The US$6 billion South Korean companies committed to investing in six energy development projects in Indonesia under the memoranda of understanding, signed last week on President Lee Myung-bak’s three-day visit here, is really a confidence-building deal amid the global economic downturn.
While the media report the worsening global economy every week and with asset values constantly tumbling, South Korean investors continue to demonstrate a high sense of confidence in the long-term outlook of Indonesia’s economy, notably its rich natural resources.
Yet most encouraging is that the bulk of the new investment commitment will be realized in six environment-friendly energy development projects, including renewable biomass power projects.
These investments are indeed long-term oriented, in view of the recession foreseen in the developed countries and economic slump in most emerging countries at least until 2010. But if these projects are implemented according to schedule, they will come on stream to coincide with the global economic recovery, projected to start in 2011.
The new investment deals reflect the increasing depth and breadth of the economic relationship between the two countries, as a result of the Indonesian-Korean comprehensive strategic partnership agreement signed by President Susilo Bambang Yudhoyono and then president Roh Moo-hyun in December 2006.
Moreover, the economies of both countries have always complemented each other. South Korea, already a developed country with a per capita income of more than $19,000 but with very few natural resources and a population of less than 60 million, needs natural resource commodities and a market for its manufactures. On the other side, Indonesia, which is richly endowed with natural resources, a population of more than 230 million, but a per capita income of a mere $1,600, badly needs capital, technology and expertise from Korea to develop its economy.
Little wonder South Korea is now one of the largest foreign investors in Indonesia and its fifth biggest trading partner. Yet more encouraging is that the new investment projects undertaken by Korean companies in the country also fit in with the stages of Indonesia’s economic development process.
Whereas, from the early 1960s until the late 1970s, Korean companies focused their investments in such extractive ventures as logging and mining, between the 1980s and 1990s they invested mainly in labor-intensive, foot-loose manufacturing plants.
However, since the 2000s Korean investors have focused their attention on basic infrastructure, sustainable forest management and renewable energy development, manufacturing supported with strong research and development resources and other natural resource-based projects.
All this is also the result of the comprehensive strategic partnership agreement which stipulates clear-cut directives for bilateral economic ties.
The partnership agreement has further strengthened the confidence of Korean businesses to operate in Indonesia. They have made Indonesia one of the main targets for their investment overseas. In 2007, for example, the Korean government set up a business facilitation center in Jakarta to help its small- and medium-scale companies to do business in Indonesia.
The Indonesian government should not, however, take for granted the great Korean investors’ interests. Basically, Korean investors are not much different from other overseas businesspeople. They also need adequate infrastructure, legal certainty, policy consistency and predictability. Without these prerequisites, the bilateral strategic partnership agreement will not mean much in the way of stimulating investment.