More foreign firms to relocate

The Jakarta Post, Jakarta

The Investment Coordinating Board (BKPM) warned on Tuesday that more foreign companies were set to relocate their operations here to other countries due to the worsening investment climate in the country.

BKPM director Johnny W. Situmorang said that more than one hundred companies planned to leave the country this year.

"Up until the end of the year, companies that are planning to relocate are estimated to reach more than one hundred. They see the investment climate here as no longer attractive," he told Antara in Medan, North Sumatra.

Johnny did not mention the companies, but said 40 percent of them were Japanese companies, most of which planned to move to China or Vietnam.

Japanese firms represent the largest investors in Indonesia.

He said that as a whole, Indonesia was less attractive in terms of its investment climate as compared to those nations, especially as Indonesia still lagged behind in efforts to improve security and legal certainty for businesses.

Many local and foreign investors also complain about labor disputes and the haphazard implementation of the regional autonomy program.

It remains to be seen whether the prediction will materialize, but his remarks were the latest to voice disappointment over the government's lack of a clear-cut concept and efforts to improve the country's business environment.

Investment approvals have indeed been declining over the past several years. In 2002, foreign direct investment (FDI) approvals plummeted by 35 percent, while domestic investment approvals dropped by 57 percent.

Before the crisis, investment was one of the country's main drivers of economic growth. But now, it only accounts for less than 15 percent of growth in the country's gross domestic product (GDP).

As part of attempts to lure more investors, the government has declared this year as Indonesia's Investment Year, but to no avail so far, due largely to a poorly coordinated program.

As of July, BKPM reported US$4.7 billion in approvals for FDI.

Although the figures show a rise from the same period last year, which totaled $3.2 billion, they do not necessarily represent a sudden turn in investment appetite, as most of the approvals came from existing companies switching their status to domestic investment companies.

Moreover, not only have new investments been hard to come by, lately there is also an increasing trend of foreign companies relocating their businesses elsewhere out of the country.

In Jakarta meanwhile, BKPM chairman Theo F. Toemion said that, of all the problems, rampant illegal fees have further deteriorated the appetite of foreign investors to continue doing business here, let alone bringing in new ones.

"If this problem is not immediately resolved, it will serve as a time bomb, which could explode in the form of rapidly increasing unemployment as factories keep shutting down," Theo said at an investment forum in Jakarta on Tuesday.

Theo and Johnny agreed that the only way to improve the business climate was to make investment the ultimate goal to be achieved to help accelerate the country's economic recovery.

"If investment becomes the ultimate goal, then every aspect related to investment activities must be fully supported, in line with existing mechanisms and regulations," Johnny said.

The government is currently drafting a law on investment, and is expected to propose it to the House of Representatives soon, in a bid to provide a broad and comprehensive concept on measures needed to jack up investment.

Bank Indonesia senior deputy governor Anwar Nasution said at the same forum that without an increase in investment, the country could not enjoy a higher economic growth of 6 percent to 7 percent, a level of growth necessary to resolve the huge unemployment problem.

Eye box

Investment Approvals ------------------------------------------

Domestic FDI

(in Rp trillion) (in US$ billion) -------------------------------------------- 1993 39.72 8.15 1994 53.60 27.05 1995 69.85 39.90 1996 97.40 29.94 1997 119.88 33.79 1998 57.97 13.65 1999 53.54 10.89 2000 93.90 16.68 2001 58.82 15.06 2002 25.17 9.80 2003* 11.70 4.70 ------------------------------------------- * As of July 2003

Source: BKPM