Will Indonesian companies survive regional free trade?<\/p>\n
Fitri Wulandari, The Jakarta Post, Jakarta<\/p>\n
The ASEAN Free Trade Area, or AFTA, which will be fully
\nimplemented in two days from now has stricken fear into the
\nhearts of many businessmen in this country, who believe many
\nlocal firms could go bankrupt due to an inability to compete
\nduring the free competition era.<\/p>\n
But, analysts said, such bankruptcies should not be blamed on
\nAFTA but the numerous domestic problems which have troubled
\nlocal businesses for many years that had created a situation
\nwherein most were unprepared to compete with the likes of
\nMalaysia, Singapore, Thailand and other neighbors who are better
\nequipped with human resources and technology.<\/p>\n
The problems here include corruption, smuggling, labor
\ndisputes and unfavorable fiscal policy.<\/p>\n
\"If we keep ignoring these problems, our businesses will
\ncollapse eventually, even without AFTA,\" M. Chatib Basri, an
\nexpert with the Economic and Community Research Institute at the
\nUniversity of Indonesia.<\/p>\n
He pointed out that many of these problems resulted from the
\ngovernment's failure to make regulations conducive for
\nbusinesses.<\/p>\n
Chatib cited illegal bribes and \"fees\" which public servants
\nor gangsters demand, could often be up to 10 percent of
\nproduction costs. In addition, businesses have to pay a whole
\nslew of sometimes meaningless taxes imposed arbitrarily by
\ndifferent government agencies.<\/p>\n
Both the government and illegal fees will exert upward
\npressure on production costs, rendering exports less competitive
\nagainst imports during the AFTA era.<\/p>\n
For instance, electronic producers complained that overall
\ntaxes on their products reached up to 52.5 percent.<\/p>\n
Lee Kang Hyun, the chairman of the Association of Indonesian
\nElectronic Producers (Gabel) said that the high taxes had made
\ntheir products uncompetitive in the local market compared to
\nimported products or even smuggled products from China.<\/p>\n
He estimated that up to 50 percent of electronics now for sale
\non the domestic market were smuggled products.<\/p>\n
Further, Lee warned that electronic producers, dominated by
\nKoreans and Japanese, would likely relocate their production
\nplants to other ASEAN countries, where the business climate was
\nmuch better.<\/p>\n
Sony's decision to close its plant in Indonesia and move to
\nMalaysia can serve as an example. Although Japanese electronics
\ngiant claimed it was part of its global strategy, fingers pointed
\nat the unfavorable business climate in Indonesia as the main
\nfactor behind the decision.<\/p>\n
Such conditions, Chatib said, would not support local
\nentrepreneurs trying to compete during the AFTA era.<\/p>\n
AFTA was first formulated in 1992 during the Association of
\nSouth East Asian Nations (ASEAN) summit with implementation
\noriginally scheduled for 2008. The time frame was later moved up
\nto 2002 for partial implementation and 2003 for full
\nimplementation.<\/p>\n
Starting Jan. 1, 2002, the six founding members of ASEAN --
\nIndonesia, Singapore, Malaysia, the Philippines, Thailand and
\nBrunei Darussalam -- cut import tariffs on most commodities to
\nbetween 5 percent and 0 percent. On Jan. 1, 2003, tariffs on all
\ncommodities, except for certain \"sensitive commodities\",
\nincluding rice and sugar, should be lowered to 5 percent or lower
\nin the six countries.<\/p>\n
Recently admitted ASEAN members, Vietnam, Cambodia, Laos and
\nMyanmar will implement AFTA between 2006 and 2010.<\/p>\n
Martani Huseini, an economics professor at the University of
\nIndonesia, said that if the situation continued, many local
\nentrepreneurs would prefer to become middlemen rather than
\nproducing their own goods at local plants with thousands of
\nworkers.<\/p>\n
\"Local manufacturers might in the end abandon their businesses
\nbecause the risks are getting higher and it is safer to simply
\nbecome middlemen, for example,\" Martani added.<\/p>\n
Farchad Poeradisastra, the director of PT Ciracasindo Perdana,
\nthe producer of SunFresh juice echoed similar sentiments.<\/p>\n
He said that the market had been flooded with imported soft
\ndrink products due to uneven competition between local and
\nimported products.<\/p>\n
\"Local producers have to pay higher costs to manufacture and
\nsell their products, compared to those paid by importers,\"
\nFarchad said.<\/p>\n
For example, he cited, drinks producers here must pay a luxury
\ntax and an imported ingredients tax. It is aggravated by
\nskyrocketing labor costs, overhead costs, illegal bribes and
\ntransportation costs.<\/p>\n
\"As far as the imported products are concerned, importers have
\nto pay the customs tariff (plus the wholesale value of the
\nproduct), which is now much lower since AFTA began,\" he added.<\/p>\n
It was not a surprise that in the beverages industry, many
\nlocal entrepreneurs are merely becoming traders instead of
\nproducing their own products, Farchad said.<\/p>\n
While Indonesia has been shunned by investors, AFTA ironically
\nprovides an array of favorable investment places for foreign
\ninvestors. For instance, Vietnam, which was until several years
\nago, overlooked by foreign investors, has become a favorite
\ninvestment place.<\/p>\n
\"Investors would prefer to invest their money in countries
\nthat have low production costs, good labor relations, as well as
\nsound financial systems,\" Soy Pardede, executive director of the
\nIndonesian Chamber of Commerce and Industry (Kadin), remarked in
\nthe wake of Sony fiasco who decided to close its plant in
\nIndonesia next year.<\/p>\n
\"The investment map is changing. There are better markets
\nthan Indonesia now,\" Soy said.<\/p>\n
Chatib concurred saying that AFTA put the six ASEAN countries
\non the same level in many ways, Indonesia offered less benefits
\nbut more risks to foreign investors compared to all the others.<\/p>\n
\"It is obvious that foreign investors should prefer to
\nrelocate their production outside Indonesia now,\" he remarked.<\/p>\n
Is it all that bleak?<\/p>\n
Chatib said that businesses in the country could actually
\nsurvive the head-on competition under AFTA given the climbing
\ntrend of the country's trade.<\/p>\n
The Central Bureau of Statistic showed that exports in October
\nrose again for the second consecutive month to US$5.32 billion,
\nwhich marked the highest monthly export figure in two years.<\/p>\n
\"It means that our local entrepreneurs are still strong enough
\nto produce goods,\" he said.<\/p>\n
Small and medium-sized enterprises (SME), however, were the
\nprime movers behind this, Chatib said.<\/p>\n
He asserted that SMEs would likely survive AFTA like they did
\nduring height of the economic crisis.<\/p>\n
\"But, of course, if the government did not begin addressing
\nthese same old problems, they too will not stand a chance in the
\nlong run,\" Chatib said.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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