Provinces woo investment

More provincial and regency administrations have increasingly realized the importance of investment to expand their local economies, generate jobs and create new, bigger sources of fiscal revenue.

Gone are the times when most regional administrations, euphoric about their new-gained power after the launching of regional autonomy in 2001, simply flexed their muscles to grab a bigger share of the wealth from their natural resources and resorted to easy, unsustainable ways of raising revenue by squeezing companies with additional levies.

Local administrations that previously depended mainly on the Investment Coordinating Board in Jakarta for investment promotion, have taken the initiative to woo new investment to their respective areas, fully realizing that private capital outlay is the only effective means for them to provide jobs for their people.

The latest example is the recent investment promotion mission sent by the West Java provincial administration to Singapore where the province's top officials briefed international businesspeople on investment opportunities and promised international investors more expedient business licensing and a more conducive investment climate.

West Java Governor Danny Setiawan also said in Jakarta last week that his administration would host an infrastructure summit in Bandung in August to woo investors to invest in toll roads, the airport, seaport, water supply and waste management and many other basic infrastructure.

Earlier, the Jambi, North Sumatra, Riau and Batam administrations had made similar missions to Singapore, the first gateway to woo foreign investors because the city is home to the Southeast Asian regional offices of most multinational companies.

The Sleman Regency administration in Yogyakarta province and the Semarang mayoralty in Central Java have begun publicizing an audited balance sheet. In a way, these financial disclosures also are a means of wooing investment because the regular publishing of audited balance sheets is the first of a string of requirements in the process needed for local administrations to float municipal bonds. Credit rating agencies need to analyze the financial reports of an administration to determine its credit rating, which is the main component for setting the price of bonds.

The regional initiatives to attract investment should be welcomed as one of the biggest benefits of regional autonomy. We are looking forward to a time when provinces or regencies compete with each other to woo domestic and foreign investment.

Especially now as provincial governors, regents and mayors have to compete in direct elections, economic records that directly benefit the people are surely the most effective means of gaining voter support. This means that job creation will be the most important yardstick to measure the performance of a regional chief executive. Consequently, regional chiefs -- whether governor, regent or mayor -- must be business friendly, meaning that their economic policies and public services must be devoted to stimulating investment.

It is private investment that creates jobs, which in turn generate purchasing power for locals and consequently create a market demand for numerous goods and services from which local administrations can raise levies. Private capital outlays are sorely needed to increase the economic capacity as private consumption, the main locomotive of growth over the last four years, has begun to lose steam, and the government, overburdened with huge domestic and foreign debts, is deprived of significant investment capacity.

Further down the line, business-friendly local administrations will contribute greatly to national economic growth because most of the country's abundant natural resources such as forests, agriculture, fisheries, mining, tourist attractions are located in the provinces and regencies.

But local administrations and regional legislative councils should realize that the most important element of business- friendly policies and conducive investment climate should be good institutions and bylaws that can serve as risk-management tools for investors working in a highly-complex market economy.

A business-friendly governor or mayor could raise controversy or come constantly under suspicions of collusion with businesspeople if the legal and licensing frameworks for businesses are not transparent and are not subject to high standards of accountability.