~Foreign investors awaiting more stable environment
~Foreign investors awaiting more stable environment
By Eun-ho Seung,
Chairman of Korean Chamber of Commerce in Indonesia
Fundamentally, the country remains an attractive place
for investments thanks to its abundant natural resources, huge
potential market and large pool of labor.
But it will likely take a few more years more before new foreign
investors will return to Indonesia, due to a combination of
domestic problems, weak economies in the Association of Southeast
Asian Nations (ASEAN) region and uncertainty about the global
economic condition.
Most foreign investors now prefer to wait and see due to
weak law enforcement, overly rigid labor regulations and other
problems inherent to the current transition to a more democratic
and decentralized system of government, as well as the simmering
political climate in the run up to the 2004 general election.
However, if the new government that takes office in late
2004 is able to improve the general climate for business and
strengthen political and social stability, foreign investors may
return sooner than expected.
Indonesia is now less attractive to new investors than
China and Vietnam and it needs to learn from these countries
about how they designed their economic policies, legal framework
and labor and taxation regulations to woo investment.
Many have complained about the uncertainty caused by the
decentralization of power to the regions, although
decentralization is a rational choice for this vast archipelagic
country.
What matters to investors is that this process should not cause
new problems, such as unclear division of authority between the
central government and local administrations, policy
inconsistencies, arduous licensing procedures and double tax
burdens. Such problems not only increase the costs of doing
business but, most damagingly, fuel the uncertainty that is the
number one enemy to investors.
Suffocating labor regulations and the tendency for militant trade
unions are especially inimical to Korean business operations in
Indonesia because most Korean investors operate in labor-
intensive industries. They depend on peaceful industrial
relations and a consistent wage policy.
There are now 570 Korean companies operating in Indonesia with
total investment of US$9.5 billion. They manufacture a wide range
of industrial products such as shoes, textile and garments, bags
and stuffed toys and various other light industrial goods.
They employ around 500,000 workers, with annual exports of about
$4.5 billion of various manufactured products. Korean investment
operations have also contributed greatly to expanding bilateral
trade to more than US$7.8 billion annually.
The ASEAN Free Trade Area theoretically makes Indonesia, by far
the largest member of the regional grouping, much more attractive
to investors as they can use the country as a beachhead to export
to other ASEAN countries under the preferential tariff
arrangements.
Before that happens, however, investors need more stable
political, economic and social conditions to enable them to
reasonably calculate their business risks.
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