RI's labor cost still competitive: Expert

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.