Concrete Steps to Put Investors at Ease

Concrete Steps to Put Investors at Ease

By Tom A. Clough, President Director, PT Semen Cibinong

Many people are overly critical of what is now happening in Indonesia, expecting overnight changes in areas that took hundreds of years to be accomplished in European countries. It is baffling that such unrealistically rapid gains are demanded in the transition from an authoritarian, centralized government to a democratic, decentralized state. An enormous number of things are occurring simultaneously as part of Indonesia making its own great democratic leap forward. The military is trying to learn its new role, for example, and people under regional autonomy are coming to grips with exercising newfound power. Despite the seeming turmoil, progress has been made and things are now going in the right direction. In comparing Indonesia before the onset of the crisis in 1997 to today, one easily observes a greater confidence and willingness among the people to talk about issues. There is also a higher appreciation of the achievements already made. The big problem may be for people to understand what gains continue to be made. Certainly, the transition process has been made more difficult and painful as it is taking place while many are suffering the brunt of a weak economy. But it is not wholly accurate to say that economic activities have stalled, or that investment has stopped altogether. How could the economy have grown by more than 3 percent over the past three years without new investment? The growth is not high enough to satisfy the demand for jobs, but the economy grew nonetheless. Somebody must have invested to fuel that growth, and the assumption may be that it is Chinese-Indonesian businesspeople looking back to these shores following the troubles of 1998. Most of the investments are being made in small and medium-scale enterprises (SMEs), building small factories, shops and houses. This is a sound base for bigger investment projects to start up. We in the cement industry have felt the flurry of activities from the increase in our sales, although industry-wide capacity utilization remains below the pre-crisis level. Prices remain depressed because of keen market competition, meaning we cannot yet pass on to the users the increase in our outlays caused by higher energy costs. Overall, however, it must be acknowledged that things could have been done better for investors. Progress could have been quicker if the government placed more emphasis on several measures, notably in improving law and order, justice, and minimizing the excesses of decentralization. Foreign investors are greatly concerned about the tendency to resort to violence to air grievances. Some groups harboring feelings of resentment and frustration at what they consider unfair treatment have eschewed dialog and taken the law into their own hands. Indonesia has all the necessary laws to deal with its problems, and they are actually good regulations. The main problem lies in their application and the perception that it is not always transparent, fair and just, with a welling public frustration at how the "law" can sometimes be purchased. The police force needs to take measures to gain greater respect from the people so that it is viewed as a credible, fair arbiter of justice. The second area of great concern to investors is the confusion over the division of power within the decentralization process. Nobody argues against the decentralization of power through regional autonomy: The process is necessary and the concept fits well with Indonesia as a vast archipelago state. But what is confusing now is the unclear distribution of power between the central government and regional administrations. The current confusion in the transition process should be ended by clarifying the overall responsibility of regional administrations. Indonesia also needs to learn how to correct outstanding issues. For instance, how can the prospective members of the legislatures of the central government and provinces reach a political consensus on the right things to do? There is a need for a system for quickly reaching consensus, but this is part of the learning curve. Investors are not too worried about the first experiment in direct elections of the president and vice president in 2004 because the vast majority of people here simply want a normal life for themselves and their children, just like their counterparts in other countries. A revolt is not expected, although, as with any campaign, emotions are likely to run high. If it is embraced by the Indonesian people as a fair and above-board exercise in the democratic process, it will be a very important step in building investor confidence. Unfortunately, there is unlikely to be an increase in foreign investment due to the war in Iraq, and partly because of the inevitable uncertainty about the elections. Hopefully, if the election process is deemed to be just and the situation in the Middle East has stabilized, foreign investment may start coming back to Indonesia later in 2004. For the longer term, we have a great sense of optimism about Indonesia, shown by the fact that my company, Holcim Ltd. of Switzerland, the second largest cement group in the world with operations in more than 77 countries, has made such a big investment here. Holcim acquired in December 2001 about 77.33 percent of publicly listed PT Semen Cibinong, the third largest cement group in Indonesia with an annual capacity of 9.7 million metric tons, or 23 percent of the national capacity of 42 million tons. As a developing country with more than 210 million people and a very low cement use per capita, the cement market in Indonesia still holds great potential for growth. We project that if the economy grows by 3 percent to 5 percent a year, the demand for cement will expand by 7.5 percent. Industry-wide, capacity utilization has increased steadily to almost 80 percent at present. If the domestic demand continues to grow at such a rate, we would need to build new kilns in 2004 or 2005 to prevent a cement deficit by 2007. When we measure this growth potential against the political risk, the investment is worthwhile indeed. __________________30________