Thu, 08 Oct 2015
With the weakening of the rupiah and the economic slowdown throughout the year, investment has become a strategic area for the government to focus more on. To accelerate investment, the President has instructed a cut in all interlocking regulations that create bottlenecks in the investment pipeline. With the Investment Coordinating Board (BKPM), the instruction has been implemented through a method called HGSL, is the Indonesian acronym for deleting, merging, simplifying and delegating permit applications, in an attempt to enhance the ease of doing business and boost investor confidence in the country.

The BKPM has set a target value for in-principle approval (IP) of up to Rp 7 quadrillion (US$480 billion) over a period of five years, i.e. 2015 to 2019. The target is twice that of the investment target in the previous period. The doubling of value of IP is based on historical data on the investment ratio of 50 percent.

The investment target of Rp 3.5 quadrillion over the next five years is required to sustain the targeted year-on-year(yoy) GDP growth of 7 percent.

The low investment ratio is partly due to the lack of commitment of investors to implement their plans. To date, more than 5,000 IPs have been revoked by the BKPM. Revocation is the last resort as many investors rarely submit their investment progress reports (LKPM) in a correct and timely manner. Perhaps these investors are too overwhelmed by their business routines or some might already have started enjoying the returns on their investment so that they neglect the LKPM, which is part and parcel of the IP they were granted when they first started the business.

________________

The strict boundary between industries might look like an obstacle, but in fact this is beneficial ...

In order to continuously improve the quality of investment, the BKPM recently modified the IP application in sectors that have the potential to provide transfer of knowledge and expertise to local talent. One of the prospective sectors to perform such a knowledge transfer is management consulting. In the new system, prospective investors are required to make a presentation before a group of panelists. The presentation contains a proposed business model as the means to execute the investment, including but not limited to description of activities, value propositions, key resources, revenue capacity and timeline of investment.

From various presentation sessions, it appears that quite a number of prospective investors do not have a feasible business model to begin with, let alone one that is sustainable. In this knowledge-intensive sector, prospective investors are expected to have proprietary methodologies, clear concepts and or proven frameworks in solving specific business problem areas, and not merely show the plan of investment.

In consulting services, experts are core resources that the company should have from the start. Without any propretiary methodologies or frameworks, or experts with a history of intensive experience in their respective fields, then the consulting company will not be able to attract corporate clients, and facilitate effective transfer of knowledge and expertise to local talent.

Another problem area often found is that not all potential investors know the scope of consulting. For example, consulting services and training are closely linked and therefore are often combined to make up the portfolio of a consulting firm. However, according to the Indonesian version of the Standard of Industry Classification, consultation and training are two distinct business activities, thus requiring two different IPs.

Another similar example is between a specific consulting activity such as in the field of logistics, with procurement of transportation or storage facilities. This also merits two different IPs if the investor plans to operate in both sectors. As a consequence, an investor needs to prepare an investment outlay at double the cost and at the same time check on the permitted foreign ownership in the Negative List of Investments for those sectors.

The strict boundary between industries might look like an obstacle, but in fact this is beneficial to stimulating the synergies between foreign investors (PMA) and local companies. The consulting services can remain under the control of the PMA companies, but on the training side, PMA companies can promote local organizations to deliver the training to clients.

Likewise in logistics consulting, PMA companies shall only focus on providing advice about efficient structure of supply chain, but the client can still choose and negotiate his own contract of carriage or storage with a local vendor or another PMA company that specializes in procurement. For the sector of management consulting, a knowledge-intensive business model and proven expertise are as important as the monetary value of the investment itself.

The BKPM also continues to make improvements in its online IP application system called SPIPISE. The fact is that there are many potential investors who are too dependent on third parties to process their IPs. The dependency is so huge that in some cases, even the username and password to the online application are kept strictly by the third party. This third party may be a party that does not get any benefits from a more transparent system. More red tape may mean more business for it. The improvements that the BKPM has been making should ideally be experienced directly by potential investors who want to do sustainable business in Indonesia. ________________________________

The writer is a senior faculty member at Bina Nusantara University and an expert in management consulting at the Investment Coordinating Board.





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