New EU investment coming next year: EC

Zakki Hakim, Jakarta

Will investment funds from rich European countries to Indonesia decrease in the coming years as a consequence of the European Union (EU) enlargement?

According to EU data, the 15 old EU members, known as the EU15, are the world's main source of foreign direct investment (FDI), accounting for 46 percent of the world's FDI with a total investment of 235 billion euros (US$279.65 billion).

Raffaele Quarto, first secretary and head of the trade section of the Delegation of the European Commission in Indonesia, acknowledged there was a concern among business communities within Asia, including Indonesia, that the EU15 would prefer to invest in the new EU member states, which are mostly poorer Eastern European countries and have a convenient advantage of distance compared to Asia.

"However, this is not true," said Quarto in an interview with The Jakarta Post.

According to Quarto, no diversion of investment was expected as a consequence of EU enlargement, as trade and investment in the enlarged Europe had been largely stabilized following the implementation of the Europe agreements.

Under the 1989 Europe agreements, the Eastern Europe countries had to go through a transition from centralized economies to market economies before EU admittance. Their western European counterparts assisted them with financial and technical support.

The transition has been running smoothly and Eastern Europe's economies have been growing significantly, he said, adding that the member states were expected to grow 1.7 percent this year, almost three times the EU growth of 0.6 percent.

Quarto explained that following the EU enlargement, the new EU would surely benefit from an EU scheme of redistribution of wealth from richer countries to those with lower GDPs, as well as easier access to banking in any EU country.

"What is likely to happen is that the new members will be interested in coming to Indonesia," he said.

Investors from the new EU member countries will be interested in Indonesia's relatively lower costs and will bring back goods to Europe to service a bigger market, he said.

Moreover, the EU has, among other things, an Asia Invest Program that aims to promote and support business cooperation between the EU and Asia, including Indonesia, to increase trade and investment flows between the two regions, he said.

In order to attract more investment, the government should create a conducive environment for investors, both foreign and domestic, improve infrastructure, province adequate clean energy and guarantee fair competition among businesses, Quarto said.

The most important thing is to better communicate the image and conditions in Indonesia to attract investors, he said.

"I believe that next year is the year European investment comes back to Indonesia," he said.

Investment Coordinating Board (BKPM) head Theo F. Toemion voiced a similar opinion, saying EU enlargement did not mean the EU15 would relocate or reduce their investment in Indonesia significantly.

Theo said EU15 states like the United Kingdom had invested in the new member countries long before the EU membership enlargement, therefore there should be no sudden diversion in investment.

"After all, not all countries have what we have, for instance palm oil plantations," he said, voicing optimism Indonesia's rich natural resources would remain attractive to European investors.

He said some of the new members had invested in Indonesia, particularly in the manufacturing sector.

"The Eastern European countries have the technology, but they are lacking funds. Joining the EU will increase their access to fresh funds from their Western European counterparts," he said.

Theo added that the new EU members would provide Indonesia the opportunity to gain access to the massive EU market through them.

"They are very aggressive. Unlike the older EU members, the new ones do not impose pressing regulations and conditions," he said.

As the Eastern European countries are relatively poorer than the Western states, they seem to better understand how things work in developing countries, he said.

Among the new EU member states, Slovakia, Hungary, the Czech Republic and Slovenia have invested in Indonesia.