'Quo vadis' industrial estates in Indonesia?<\/p>\n
Jacky Mussry
\nContributor
\nJakarta<\/p>\n
In the last few years Indonesia has remained in the grip of an
\nacute economic crisis, a situation that has led to a drastic drop
\nof its economic growth rate.<\/p>\n
The government and the International Monetary Fund (IMF) have
\nset the growth rate of the country's economy at not higher than
\nfour percent.<\/p>\n
Part of this economic growth has come from domestic
\nconsumption. Still, as the rate of unemployment has reached a
\nhigher level, there is fear that a lower purchasing power on the
\npart of the public will be responsible for a drop in the domestic
\nconsumption level.<\/p>\n
Foreign direct investment is yet to come to its maximum level
\nbecause Indonesia is yet to offer a situation that is really
\nconducive for foreign investors to do business here. Some crucial
\nissues in this regard include manpower, poor law enforcement and
\nsecurity.<\/p>\n
A concise report on investment issued by the Investment
\nCoordinating Board (BKPM) shows that between January and June
\n2003 foreign investment showed a significant rise in value
\nalthough the total number of projects has gone down.<\/p>\n
These figures, however, are still far below those recorded
\nbetween 1994 and 1997, the period before Indonesia plunged into a
\ndeep economic crisis. Direct foreign investment, particularly in
\nthe manufacturing industry, can actually open up employment
\nopportunities and therefore jack up the purchasing power of the
\npeople.<\/p>\n
It will eventually raise the level of domestic consumption or
\neven offer fresh opportunities in the export sector where
\nactivities are currently far from satisfactory. It is easy to see
\nthat the higher the level of domestic consumption and export
\nactivities go, the higher the economic growth rate will be.<\/p>\n
In a situation like this we are well aware that the capacity
\nof the government's spending is still limited. Reduced interest
\nin investment will, among other things, show its impact on the
\noccupancy rate of industrial estates in this country.<\/p>\n
While Indonesia's condition in general is yet to be conducive
\nfor lucrative business activities, industrial estate owners and
\nmanagers have also found it difficult to offer their industrial
\nestates due to fierce competition from other countries. Malaysia,
\nfor example, is smaller in size than Indonesia but has more
\nindustrial estates.<\/p>\n
A paper by the United States-Asia Environmental Partnership
\n(US-AEP) shows that there are more than 300 industrial estates in
\nMalaysia, far higher than only 55 in Indonesia. Singapore has 30
\nindustrial estates, the Philippines 88 and Thailand 23. Besides,
\nIndonesia has another strong contender, China, which has now
\nbecome a favorite for major international companies. China is so
\nattractive to foreign investors that even the SARS (Severe Acute
\nRespiratory Syndrome) epidemic was powerless against the
\ncountry's hike in economic growth rate, which went over 8 percent
\nin the first half of this year. In addition, Indonesia will also
\nhave to compete with Vietnam, Myanmar and Laos.<\/p>\n
The Integrated Economic Development Zones (KAPET) in the
\neastern part of Indonesia, which is aimed at spurring the
\ndevelopment in that region, is yet to develop as expected. Last
\nApril, Indonesia's economic minister, said that the government
\nwas determined to continue developing these zones but that a
\nprofound evaluation had to be made to ensure that short-term and
\nlong-term problems would be identifiable.<\/p>\n
As a matter of course, various efforts have been made to
\nmarket Indonesia's industrial estates. The North Sumatra
\nprovincial administration and the municipality administration of
\nMedan as well as the regency administration of Deli Serdang, for
\nexample, are deeply committed to developing Medan Industrial
\nEstate (KIM) into a Medan-Deli Serdang free trade zone for
\nindustries completed with various kinds of tax incentives to lure
\ninvestors.<\/p>\n
Next, the Jababeka industrial estate, which is located in West
\nJava and in close proximity to Jakarta, has also tried to do the
\nsame to attract investors. The management of Jababeka has made
\nthe estate more \"integrated\" by merging industrial, residential
\nand educational areas. The question is: Has enough been done?
\nWhat else can industrial estate management do to better market
\ntheir land plots?<\/p>\n
One of the few options left is making adjustment to the
\nconcept offered, such as what the Jababeka management has done.
\nWe all know that many industrial estates either at home and
\nabroad offer a simplified licensing mechanism, tax incentives,
\nexcellent infrastructure, cheap labor and so forth as a generic
\npackage. Still, more is needed to be singled out with the most
\nunique differentiation to win over investors.<\/p>\n
Jababeka has offered the concept of an integrated estate in
\norder to enhance the value offered to investors. It is not easy,
\nof course, to make adjustments, especially if the concept will
\nentail expansion of the target market to include not only those
\nfocused on industrial undertakings but also the residential
\nsegment. Another thing that may also be tried is to lure
\ninvestors by introducing to them an efficient and
\nenvironmentally-friendly industrial estate<\/p>\n
It must be borne in mind, though, that adjustment alone is no
\nguarantee that an industrial estate will be successful to sell.
\nWhy? There are actually some other more important things that an
\nindustrial estate management will find it next to impossible to
\ninfluence or change. Investors, for example, can easily and
\nspeedily obtain accurate information before making a decision to
\ninvest somewhere. They may directly and physically observe the
\nplace or simply rely on today's advanced information technology.
\nSo, it is easier for them to compare the benefits that various
\nindustrial estates are offering, including for example the
\nsecurity condition.<\/p>\n
The regional autonomy policy has also intensified competition
\namong the regional administrations in marketing their regions,
\nincluding, of course, their industrial estates. A number of
\nregional administrations have also shown their intention to
\ndevelop their own industrial estates. Take, for example, the
\nMakassar Industrial Estate (KIMA). It is ready to position the
\nleverage of Makassar as a gateway in the country's eastern part.
\nNaturally, more players will lead to an oversupply and,
\nconsequently, stiffer competition. The price may drop and the
\noccupancy rate may subsequently decline.<\/p>\n
One of the most difficult things for industrial management
\nboards, both privately-owned and state-owned, is that the brand
\nequity of Indonesia has in the last few years dropped in
\nreputation among investors.<\/p>\n
A number of terror cases at home have sent this brand equity
\nto an even much lower level. Security is actually one of the most
\nimportant aspects for investors to invest in this country. It is
\nonly natural that investors will find the lowest risk and the
\nhighest rate of return for their investment. The relocation of
\nSony from Indonesia some time ago is yet to be made a valuable
\nlesson for the investment authorities in this country.<\/p>\n
It is a pity that the government recovery efforts in various
\naspects of life are yet to produce concrete and significant
\nresults. These efforts seem to be focused only on the upcoming
\n2004 general elections or on other items -- often not very clear
\n-- on the government's priority list. To market Indonesia -
\nincluding its potential industrial estates - an intensive G-to-G
\nwith a clear concept is indeed a necessity.<\/p>\n
Indeed, we have to build the confidence of investors so that
\nthey will be prepared to invest here. Industrial estate owners
\npin great hopes on the government's willingness and commitment to
\nmake Indonesia a better country in the widest sense of the words
\nso that this country will again have a strong selling point.
\nOtherwise, investors will simply stay away, no matter how
\nexcellent is the \"package\" offered by the country's industrial
\nestates and notwithstanding the most attractive tax incentives
\nthat the government may introduce. The crux of the matter is that
\nas long as the course that this country is taking is not clear,
\nit will be equally unclear where the industrial estates will be
\nheading. (The writer is a partner in MarkPlus & Co<\/p>",
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