Political uncertainty leads investors to shun industrial estates

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.