Japanese companies cautious on Indonesia
Japanese companies cautious on Indonesia
TOKYO (Reuters): Japanese firms are cautious about investing
in Indonesia despite a new IMF reform program endorsing
deregulation of foreign investment to help cope with political
and economic instability, officials said yesterday.
The reform package calls for Indonesia to remove all formal
and informal barriers to foreign investment in palm oil
plantations by Feb. 1. It proposes that Indonesia lift all
restrictions on investment in wholesale and retail trade.
Formalizing the reform program, Indonesia's President Soeharto
last week issued a decree allowing foreign investment in palm oil
plantations.
"Basically we welcome the reform program, as it allows us to
expand our range of activities in Indonesia," said an official of
Japanese trading firm Itochu Corp.
"We are cautiously watching whether planned reforms will be
smoothly implemented, and if the March presidential election will
lead to political stability. Without such issues cleared, we
cannot increase investment in Indonesia," he said.
An official of trading firm Mitsubishi Corp. said it would
withhold any decision to increase investment in Indonesia until
after the presidential election.
"We won't be able to decide whether to increase investment
until several months after the election," the official said.
"Despite the recent economic crisis, we still believe
Indonesia, blessed with natural resources, retains growth
potential," he said. "We are studying when the country will
emerge from this crisis."
Japan was the second-largest foreign investor in Indonesia in
1997, investing in 94 projects worth $5.4 billion, down from 145
projects worth $7.7 billion in the previous year.
This was the first year-on-year drop in Japan's direct
investment in Indonesia since 1993.
Kaori Ueno, an overseas research department staff of Japan
External Trade Organization (JETRO), said the drop was a
correction to rapid investment expansion for the preceding three
years, which was led by large-scale investment in energy projects
and automobile parts manufacturing.
In the three years to Dec. 31, 1996, Japan's direct investment
in Indonesia doubled each year due mainly to Indonesia's
deregulation of foreign investment in infrastructure projects and
measures aimed at raising local content in automobile production
by foreign makers, she said.
Japan's direct investment in Indonesia is expected to continue
to decline in 1998 because of the currency crisis and political
uncertainty, she said.
"It looks questionable whether the Indonesian government will
actually carry out the planned reform program," she said.
Japan is the world's major consumer of palm oil, importing
331,200 tons of palm oil in 1996. Of the total, more than 97
percent came from Malaysia, with 1.7 percent from Singapore.
Japanese demand for palm oil has been steadily growing
recently, thanks to its image as a healthier and more
environmentally friendly product than animal oils and fats.
But Japanese trading firms say they are wary of investing in
palm oil plantations because of expected low profitability and a
high production risk.
"Agriculture is a difficult sector to invest in, even in
Japan, let alone in Indonesia," said an official of Japanese
trading firm Mitsui & Co. Ltd.
JETRO's Ueno said Japanese firms view retailing as a more
profitable business in Indonesia than palm oil production, given
the nation's second-largest population in Asia and emergence of
middle-class consumers.
Japanese department store Sogo Co. Ltd. shares its management
know-how with an Indonesian firm operating a Sogo brand store in
Jakarta. A Sogo spokesman said the company will study the
possibility of investing in the Indonesian firm if restrictions
on foreign investment are lifted.
Hanshin Department Store Ltd., which shares management know-
how with another Indonesian firm, said opening of a Hanshin store
at mid-year has been postponed for an unspecified period due to
the ongoing turmoil.