Treat investors like your mistress

Yose Rizal Damuri Centre for Strategic and International Studies (CSIS) Jakarta yose_rizal@csis.or.id

The list of multinational companies planning to stop their production activities in Indonesia gets longer by the day. After Sony Corporation's decision last month to pull out its investment, this month we will see many more companies follow them. U.S.-based cosmetics giant Avon Products Inc, for example, is mulling the closure of its factory in Indonesia.

Those two companies were not the first to decide to walk away from this country. Before them, several Korean and Japanese business associations here also felt that doing business in Indonesia was no longer attractive. Even when they mostly agreed that Indonesia was still a fascinating market for selling their products, the numerous difficulties they face are no longer acceptable. In fact, it only exacerbates the already gloomy investment climate in Indonesia since the financial crisis began.

The relocation of Sony and other companies' factories to other countries is a direct consequence of the government's lack of action in creating a healthy investment climate.

Cumulative approval of investment has declined drastically. Not only the value of foreign investment approval this year that has deteriorated by around 49 percent compare to last year, the value of domestic investment even declined faster, around 70 percent. This time around, not only foreign investors feel uncomfortable about the business environment in Indonesia, domestic businesses also lost their taste. The picture of the investment situation presents a depressing prospect of the Indonesian economic recovery.

Right after Sony's decision was announced, several high government officers did respond to the news, but not in the expected way. Some said that it was just a blown up media affair; and the "real situation" is not so bad. Another top government officer even revealed his disappointment by dismissing it as "irresponsible investor behavior". He said most foreign investors just had the intention to exploit the Indonesian economy for their benefit only, leaving the country while problems are facing them.

While what he said might be true, it is not sensible to blame investors who leave this country for greener pastures. As has been said, money has no nationality; we cannot expect foreign businesses to keep doing business here while they lose profit due to all the problems here.

One of my friends put it in another perspective. Investors are just like a mistress; you should treat a mistress in an excellent way otherwise she will ditch you. Unlike a wife who is expected to be with you for better or worse, a mistress will definitely run off if she doesn't get what is expected; let alone treating her inadequately. It is your everyday "job" to persuade her to keep "sleeping in bed" with you. It is the job of the government to sort out problems arising in the business environment.

Complaints of an unfavorable environment from the private sector have been long heard, however they usually only turn out getting place at the bottom of a very long list of unsolved problems. The list includes security and political instability. The risk of being burgled and ransacked still exists, even though a relatively conducive political environment of late has admittedly reduced that threat. Another issue is labor problems. Apart from the minimum wage that keeps increasing every year, business societies also face the fact that there is no clarity on the labor and industrial relations issues, as Indonesia still has no permanent laws on the matter.

This list is longer if we take into account some government policies concerning the business sector, such as tax and customs policies. With the difficulties of meeting its budget, the government has taken all possible measures to increase revenue. Unfortunately, the government has adopted a strategy of "hunting in the zoo", wherein they increase taxes to those that already pay, including higher taxes on sales and production, rather than going for huge percentage that do not pay or underpay. Inevitably, the excessive sales and value added tax increase cost of production and reduce business competitiveness.

Sometime, or perhaps most of the time, we forget that we are still struggling to get out of the economic crisis. For a couple of years, the economy has recorded positive growth in some macroeconomic indicators. That is a remarkable improvement in the economy, but that does not mean we already have left the crisis behind.

Since 1999 the economic growth has been driven mainly by consumption. Around 60 percent of economic growth comes from private consumption. While, consumption is still a big part of next year's economic growth, this factor cannot be expected to be a sustainable source of growth. The latest data shows that the growth of consumption dropped quite remarkably compared to last year. Sooner or later, people will not have enough money to keep up the pace of their consumption, and that would, for sure, harm the sustainability of economic growth.

There is no other option to maintain or perhaps boost economic growth except to increase investment. Investment-driven growth is not only more sustainable but also has a spillover effect on the economy. The more investments the more unemployed people are likely to get better jobs. With a massive unemployment rate, strategy that will enhance investment is unquestionably required, not the opposite.

Good strategies are certainly do not include those that create apprehension to foreign investors. The problems surrounding the investment climate are actually quite common and recognizable. Many studies and dialogs have revealed all these factors and problems.

The first thing that we need to do is to change our negative attitude and perception towards investors and business societies. Indonesia's economy needs those people and is our responsibility to provide them with a more conducive investment climate, one that creates profit for them.