Relocation of foreign firms hurts RI

The Jakarta Post, Jakarta

Plans by a large number of foreign companies here to relocate their operations to other countries is an apparent reaction to their frustration over the slow progress by the government to improve the country's business climate.

"When the government declared this year "Investment Year 2003", hopes were high on the part of investors that the government would get more serious and take significant steps to improve the climate here.

"If the relocation plans materialize, then it will all be a total failure," Sri Adiningsih, University of Gadjah Mada economist and is a member of an Indonesia-Japan working group set up to bolster economic corporation between the two nations, told The Jakarta Post on Thursday.

Japan-based investors represent the largest percentage of foreign investors in Indonesia.

Sri was commenting on earlier remarks made by Investment Coordinating Board (BKPM) official, warning that there would be more than a hundred foreign companies relocating their businesses by the end of the year, 40 percent of them Japanese, citing a poor business environment in terms of security and the legal system, among other issues.

Johnny W Situmorang, a BKPM director, made the announcement but did not publicly state which sectors those companies were in or what the size of their investment was.

Attempts to seek further confirmation from the BKPM office and Japanese business associations were unsuccessful.

Sri said that she had not heard of the planned exodus, but admitted there were continuous complaints from investors, Japanese and others, over the absence of a clear-cut and integrated concept on the part of the government to eliminate problems detrimental to investment.

"They (investors) think that currently the business climate here is worrying.

"As this is supposedly 'Investment Year 2003', the government should have been able to focus and solve many of the chronic problems such as the legal system, security, taxation, infrastructure, thuggery, illegal fees etc., but the progress seems to be too slow," she said.

If the exodus does happen, Sri added, it would be a serious blow to the economy because it would mean that Indonesia would not only lose the potential income, but would also bear the brunt of thousands more unemployed local people.

"Japanese investors, for instance, their businesses are usually in manufacturing: electronics, automobiles and other industries that employ many workers. We cannot afford to lose their business."

The government's investment promotion campaign this year was seen as a desperate bid to boost investment, but it has not been successful so far due largely to a lack of coordination.

As of July, BKPM reported US$4.7 billion in approvals for foreign direct investment (FDI), with around 40 percent of that coming from Japan.

It was actually a rise from $3.2 billion posted at the same period last year, but most of that figure is a reflection of several local companies changing their status to foreign ones.

In fact, investment approval numbers have been descending on a steep slope in the last 5 years. In 2002, FDI approvals plunged by 35 percent, while domestic investment approvals dropped by 57 percent.