'Quo vadis' industrial estates in Indonesia?

'Quo vadis' industrial estates in Indonesia?

Jacky Mussry
Contributor
Jakarta

In the last few years Indonesia has remained in the grip of an
acute economic crisis, a situation that has led to a drastic drop
of its economic growth rate.

The government and the International Monetary Fund (IMF) have
set the growth rate of the country's economy at not higher than
four percent.

Part of this economic growth has come from domestic
consumption. Still, as the rate of unemployment has reached a
higher level, there is fear that a lower purchasing power on the
part of the public will be responsible for a drop in the domestic
consumption level.

Foreign direct investment is yet to come to its maximum level
because Indonesia is yet to offer a situation that is really
conducive for foreign investors to do business here. Some crucial
issues in this regard include manpower, poor law enforcement and
security.

A concise report on investment issued by the Investment
Coordinating Board (BKPM) shows that between January and June
2003 foreign investment showed a significant rise in value
although the total number of projects has gone down.

These figures, however, are still far below those recorded
between 1994 and 1997, the period before Indonesia plunged into a
deep economic crisis. Direct foreign investment, particularly in
the manufacturing industry, can actually open up employment
opportunities and therefore jack up the purchasing power of the
people.

It will eventually raise the level of domestic consumption or
even offer fresh opportunities in the export sector where
activities are currently far from satisfactory. It is easy to see
that the higher the level of domestic consumption and export
activities go, the higher the economic growth rate will be.

In a situation like this we are well aware that the capacity
of the government's spending is still limited. Reduced interest
in investment will, among other things, show its impact on the
occupancy rate of industrial estates in this country.

While Indonesia's condition in general is yet to be conducive
for lucrative business activities, industrial estate owners and
managers have also found it difficult to offer their industrial
estates due to fierce competition from other countries. Malaysia,
for example, is smaller in size than Indonesia but has more
industrial estates.

A paper by the United States-Asia Environmental Partnership
(US-AEP) shows that there are more than 300 industrial estates in
Malaysia, far higher than only 55 in Indonesia. Singapore has 30
industrial estates, the Philippines 88 and Thailand 23. Besides,
Indonesia has another strong contender, China, which has now
become a favorite for major international companies. China is so
attractive to foreign investors that even the SARS (Severe Acute
Respiratory Syndrome) epidemic was powerless against the
country's hike in economic growth rate, which went over 8 percent
in the first half of this year. In addition, Indonesia will also
have to compete with Vietnam, Myanmar and Laos.

The Integrated Economic Development Zones (KAPET) in the
eastern part of Indonesia, which is aimed at spurring the
development in that region, is yet to develop as expected. Last
April, Indonesia's economic minister, said that the government
was determined to continue developing these zones but that a
profound evaluation had to be made to ensure that short-term and
long-term problems would be identifiable.

As a matter of course, various efforts have been made to
market Indonesia's industrial estates. The North Sumatra
provincial administration and the municipality administration of
Medan as well as the regency administration of Deli Serdang, for
example, are deeply committed to developing Medan Industrial
Estate (KIM) into a Medan-Deli Serdang free trade zone for
industries completed with various kinds of tax incentives to lure
investors.

Next, the Jababeka industrial estate, which is located in West
Java and in close proximity to Jakarta, has also tried to do the
same to attract investors. The management of Jababeka has made
the estate more "integrated" by merging industrial, residential
and educational areas. The question is: Has enough been done?
What else can industrial estate management do to better market
their land plots?

One of the few options left is making adjustment to the
concept offered, such as what the Jababeka management has done.
We all know that many industrial estates either at home and
abroad offer a simplified licensing mechanism, tax incentives,
excellent infrastructure, cheap labor and so forth as a generic
package. Still, more is needed to be singled out with the most
unique differentiation to win over investors.

Jababeka has offered the concept of an integrated estate in
order to enhance the value offered to investors. It is not easy,
of course, to make adjustments, especially if the concept will
entail expansion of the target market to include not only those
focused on industrial undertakings but also the residential
segment. Another thing that may also be tried is to lure
investors by introducing to them an efficient and
environmentally-friendly industrial estate

It must be borne in mind, though, that adjustment alone is no
guarantee that an industrial estate will be successful to sell.
Why? There are actually some other more important things that an
industrial estate management will find it next to impossible to
influence or change. Investors, for example, can easily and
speedily obtain accurate information before making a decision to
invest somewhere. They may directly and physically observe the
place or simply rely on today's advanced information technology.
So, it is easier for them to compare the benefits that various
industrial estates are offering, including for example the
security condition.

The regional autonomy policy has also intensified competition
among the regional administrations in marketing their regions,
including, of course, their industrial estates. A number of
regional administrations have also shown their intention to
develop their own industrial estates. Take, for example, the
Makassar Industrial Estate (KIMA). It is ready to position the
leverage of Makassar as a gateway in the country's eastern part.
Naturally, more players will lead to an oversupply and,
consequently, stiffer competition. The price may drop and the
occupancy rate may subsequently decline.

One of the most difficult things for industrial management
boards, both privately-owned and state-owned, is that the brand
equity of Indonesia has in the last few years dropped in
reputation among investors.

A number of terror cases at home have sent this brand equity
to an even much lower level. Security is actually one of the most
important aspects for investors to invest in this country. It is
only natural that investors will find the lowest risk and the
highest rate of return for their investment. The relocation of
Sony from Indonesia some time ago is yet to be made a valuable
lesson for the investment authorities in this country.

It is a pity that the government recovery efforts in various
aspects of life are yet to produce concrete and significant
results. These efforts seem to be focused only on the upcoming
2004 general elections or on other items -- often not very clear
-- on the government's priority list. To market Indonesia -
including its potential industrial estates - an intensive G-to-G
with a clear concept is indeed a necessity.

Indeed, we have to build the confidence of investors so that
they will be prepared to invest here. Industrial estate owners
pin great hopes on the government's willingness and commitment to
make Indonesia a better country in the widest sense of the words
so that this country will again have a strong selling point.
Otherwise, investors will simply stay away, no matter how
excellent is the "package" offered by the country's industrial
estates and notwithstanding the most attractive tax incentives
that the government may introduce. The crux of the matter is that
as long as the course that this country is taking is not clear,
it will be equally unclear where the industrial estates will be
heading. (The writer is a partner in MarkPlus & Co