Image, rule of law key to investment in Indonesia

Wed, 16 Apr 2003

British Ambassador Richard Gozney also discussed the prospects of investment and trade in Indonesia, touching on the responsibilities of multinationals to local communities and the government's need to deal with the country's international image problem.

Investment all depends on the attraction of investing locally. On the manufacturing side, China is a big attraction at the moment. Big, serious companies like British Petroleum, Unilever and Rio Tinto have to show their shareholders that they are socially responsible in their surrounding areas. That means they have to maintain very high standards of behavior. The shareholders of those big companies are very demanding. Whatever the situation a decade ago, now British companies here cannot ignore the code and standards of behavior, and that includes corruption. British law is very clear. British companies are not allowed to make corruption payments anywhere in the world. It's illegal to pay bribes under British law, and those businesses could be taken to court in Britain. So, both on the social responsibility side and on the side of how you get a decision, by facilitating decisions and getting contracts, the standards of behavior are very high. It is much, much easier for companies to operate under those standards in a democracy where a local government is accountable, where the local legislative bodies have squeezed out corruption slowly over time because it is not acceptable. What you have at the moment is a transition to democracy. There are some elements of democracy that still have not been decided about quite what the pattern should be, or what the regulations are. And the best example is mining; at the moment, there is next to no exploration going on in Indonesia. That's not my judgment, that's the judgment of the Indonesian Mining Association. One of the main reasons is the legal uncertainty over who's in charge for the mining licensing authority, whether it's the ministry here at Merdeka Selatan or the governors or regents. They don't get the same answer. It's a mixture of that (problem), and the legal enforceability of a contract. That's very important, something companies look for whether there it is a democracy like Indonesia or a country that is not democratic such as China. What they need is legal certainty, but if the legal system is difficult to rely on, then investment will become much smaller. Then, there is a general image that Indonesia is a country with certain amount of turmoil and political uncertainty. The image is much worse than the reality. Obviously, that image will only be repaired with time. It is a real issue that can be changed and repaired. But I'm afraid -- and it's very, very sad, it hurts to think it, let alone say it -- but what happened in Bali is not like terrorism elsewhere in the world. In Ireland, where we have had trouble for 30 years, some Irish people are trying to kill other British people. In Spain, some Spanish people in the Basque region are trying to kill other Spanish people. But what happened in Bali on Oct. 12 last year was that Indonesians were trying to kill foreigners and they succeeded. There are few countries around the world where local terrorists are looking for foreigners. It frightens and worries us, and that's why security at the British Embassy building has been tightened. Other Western missions or embassies think in a similar way. It's also why we still advise British citizens only to come here if they have very important business, otherwise postpone it and be confident that terrorists from inside the country will not do it again. That's quite a big issue and a big deterrence. Egypt was a little bit in that category after German tourists were attacked in Luxor four or five years ago. Egypt was regarded by a lot of European countries as a place where foreigners were targeted, but Egypt corrected and dealt with it. What we want to do is to help Indonesia so that Indonesia can also deal with it. In terms of British companies, Indonesia will be looking mostly to the existing British companies, and their plans for investment rather than companies which are brand new. BP has a big stake here. Unilever, an Anglo-Dutch company, sees Indonesia as an important market. They are committed to here, but brand new companies will find it different. Sometimes, new companies do come in, but existing companies will continue to lead the way. For trade, it is more about how competitive Indonesian products are, because Indonesia exports far more than it imports. There is one factory in Bandung, with a workforce of 4,000, all making shirts for Marks & Spencers in Britain. PT Dirgantara Indonesia is making parts of the wing for the new Airbus aircraft, so these serious exports include high-tech exports. But British consumers will shop around, look at China or Vietnam, as they seek the best value.

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