Jakarta (ANTARA News) - Indonesia expects investment next year to grow by 15 percent of the target of Rp160.1 trillion for this year but critics suggest much needs to be done to improve the investment climate.
The lengthy licensing procedures, the inadequate number of infrastructure facilities, a lack of transparent taxation system, restriction on foreign investment, limited access to land and poor protection of investment are likely to remain obstacles to investment.
The Organization of Economic Cooperation and Development (OECD) recommends in its new report issued early this month that Indonesia continue to simplify the business licensing process to attract more foreign direct investment into the country.
The effort to simply procedures in the licensing process to start business undertakings is a step that must be continued, OECD Secretary General Angel Gurria said when delivering an OECD report on Investment Policy Review of Indonesia and OECD Economic Survey of Indonesia 2010 early this month.
OECD also suggests that Indonesia lift restrictions on foreign investment, improve access to land, better enforce competition rules, further strengthen protection of investor assets and continue cutting red tape.
There need to be political will from all elements of the nation to support the government`s effort to lure foreign investment, business and investment law observer Piet Djemadu of Nusa Cendana University in Kupang, East Nusa Tenggara, said late last month.
"So far, obstacles faced by investors are related to the inadequate number of infrastructure facilities, lengthy licensing procedures and a lack of legal certainty about land as location for investment projects," he said.
"Without joint commitment and strong political will from all elements of the nation all the efforts made by the government under the leadership of President Susilo Bambang Yudhoyono will be fruitless," he said.
Djemadu said the joint commitment and political will include encouraging and reminding each other of the need to provide foreign investors with facilities to invest elsewhere in the country they want to.
Economist Anggito Abimanyu of Yogyakarta-based Gadjah Mada University (UGM) said a lack of effective and transparent taxation system is one of the stumbling blocks to investment flows into the country.
"Indonesia currently needs a large amount of investment. To boost the investment climate the government can reduce tax burden particularly that of corporate taxpayers," he said in a seminar in Yogyakarta recently.
Another UGM economist Rimawan Pradiptyo said the issues of infrastructure facilities, legal certainty, overlapping bylaws and manpower must have attention from the government.
"Foreign investors want good and safe return on investment," Rimawan said.
Deputy Chairman of the House of Representatives Commission VI Agus Hermanto said investment has yet to reach optimum level because the integrated one-stop-service system applied by the Investment Coordinating Board (BKPM) has not run well. Several regions have not yet applied the system.
After all, BKPM has projected a 15 percent investment growth for 2011 from the target of Rp160.1 trillion for this year.
In his keynote speech at an economic forum here early this month BKPM chief Gita Wirjawan noted transportation, telecommunications, infrastructure, food industry and real estate sectors will continue to attract investment.
Wirjawan said he was optimistic that Indonesia may get a place in the BRIC most influential developing countries in the global economy, provided that Indonesia catches up with its infrastructure needs. Indonesia has bigger economic potentials due to its many economic sectors.
"Russia`s economy hinges on one or two sectors, unlike Indonesia which relies on many sectors," Wirjawan pointed out, adding that Indonesia might add another letter to BRIC and that becomes BRICI with the last "I" stands for Indonesia.
In addition, he added, Indonesia has increasingly become stable politically in recent years, another strength that may allow the country to become other economic giants alongside the previous countries in BRIC (Brazil, Russia, India, and China).
Indonesia also has been enjoying a steady and strong economic growth of 6.0 percent averagely in recent years, he said.
Total investment in the first nine months of this year rose 33.4 percent to Rp 149.6 trillion from Rp 112.1 trillion in the same period last year. A great chunk of the investment came from foreign investment, contributing Rp 111.1 trillion or nearly 76 percent to the total.
BKPM Deputy Chief Yus`an said late last month the agency is optimistic the country will reach the government-set investment target of Rp160.1 trillion. "We believe the target can be achieved. Given the existing trend we hope it can reach Rp180 trillion (this year)."
He also believed investment this year will exceed the realized investment in 2009, 2008 and 2007 which reached Rp135 trillion, Rp154.2 trillion and Rp134.8 trillion respectively.
Data from BKPM show investment in the third quarter of 2010 reached Rp56.7 trillion consisting of domestic investment worth Rp16.6 trillion and foreign investment worth Rp40.1 trillion.
"The realized investment until September shows encouraging developments because the amount of domestic investment is getting larger and investment in provinces outside Java begins to show signs of promising," he said.
In the third quarter of 2010 domestic investment contributed 29.3 percent to the total investment compared to 22.7 percent in the same period last year.
Over the period, investment in provinces outside Java grew 37.7 percent to Rp21.4 trillion, up 12.9 percent from the same period last year when the figure was Rp5.9 trillion.
"The realization of investment until September 2010 accounts for 93.4 percent of the target of Rp160.1 trillion for 2010," he said.
Judging by the investment performance until the third quarter of 2010, he believed the target of Rp160.1 trillion could be achieved.
"It is likely (the investment) can reach up to Rp180 trillion at the end of this year," he said.
By September 2010, domestic investment reached Rp38.5 trillion or 29.3 percent of the overall investment and foreign investment Rp111.1 trillion or 70.7 percent, he said.
Five sectors dominated domestic investment. The food crops and plantation sector took the lead with Rp4.5 trillion in 76 projects.
The transportation, warehousing and telecommunication sector came in second with Rp3.1 trillion in 13 projects, followed by the food industry with Rp2.8 trillion in 34 projects, base chemical, chemical and pharmaceutical industry with Rp1.4 trillion in 20 projects and other service sectors with Rpo1.1 trillion in 33 projects.
Most of foreign investment meanwhile went to the housing complex, industrial estate and office complex sector with US$0.8 billion in 33 projects.
This was followed by the mining sector with US$0.7 billion in 88 projects, transportation, warehousing and telecommunications sector with US$0.6 billion in 29 projects, food industry US$0.4 billion in 67 projects, food crops and plantations US$0.3 billion in 72 projects. (*)