Fri, 23 May 2003

Hypermarkets to be banned from regencies

Adianto P. Simamora, The Jakarta Post, Jakarta

The government is currently revising the existing regulations on the retail sector with the aim of preventing modern retailers from entering regencies, to protect local traditional markets, a senior official at the Ministry of Industry and Trade has said.

The move would also allow small retailers to develop their businesses in regencies.

"We want to prevent modern retailers, such as hypermarkets, from expanding to regencies because we still need to protect our traditional markets," Rifana Erni, director general for domestic trade affairs at the ministry told The Jakarta Post on Thursday.

She said that the current ruling on retailing -- jointly signed by the ministers of Industry and Trade and of Home Affairs in 1997 -- was no longer appropriate to protect traditional markets and small retailers, particularly following the introduction of regional autonomy law, and the entry of giant foreign retailers.

She said that the current regulations did not strictly control the location of modern retailers.

In Jakarta, however, modern retailers are not allowed to operate less than 500 meters from traditional markets, according to a recently revised bylaw.

"I'm afraid local (regency) governments will easily allow modern retailers to open outlets in their areas if we don't make a new regulation quickly," Rifana said.

She added that the planned new regulation might no longer be in the form a ministerial decree, but a presidential decree.

"We are now still discussing it with several related parties, including business players and local governments," Rifana said.

The country's retail sector enjoyed a golden era in 1996 but was hit hard by the financial crisis that rocked the country in mid-1997.

In 1999, the government removed the retail sector from the negative investment list, which then allowed foreign retailers to operate in the country without restriction.

The regulation provided more leeway for foreign retailers, such as Sogo, Makro and Carrefour, to strengthen their foothold in local markets.

However, local retailers viewed the presence of foreign players as a serious threat to their survival, particularly the expansion of French hypermarket operator Carrefour.

Meanwhile, Carrefour spokesman Triyono P. said that Carrefour had no plans yet to expand its business into regencies.

"I don't know yet the impact of such a limitation (from the revision), but one thing is clear: As of now we don't have any plans to expand our business into regencies," Triyono told the Post.

Carrefour opened its first outlet in 1998 in Jakarta. Currently, the company operates 10 in the capital city.

The company will also open a new outlet in Bandung, the capital of West Java, this year.

"We have carried out surveys into the possibility of opening new outlets in other provincial (capitals)," Triyono said.

Beni Sindhunata, executive director of the Investment Banking Research Agency, said that the presence of large retailers, owned by both local and foreign companies, would hurt small retailers in the regencies.

He urged the government to control the retail business through the issuance of a zoning law.

Beni predicted that the market share of hypermarkets like Carrefour would increase to 38.5 percent in 2005, from 32.3 percent in 2001.

He also said that the total turnover of retail businesses was predicted to reach Rp 87.5 trillion (US$9.83 billion) in 2005, far higher than the Rp 36 trillion recorded in 2001.