Provinces woo investment

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.