RI's competitiveness fading out: Jetro

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.