MNCs plans to shift investment from China to Batam

Adianto P. Simamora, The Jakarta Post, Jakarta

A number of multinational companies (MNCs) are planning to shift their investments from China to other countries in the region which were not greatly affected by SARS, according to an expert.

Representative of the Hong Kong-based Political and Economic Risk Consultancy (PERC) Eddy Mardaus was quoted by Antara as saying on Thursday that some of the investors were eying Batam Island as a possible investment target.

But Eddy said that many of the investors were still in doubt because of the uncertainty created by a delay in the plan to turn Batam into a Free Trade Zone.

Eddy said that the outbreak of the Severe Acute Respiratory Syndrome (SARS) in China and Singapore had forced many MNCs to reformulate strategies in expanding their businesses.

Some of the MNCs expressed interest in investing in Batam during an investment forum in the island on May 27 and May 28, in which Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti also attended.

Eddy said that many well-known foreign investors showed interest in investing in Batam, including General Electric, Motorola, Ciba, P&O Nedllyod, International Financial Corporation (IFC), Pegasus Capital and JP Morgan.

Meanwhile, PERC managing director Robert C. Broadfoot said that Batam would likely to be the first option for expansion if the government could maintain a conducive investment climate on the island.

One of the crucial tasks that needs to be settled quickly is on the Free Trade Zone (FTZ) status plan for Batam.

Batam has for many years been a de facto FTZ, and the tax incentives originally intended for export-oriented industries have also been enjoyed by Batam residents and local firms on the island with products and services that are not destined for export.

This prompted the finance ministry in 1998 to reimpose the value added tax (VAT) on Batam to raise revenue for the cash- strapped central government. However, after strong protests from foreign investors the VAT policy was postponed.

The finance ministry then extended the tax facilities while awaiting the enactment of a law to give the island the FTZ status.

FTZ status for Batam would mean that companies operating on the island, which is located just 20 kilometers from Singapore, would be allowed to import goods without paying customs duties and taxes pending their eventual processing, transshipment or reexport.