RI's competitiveness fading out: Jetro

A'an Suryana, The Jakarta Post, Jakarta

The powerful Japan External Trade Organization (Jetro) took its turn over the weekend criticizing Indonesia's investment climate, saying the country was no longer a preferred destination for Japanese investors due to rising labor and energy costs.

In order for Indonesia to remain competitive with foreign investors, the government should rein in labor and energy costs and provide tax incentives, including tax holidays, for investors, the organization said.

It, however, did not provide details of what it considered to be an affordable level for labor and energy costs.

"It is true that the attractiveness of this country for Japanese companies as an invest destination is decreasing at a rapid pace," Kato Hiroyuki, the president director of the Jetro Jakarta Center, said in a statement made available exclusively to The Jakarta Post.

According to Kato, the old advantages that once lured foreign investors to Indonesia in the 1970s and 1980s had begun to disappear one or two years ago. These advantages included cheap labor and energy costs.

He said the current minimum wage level in Jakarta was close to that on China's east coast, which is the most developed area of the country and the industrial hub of the economic giant.

And the actual minimum wage level in Jakarta is already higher than in China, if labor productivity and high overtime costs are taken into account, he added.

Many Japanese investors here are also concerned by possible higher energy costs, with state electricity company PT PLN planning to raise electricity rates to seven US cents per kilowatt hour (kwh) in 2004.

According to Kato, electricity rates in Indonesia are higher than in any of the major countries in the Association of the Southeast Asian Nations (ASEAN), as well as in China.

Having been in Indonesia since 1967, the Japanese account for the largest group of foreign investors in the country. They have a total investment from April 1967 to December 2001 of some US$34.9 billion, or 14.4 percent of the total foreign investment in Indonesia of $242.3 billion.

Japanese investors have worked on 1,383 projects, or 12.7 percent of the total 10,871 projects during that period. Japanese investment has also created job opportunities for 224,463 people, according to the Investment Coordinating Board.

Kato's statement is the latest in a string of criticisms by foreign investors of the investment climate in Indonesia.

The South Korean Chamber of Commerce said earlier dozens of South Korean companies had either shut down or relocated their operations from Indonesia in the one-year period up to June of this year. Dozens of others will pull out unless the government takes action to improve the deteriorating investment climate, the organization warned.

Kato said some Japanese companies had left Indonesia and relocated their plants to other countries because of the high labor and energy costs.

He noted, however, that a mass exodus of Japanese companies was not expected.

"Among the Japanese companies here, there are some that cannot relocate easily to other countries," he said, adding that relocation is expensive because investors must spend money setting up new factories and training new employees.

According to Kato, despite the unlikelihood of a mass exodus, the government must pay attention to the country's decreasing competitiveness, which would discourage new investors from entering Indonesia.