Foreign investors seeking more stable environment
Foreign investors seeking more stable environment
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.
______________ 30______