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.