Political uncertainty leads investors to shun industrial estates

SURABAYA (JP): The prolonged economic crisis, worsened by protracted political uncertainty, has lead the business climate into a dark state. It has also affected business in industrial estates which require interrelated and complex management and a solid marketing strategy.

Attracting investors means initiating strategy, while soliciting them to join the industrial zones takes more strategy.

The current status of industrial estates in East Java, which are far from Jakarta's political hustle and bustle, is of no exception.

"All prospective investors interested in investing in East Java have canceled their plans. They have now adopted a wait-and- see stance. However, the provincial industrial estates are offering relatively good business prospects and are providing proper facilities. But what can be done if investors do not want to invest here because they don't dare to take a risk," I Ketut Arsha Putra, the president of PT Kawasan Industri Gresik (KIG), said.

Soeharto, the corporate public relations manager of Maspion Group, which owns and runs the Maspion Industrial Estate in Gresik, expressed similar skepticism.

He said foreign investors to date were more concerned about the political situation and did not only take business calculations into consideration. "They do not see either political stability or legal certainty. That's why they take a wait-and-see attitude. Who would guarantee their businesses?" he said.

At the beginning of the monetary crisis, Soeharto said economic consideration was very important. The economic situation is not yet conducive. "Actually, today, there has been an indication that the economy has gradually gotten back on the recovery track. Unfortunately, political instability and legal uncertainty have haunted the investors," he added.

KIG has had an interesting experience. Before the economic crisis hit the country, the company, jointly founded by PT Semen Gresik Tbk and PT Petrokimia Gresik, was still able to attract between five to ten buyers (industries). "Until September this year, we were only able to attract two buyers, each with only about 1 hectare of land. Before the crisis, we could sell 2 hectares to each investor," Ketut Arsha said.

For survival, KIG adopted a new strategy by leasing plots of land, buildings and warehouses in the industrial complex on a three-year basis. This strategy has proved to be effective because many investors showed interest in leasing the facilities. Of a total of 135 hectares, 91 were rented out. The company plans to lease another 16 hectares and sell the remaining 75. Of the 75 hectares, 40.7 hectares have been sold, while of the 16 hectares, 5.2 hectares have also been rented.

Maspion Group has a different development for its Maspion Industrial Estate. Currently 12 industries have been operating in the 300-hectare complex in Gresik. Of the 12 companies, seven are the subsidiary firms of Maspion Group with products or activities such as mattresses, automotive, construction, pipe and jetty, while the remaining five are foreign firms (USA and Thailand). "We are lucky we have a number of subsidiary companies to take advantage of the situation," said Soeharto.

Therefore, Maspion, at the moment, has no intention to lease the facilities and infrastructure. Its subsidiary companies alone could occupy 30 percent of the total capacity being marketed. "We have certainly tried hard to market them. And for the moment, most of the companies operating in our complex have links with the Maspion Group."

There are several other companies managing industrial estates in East Java and actively luring investors. PT SIER (Surabaya Industrial estate Rungkut) is the first company to operate industrial estates in East Java. It has industrial zones in Rungkut, Berbek and Rembang (Pasuruan). The one in Rembang is being operated under the flag of PIER (Pasuruan Industrial Estate Rembang).

NIP (Ngoro Industri Persada) is a 200-hectare industrial estate located in Ngoro, Mojokerto. NIP owns and manages two property company groups -- PT Dharmala and RSEA.

PT Suri Mulia Permai operates its industrial zone in Margomulyo, Tandes, West Surabaya.

Investors' reluctance to operate in industrial estates has also been caused by the government's inconsistency in its policies. Previously, companies were obliged to operate in industrial estates. Even though the regulation was not effectively implemented, it could still function as a push factor. But the Habibie administration revoked the policy with the reason that it wanted to attract foreign investors. "Whereas, by operating in industrial estates, the environmental management of the industries is top priority," said Ketut Arsha.

The inconsistency caused many companies to open business in areas with fertile soil.

The government had also planned to develop Bangkalan area as an industrial zone, but the project was left untouched following the postponement of the Suramadu bridge project. The Suramadu bridge was designed to connect Surabaya and Madura island.

Conflicts arising from the government's policies in agrarian and labor affairs are other obstacles. Conflicts stemming from agrarian and labor disputes are rampant in East Java. "I learned from my negotiation experience that Japanese investors were very much afraid of workers' strikes and land disputes with the local people," he said.