`Investors are like mistresses'

`Investors are like mistresses'

Yose Rizal Damuri, Centre for Strategic and International Studies
(CSIS), Jakarta, yose_rizal@csis.or.id

The list of multinational companies planning to stop their
production activities in Indonesia gets longer by the day. After
Sony Corporation's decision last month to pull out its
investment, this month we will see many more companies follow
them. U.S.-based cosmetics giant Avon Products Inc, for example,
is mulling the closure of its factory in Indonesia.

Those two companies were not the first to decide to walk away
from this country. Before them, several Korean and Japanese
business associations here also felt that doing business in
Indonesia was no longer attractive. Even when they mostly agreed
that Indonesia was still a fascinating market for selling their
products, the numerous difficulties they face are no longer
acceptable. In fact, it only exacerbates the already gloomy
investment climate in Indonesia since the financial crisis began.

The relocation of Sony and other companies' factories to other
countries is a direct consequence of the government's lack of
action in creating a healthy investment climate.

Cumulative approval of investment has declined drastically.
Not only the value of foreign investment approval this year that
has deteriorated by around 49 percent compare to last year, the
value of domestic investment even declined faster, around 70
percent. This time around, not only foreign investors feel
uncomfortable about the business environment in Indonesia,
domestic businesses also lost their taste. The picture of the
investment situation presents a depressing prospect of the
Indonesian economic recovery.

Right after Sony's decision was announced, several high
government officers did respond to the news, but not in the
expected way. Some said that it was just a blown up media affair;
and the "real situation" is not so bad. Another top government
officer even revealed his disappointment by dismissing it as
"irresponsible investor behavior". He said most foreign investors
just had the intention to exploit the Indonesian economy for
their benefit only, leaving the country while problems are facing
them.

While what he said might be true, it is not sensible to blame
investors who leave this country for greener pastures. As has
been said, money has no nationality; we cannot expect foreign
businesses to keep doing business here while they lose profit due
to all the problems here.

One of my friends put it in another perspective. Investors are
just like a mistress; you should treat a mistress in an excellent
way otherwise she will ditch you. Unlike a wife who is expected
to be with you for better or worse, a mistress will definitely
run off if she doesn't get what is expected; let alone treating
her inadequately. It is your everyday "job" to persuade her to
keep "sleeping in bed" with you. It is the job of the government
to sort out problems arising in the business environment.

Complaints of an unfavorable environment from the private
sector have been long heard, however they usually only turn out
getting place at the bottom of a very long list of unsolved
problems. The list includes security and political instability.
The risk of being burgled and ransacked still exists, even though
a relatively conducive political environment of late has
admittedly reduced that threat. Another issue is labor problems.
Apart from the minimum wage that keeps increasing every year,
business societies also face the fact that there is no clarity on
the labor and industrial relations issues, as Indonesia still has
no permanent laws on the matter.

This list is longer if we take into account some government
policies concerning the business sector, such as tax and customs
policies. With the difficulties of meeting its budget, the
government has taken all possible measures to increase revenue.
Unfortunately, the government has adopted a strategy of "hunting
in the zoo", wherein they increase taxes to those that already
pay, including higher taxes on sales and production, rather than
going for huge percentage that do not pay or underpay.
Inevitably, the excessive sales and value added tax increase cost
of production and reduce business competitiveness.

Sometime, or perhaps most of the time, we forget that we are
still struggling to get out of the economic crisis. For a couple
of years, the economy has recorded positive growth in some
macroeconomic indicators. That is a remarkable improvement in the
economy, but that does not mean we already have left the crisis
behind.

Since 1999 the economic growth has been driven mainly by
consumption. Around 60 percent of economic growth comes from
private consumption. While, consumption is still a big part of
next year's economic growth, this factor cannot be expected to be
a sustainable source of growth. The latest data shows that the
growth of consumption dropped quite remarkably compared to last
year. Sooner or later, people will not have enough money to keep
up the pace of their consumption, and that would, for sure, harm
the sustainability of economic growth.

There is no other option to maintain or perhaps boost economic
growth except to increase investment. Investment-driven growth is
not only more sustainable but also has a spillover effect on the
economy. The more investments the more unemployed people are
likely to get better jobs. With a massive unemployment rate,
strategy that will enhance investment is unquestionably required,
not the opposite.

Good strategies are certainly do not include those that create
apprehension to foreign investors. The problems surrounding the
investment climate are actually quite common and recognizable.
Many studies and dialogs have revealed all these factors and
problems.

The first thing that we need to do is to change our negative
attitude and perception towards investors and business societies.
Indonesia's economy needs those people and is our responsibility
to provide them with a more conducive investment climate, one
that creates profit for them.