'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