RI's labor cost still competitive: Expert

A'an Suryana, The Jakarta Post, Jakarta

Illegal fees payable to governmental officials, not labor costs, are the main factors troubling existing investors and discouraging new investors from entering the country, according to one local labor expert.

"It is not true that the cost of labor is the main factor causing foreign investors to move out of Indonesia.

"Indonesia's labor costs remain competitive compared to other countries," said Fauzi Abdullah, a labor expert with the non- governmental organization, Sedane Labor Information Institute, told The Jakarta Post on Monday.

Fauzi was commenting on the recent statement made by Minister of Industry and Trade Rini M. Soewandi that labor problems, including the high cost of labor, had prompted businessmen to relocate their factories to other countries.

Rini, speaking to reporters in Sukohardjo, Central Java, mentioned that the illegal fees payable by industries to governmental officials for various licenses or clearance at ports, which is locally called pungli, was another problem the business community and government must address to create a competitive business environment here.

According to Fauzi, Indonesia's labor cost was about 15 percent of total production costs.

The figure was higher than Vietnam and China, but slightly lower than Malaysia and Thailand, he said.

"Indonesia's labor costs are much lower, if compared to those in Western countries, where labor costs amount to between 30 percent and 35 percent of total production costs," said Fauzi.

According to Fauzi, instead of blaming workers for the relocation of factories by foreign investors, the business community must seek a breakthrough to resolve lingering corruption.

"These illegal costs burden businessmen and should be placed as a priority for the government to address," he said.

A failure to address the problem would only aggravate workers because businessmen usually reduce workers' salaries to compensate for losses caused by the corrupt practices of government officials.

Anton Supit, the chairman of the Indonesian Footwear Association, agreed that pungli was a problem for the country's industries but said the cost was quite small compared to the cost of labor in the industries' cost structure.

"However, despite being small, any reduction of this cost would be valuable for us in the current economic slowdown," said Anton.

But, Anton maintained investors consider the cost of labor, not the illegal payments, to be the main problem for their businesses.

Indonesia's labor costs are too high and should be reduced in order for businesses to remain competitive, he said.

"In the garment, shoe and toy factories for example, the cost of labor can be as high as between 20 percent and 24 percent of the product's selling price, while a fair labor cost in these industries is 15 percent," he said.

The same situation also applies for electronic and other similar sectors. "The cost of labor is 50 percent of the total manufacturing cost, this figure is too high," he said.

Many investors also complain that labor disputes often disrupted product delivery to customers.

Due to the high cost of labor and labor disputes, many investors have relocated their factories to other countries, where labor costs are lower and workers less volatile, such as China and Vietnam.

In order to resolve the contentious labor issue, compromise must be sought among businessmen and their employees, resulting into a win-win solution settlement, said Anton.