Shunned by investors<\/p>\n
The negative assessment of the Indonesian business climate
\ngiven by most of the Japanese investors surveyed by the Japan
\nBank for International Cooperation (JBIC) last year is yet
\nanother sign that the country is still shunned by most foreign
\ninvestors.<\/p>\n
But the survey's findings -- that Japanese small and medium-
\nsized companies had begun relocating their operations from
\nIndonesia to other countries in Asia -- are nonetheless greatly
\nworrisome, as Japanese investors are usually more flexible in
\nadapting to Indonesian conditions than American or European
\nbusiness investors.<\/p>\n
The World Investment Report 2001, published by the Geneva-
\nbased United Nations Conference on Trade and Development (UNCTAD)
\nin September, also found that an increasing number of Japanese
\ninvestors in ASEAN countries had relocated their plants to China,
\nand that direct foreign investment flows to Indonesia remained
\nnegative -- a signal that the wave of capital flight that started
\nin late 1997 had not stopped.<\/p>\n
Yet more perturbing among the JBIC survey findings was the
\nfact that the Indonesian government seemed scarcely concerned
\nabout the disturbing trend, doing virtually nothing to address
\ngrievances of foreign investors.<\/p>\n
This is alarming indeed. Without fresh foreign capital,
\nexperts said, the country will never regain the sustainable,
\nrobust economic growth of at least 7 percent a year needed to
\nabsorb the new entrants to the labor market.<\/p>\n
The 3.3 percent growth last year, down from 4.8 percent in
\n2000, was fueled mainly by domestic consumer demand and exports.<\/p>\n
But even these two locomotives will eventually run out of
\nsteam without new investment.<\/p>\n
If domestic consumers continue spending, savings will drop
\nsteadily, and they will eventually run out of money.<\/p>\n
Indonesian export competitiveness will also decline if
\nexisting foreign investors remain discouraged from making
\nadditional investments to retool and modernize plant equipment to
\nimprove efficiency and product quality so as to diversify product
\nlines.<\/p>\n
Since most big business groups are still crippled by mountains
\nof bad debt, and the banking industry may take another three to
\nfive years to resume full functions to pump liquidity to the
\neconomy foreign investment is, in the short term at least, most
\nlikely the main source of fresh capital.<\/p>\n
The country's main attractions to foreign investors are its
\nrich natural resources, potentially large market, and highly
\ncompetitive labor wage structure.<\/p>\n
But a host of new and old problems have made these attractions
\nless meaningful for investment.<\/p>\n
Legal and regulatory uncertainty is now looming over new
\ninvestment in natural resources that are located mostly outside
\nJava, especially after the launching of regional autonomy in
\nJanuary 2001.<\/p>\n
The central government has given local administrations full
\nauthority to license investment in such areas as mining (outside
\noil and gas), fishing, and forestry.<\/p>\n
But foreign investors do not feel comfortable with making
\ndeals only with local administrations since the international
\ncommunity, notably because suppliers and creditors do not
\nrecognize contracts that are not ratified by the Indonesian
\ncentral government in Jakarta.<\/p>\n
Worse still, basic infrastructures have begun to crumble in
\nmany provinces due to an acute lack of maintenance budget over
\nthe past four years.<\/p>\n
Poor infrastructures increase the cost of doing business,
\nmaking the capital costs of investment projects abnormally high.<\/p>\n
The domestic market is no longer a great advantage now because
\nof the depressed economic condition. In fact, the manufacturing
\nindustry is now suffering from a big excess capacity.<\/p>\n
Even low-cost labor, which lured thousands of small and
\nmedium-size investors from South Korea and Taiwan in 1970-1995,
\nis no longer a big positive factor either.<\/p>\n
The increasing militancy and anti-foreign investment sentiment
\namong trade unions is scaring off investors.<\/p>\n
It goes without saying that these problems need to be
\naddressed immediately -- but with a properly selected priority
\nscale. Certainly, the general business climate should be improved
\nsteadily to encourage existing investors to expand their
\ncapacities, or modernize their plants.<\/p>\n
But this is an ongoing, gradual process.<\/p>\n
Given the desperate need for foreign investment, contingency
\nprograms are required.<\/p>\n
Since investment in green-field projects seems now feasible
\nonly in resource-based ventures given the excess capacity in the
\nmanufacturing industry, the government should act immediately to
\nremove the legal and regulatory uncertainties in mining,
\nfisheries, and such infrastructures as power generation and road
\nand port development, especially because investment in these
\nareas has a long gestation period.<\/p>\n
Next on the priority list is expediting the disposal of the
\nthousands of distressed assets currently under the Indonesian
\nBank Restructuring Agency and privatization of state companies.<\/p>\n
It is therefore futile for the government to expect new
\ninvestment in Indonesia's manufacturing industry if these
\ndistressed assets do not get new, credible investors.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/shunned-by-investors-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}