Tension in RI deters palm oil investors

Tension in RI deters palm oil investors

KUALA LUMPUR (Reuters): Indonesia's political and social tensions have discouraged many palm oil companies in Malaysia, where land for cultivation is getting scarce, from expanding their business in its giant neighbor, industry sources said on Monday.

More than 10 Malaysian companies set up joint ventures with their Indonesian counterparts and opened new plantations in Sumatra and Kalimantan on Borneo island in 1995, but expansions were frozen due to uncertainties in the world's second largest producer.

Malaysia is the world's biggest producer and exporter of palm oil.

"We lost some 100,000 ringgit ($26,315) when our office was attacked by the Dayaks late last year during riots with another ethnic group," said an official at a Malaysian firm, referring to the Borneo's indigenous people in Kalimantan.

"We are not only talking about the economic uncertainty, but also the political and social problems as well. I believe other Malaysian companies are adopting the same stance, to put their expansion program on hold," he said.

The Kuala Lumpur-based official said his company had delayed a plan to expand the plantation area to 10,000 hectares from the current 8,000 hectares in West Kalimantan province.

"We are continuing our business there, but whatever expansion we have planned must be put on hold. We started planting trees in 1996 and expect to harvest the crop this year," he added.

Indonesian government officials could not be reached for comment on Monday.

Problems in finding new areas and difficulties in hiring cheap labor had encouraged Malaysian plantation companies to look for other options, including Indonesia, to expand their businesses.

Malaysia, whose production is projected to rise to 10.8-11.0 million tonnes of crude palm oil in 2000 against 10.5 million tonnes last year, depends largely on foreign workers to tend the plantations.

Since 1997, a serious regional financial crisis and the worst ever in Indonesia, the world's largest archipelago, increased crime, unemployment and social tension in the multi-ethnic nation. There were reports of looting at oil palm plantations. The crisis brought the downfall of former President Soeharto in 1998, during whose administration many agreements between Indonesian and Malaysian plantation firms were signed.

Indonesia expects output to reach 6.5 million tonnes this year against 5.9 million tonnes in 1999 as planted areas have grown and more trees have matured.

Malaysian Deputy Primary Industries Minister Anifah Aman said Indonesia remained an attractive place to do business despite the political uncertainty.

"Apart from the political situation...sure they have an abundance of land and cheap labor compared to Malaysia," Anifah said, adding that more than 10 Malaysian firms operated in Indonesia.

"(But) like in every country, they have their own system of government, so it's just a matter of trying to solve the problems and sometimes it takes longer...," he said without elaborating.

One source at the primary industry ministry said getting the permit was among the main problems for Malaysian firms to expand their plantations.

"The central government may give a go ahead. But when it comes to the provincial government, the case will be different...they may refuse to grant permit," said the source.