Thu, 24 Jul 2003

Experts urge govt to fix investment climate

Evi Mariani, The Jakarta Post, Jakarta

The government must boost efforts to act against corruption and create a reliable labor force if it wanted to lure automotive investors back into the country, according to automotive and investment experts.

"There are a number of negative factors (in Indonesia) which concern potential investors particularly in areas of long-term social and economic stability, official corruption and the efficiency and transparency of the court system," Al Warner of the U.S. Department of Commerce said in an automotive seminar on Wednesday.

Liam Benham, a director of Ford Motor Company's Southeast Asia operation, also emphasized similar problems, saying that the weak legal system and deeply rooted corruption were risk factors for potential investors.

Although Indonesia is a large population, with cheap labor, and abundant natural resources, global automakers have largely declined to set up their production bases for the regional market in this country due to poor investor confidence, including a lack of a supporting industry for a strong automotive sector.

The introduction of the ASEAN Free Trade Area (AFTA), which has significantly cut down import tariffs on various products, means the Southeast Asian region has become a vast market to sell cars. To take advantage of this potential, most of the large foreign car makers have set up production bases, mainly in Thailand. It is currently the home of the largest auto industry in Southeast Asia.

In recent years, Thailand has become a manufacturing hub, producing about 14 vehicles from Ford, Toyota, Mitsubishi, Volvo, Mazda, Honda, Nissan, Isuzu, Chevrolet and BMW.

Meanwhile, Indonesia only produces the Toyota Kijang vans, and the Honda Stream van.

The experts reiterated that in order for Indonesia to be able to attract new investment from global car makers, the country must immediately begin to fix its various problems, most of which revolved around corruption in one form or another.

President of Japanese External Trade Organization (Jetro) Hiroyuki Kato said in the same seminar that Japanese automakers were trying to rebuild their system in both the completely built up car business and in the auto-parts business.

"In the auto-parts business, they have planned to strengthen their existing plants in Indonesia as the production site for gasoline engines and Thailand for diesel engines," he said.

However, he warned that Indonesia had been losing its advantages -- cheap labor and abundant energy resources -- in attracting foreign direct investment (FDI).

"Those things used to be Indonesia's traditional advantages. They are now gone," he said. "Now, this country has to find brand new advantages."

Such advantages could, he explained, include better transportation facilities and a more reliable labor force to ensure steady production.

"If the production process is in trouble in the country, it will affect the supply network throughout the whole region," he said.

Indonesia, which relies heavily on its large population as a potential market, has been enduring a large increase in complaints from foreign investors. They have warned Indonesia that its attraction was waning and that was why foreign investors were leaving in droves to other countries like China and emerging Vietnam.

In the seminar, Indonesia's Ministry of Trade and Industry's director for land transportation M. Setiono said that the government had been focused on the local auto-parts industry as a step to strengthen the overall car industry.