Japanese investors turning away from RI

Japanese investors turning away from RI

The Jakarta Post, Jakarta

Indonesia continues to fall further behind China and Thailand
in the competition for Japanese investment, and it could be
overtaken by Vietnam and India if it does not take immediate
steps to improve its investment climate, a new survey of Japanese
companies found.

Indonesia scored lower than both China and Thailand in
domestic infrastructure, legal framework and domestic political
and social situation, according to the 2001 survey by the Japan
Bank for International Cooperation (JBIC) published this month.

Globally, Indonesia continues to rank fourth in terms of
prospects for Japanese business operations within the next three
years, scoring with 56 of 401 respondents, or 14 percent. China
ranks first with 82 percent, followed by the United States with
32 percent and Thailand with 25 percent.

In the 1997 survey just before the Asian financial crisis hit,
Indonesia ranked third, ahead of Thailand, with a 28 percent
approval rating from 342 respondents. Indonesia and Thailand
switched places in 1998, and Indonesia has been falling further
and further behind since.

Visiting JBIC senior economist Shinji Kaburagi, presenting the
survey to Indonesian journalists on Wednesday, said many
respondents believed that both India and Vietnam, ranked fifth
and sixth respectively in the 2001 survey, would pass Indonesia
within the next 10 years, with India even edging past the United
States into the second spot behind China.

The bottom line is that while the competition among Asian
countries for Japanese investment has become extremely intense,
Indonesia has done very little to defend its position.

The annual survey covered 792 Japanese manufacturing companies
that have three or more foreign affiliates, including at least
one manufacturing base as of October 2000. A total of 501 valid
responses were returned.

The result was particularly dismaying for Indonesia, prompting
the JBIC to send a delegation, led by its deputy director
general, Takashi Marugami, to explain the gravity of the
situation to the Indonesian government. The delegation was
scheduled to meet with Investment Coordinating Board chairman
Theo Toemion on Thursday.

Japan has been, and still is, the largest source of private
direct investment for Indonesia.

JBIC, the Japanese government's agency for the channeling of
official aid, said Japan had a large stake in ensuring the
continuation of economic development in Indonesia. Indonesia's
outstanding loans to the Japanese government amount to over 3.6
trillion yen (US$27 billion), the largest figure among all of the
countries receiving aid from Japan.

Kaburagi said both China and Thailand had been aggressively
wooing foreign investors, explaining why the two countries had
become the primary destinations for Japanese companies in Asia.

"The speed of improving the investment climate in Indonesia is
so slow. That's my concern. All other countries (in Asia) have
changed and improved, except Indonesia," he said.

Nobuo Hazeyama, the chief representative of the JBIC Jakarta
office, underlined the fact that the survey was taken in June
last year, at the height of the political turmoil before Megawati
Soekarnoputri took over the presidency.

"It was probably the worst time to conduct the survey for
Indonesia," he conceded.

"(However) the image that Indonesia is not doing enough
remains. You need to show that you are making the effort," he
told the Indonesian journalists present.

Japanese investors are particularly keen about the
government's plan to introduce a new law on foreign investment,
but the legislation has yet to reach the House of
Representatives.

Kubaragi said the competition for Japanese investment was so
intense that the authorities in both Thailand and China went out
of their way to woo Japanese investors, including addressing all
of their complaints in a prompt manner.

Hazeyama said that while the big Japanese conglomerates were
staying put in Indonesia, some small and medium-size companies
had begun relocating elsewhere in Asia.

And while some progress has been made in improving the
investment climate, most notably in the power sector, overall it
has been too slow, he said.

"Japanese companies based here have trouble convincing their
headquarters in Japan about Indonesia. They still need to be
convinced to stay and expand their operations," he said.

The attitude of many Japanese companies today is "to wait and
see", he said, adding, however, that "they do not have the luxury
to wait for 20 years".

Hazeyama said Indonesia still had many advantages to offer,
from the investment law that allows 100 percent foreign
ownership, to an abundance of natural resources and a potentially
huge market.

"Indonesia still has plenty of potential," he said.

Thumbs down on Indonesia

The survey asked respondents for their perception of the
investment climate in various Asian countries now as compared to
1996 before the Asian crisis. The findings on Indonesia include:

* On domestic infrastructure: Of 311 companies, 12.9 percent
said they saw improvement, 34.1 percent said things remained the
same, 12.5 percent said they had worsened and 40.5 percent said
they did not know.

* On legal framework, which includes transparency and
fairness: Of 306 companies, 3.6 percent said it had improved,
41.2 percent said it remained the same, 7.5 percent said it had
worsened and 47.7 percent said they did not know.

* On the domestic political and social situation: Out of 308
respondents, 2.6 percent saw an improvement, 10.7 percent said
there was no change and 55.2 percent said things had worsened.
The remaining 31.5 percent said they did not know.