Fri, 30 Jul 2010

From: Reuters

By Neil Chatterjee & Janeman Latul
Jakarta. US heavy equipment maker Caterpillar may pick Indonesia as its Southeast Asia manufacturing base, joining the likes of South Korea’s LG Electronics, which is also considering such a move, as Jakarta takes on regional rivals Vietnam and Thailand, Indonesia’s investment chief said.

Gita Wirjawan said surging consumption, competitive labor costs and confidence in its stability were attracting foreign investment, particularly from Asian and Middle Eastern firms in electronics, infrastructure and energy.

“LG is thrilled with the fact that they have become 40 percent market share holders in Indonesia and the growth is just staggering. They are contemplating positioning Indonesia as a hub for Southeast Asia,” Gita said.

“The labor cost structure is already much more competitive than China and Vietnam,” said Gita, a former JP Morgan and Goldman Sachs banker, on a day when Fitch Ratings - which has Indonesia one notch below an investment-grade sovereign rating - downgraded Vietnam.

Investors have ploughed into Indonesian markets, driving the Jakarta index to a record high this month, pushing down bond yields and lifting the rupiah 4.6 percent this year.

Gita, head of the Investment Coordinating Board (BKPM), said on Wednesday that foreign direct investment was forecast to reach Rp 118.4 trillion ($13.1 billion) in 2010, an increase of 25 percent from last year’s realized investment of $10.5 billion.

Previously, the government had expected FDI to rise 15 percent.

Investment so far this year included expansion by miners such as Newmont Mining and Freeport McMoRan Copper & Gold plus the relocation of factories from Vietnam and China that make shoes for Nike and Adidas.

Gita said he expected deals in the second half of the year with electronics, infrastructure and energy firms.

A $6 billion joint venture between Indonesia’s biggest steel maker, PT Krakatau Steel, with South Korea’s Pohang Iron & Steel is expected to be signed within a couple of weeks.

He said potential investors appreciated that he also told them about the problems, from natural disasters to the difficulty of accessing capital outside the main island Java, recipient of about 80 percent of foreign direct investment.

Investors’ main concerns include inadequate infrastructure, corruption, inflexible labor laws and red tape, he said.

These are the reasons the country has lagged its regional peers in attracting foreign direct investment in recent years.