Power, transportation are most important

Sumitomo Corporation Chairman Kenji Miyahara, who is also vice chairman of the powerful Nippon Keidanren (Japanese Economic Federation) talked to The Jakarta Post's Kornelius Purba on Sunday about Japanese investors' views and expectations about Indonesian investment prospects. He is in Jakarta to attend the two-day Infrastructure Summit on Monday and Tuesday.

Question: How do you see the quality of basic infrastructure in Indonesia, such as roads, power, seaports and telecommunications?

Answer: Frankly, we cannot say that your infrastructure is good enough. Your government has to do many things in many areas, not just like in areas that you have pointed out. Electricity, transportation and ports are considered hard infrastructure.

Another important thing, however, is soft infrastructure, which includes the legal system, legal procedures, the government's administrative procedures and the educational system.

Concerning infrastructure, what do you think is the most urgent thing for Indonesia to overcome?

First of all, I would like to express my deep condolences to the victims of the tsunami in Aceh and North Sumatra. Hopefully, with the cooperation of the international community, the people in the affected areas will be able to rebuild a new life.

Regarding Indonesia's current situation, it is most urgent to revitalize the economic activities.

From that point of view, especially since I am a businessman, electricity power and transportation systems are probably the most important.

Your government must have a priority because every country has limited sources, capacities, money and human resources.

As the Sumitomo chairman, what is the most urgent thing?

We are now constructing the Tanjung Jati B power-generating project. And I really hope this project will contribute to Indonesia's economy.

In the context of Japanese investors, what projects are the most interesting?

To revitalize Indonesia's economy, the very important thing is to invite private sector investment, not only the Indonesian capital but also capital from overseas.

For example, Japan has cumulatively become the biggest investor among Asian countries. But now the investment is slowing down a little bit.

The reason is probably because Indonesia has been slightly left behind in competition among ASEAN countries. When private investors are going to put their money overseas, they always compare Indonesia with, for example, Thailand or Vietnam.

Compared to Vietnam or Thailand, what are the disadvantages of Indonesia?

It depends upon the industries. But generally speaking, Vietnam has been very enthusiastic in inviting foreign investors.

Your government has also been expending quite a lot of effort, but when you look at this data (statistical data from the World Bank showing Indonesian quite low in many categories), for instance, the availability of electricity in Indonesia is 50 percent, making the country 11th out of 12 countries in the Asia- Australia region.

Investors have cited several problems like legal uncertainty and taxation issues as some of the biggest barriers hindering new investment here. In addition to these issues, what are the other main problems for investment here?

First, competitiveness among neighboring countries.

Then, there is the legal system, which is not transparent. Whenever we invest here, the government wants to have a long projection.

You have to understand that the private sector's money is very timid. When they see something dangerous, they will run away very easily. Of course, Sumitomo invests here for the very long term, so we can't run away quickly.

To keep this kind of investment, the legal system and procedures and other administrative things have to be transparent, to give the investors some feeling of security.

How should the regulatory framework be for private investment infrastructure to be attractive?

Your new government is holding an infrastructure summit to call global investors. It means your government realizes the importance of improving infrastructure. I really appreciate this.

Speaking about which part (of infrastructure) is more important or should be prioritized, it's politics. We have unlimited resources of money. I think your government will have to decide on its priorities.

In the case of private-to-private investment cooperation, do Japanese investors still require the Indonesian government's guarantee scheme, as they did before the 1997 economic crisis?

This is a very important point. To attract private investors, you should have good infrastructure. In order to construct good infrastructure, the government's support and function are very, very important. And also there is the question of how much the government will be involved?

It depends on the project and the nature of the infrastructure. By all means, the government realizes this point, and it has to support this.

The government and private investors have to trust each other. To keep it solid, the legal system and transparency are very important -- everything is interconnected.

How about Sumitomo's own experience here?

There have been a lot of problems here. But there are good prospects and that is why we commit big money and investment. As of now, Sumitomo has invested, including our commitment, around US$4 billion. Some of them are in manufacturing, including construction machinery, automobile parts, electrical appliances, steel and manufacturing of plastics.

In the service sector, we have a leasing business and on top we also invested in copper and energy and LNG projects. We are also operating an industrial park in Cikarang, West Java. There are 90 manufacturers operating there.

From the industrial park, their exports are about 4 percent of Indonesia's total exports. It is a very big contribution to the country's economy.

What is your projection in the future?

We are still expanding power generation business on top of Tanjung Jati B project. And also in the area telecommunications, like the Internet and broadband. We would also like to promote infrastructure projects, particularly the mass rapid transportation (MRT) system in Jakarta.

Despite all the unresolved problems, what prospects do you think Indonesia still has in the short and mid term?

I really appreciate what the government has done in the last six years. Now the situation in society is settled down. The new president was elected democratically.

I think your government is showing a very positive attitude to investment. It realizes what it has to do.