.4%) with $1.6 billion, then Japan (6.2%) with $562 million worth of investments.

In terms of sectors, the favorite sector for FDI was the transportation storage and communication sector (36.3%), followed by the chemical and pharmaceutical industry (17.7%), food industry (6.4%), trade and repair (4.8%) and paper and printing industry (4.7%).

In terms of DDI, the paper and printing industry (44.1%) was number one with $1.5 billion in investment value, followed by the food industry (14.4%), metal, machinery and electronic industry (10.7%), food crops and plantation (10%), and construction (6.4%).

Problems Remain

While Indonesia is fast becoming an attractive investment destination, a number of problems still remain, the main ones the country’s high risk rating, lack of infrastructure and a highly bureaucratic system.

“Indonesia’s high country risk rating remains a challenge,” said Abulrahman from Mena Financial Group. The current B- or BB- is still below investment grade and makes it problematic for investors who don't know the country.

MS Hidayat, chairman of the Indonesian Chamber of Commerce and Industry (Kadin), asked the government to nullify a few regional regulations (Perda) which are obstructing investments.

Kadin itself, Hidayat said, has highlighted at least 1,000 regional regulations concerning illegal payment and bureaucratic red tape that obstruct investment. “Only 300 regional regulations were abolished by the government,” he laments.

Besides that, Indonesia also lacks sufficient infrastructure to drive ecoomic growth. In 1995, for example, Indonesia and China had the same amount of roads but since than China has built 55,000 km of new roads while Indonesia only added 700 km.

Responding to the criticism, Minister of Trade Mari Elka Pangestu says that, slowly but surely, Indonesia is working hard to improve the investment climate. The government is emabarking on an aggressive infrastructure building program and is also revising regulaitons on the Negative List which restrict foreign investments in some sectors.



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