'We hope to see more investments in agricultural sector'

Investment is the key to generating higher economic growth for the country at a time when high growth in domestic consumption is showing signs of slowing down. The Jakarta Post's Urip Hudiono recently talked with head of the Investment Coordinating Board (BKPM), Muhammad Lutfi, on the investment situation in the country, investment trends, and the government's road map for attracting future investment. The following is an excerpt of the interview:

Question: How are investments for this year progressing so far?

Answer: Actual investments from January to September have totaled Rp 84.5 trillion (some US$8.45 billion) -- more than twice that of the same period last year -- with foreign direct investments (FDI) alone reaching $7.64 billion, which is also more than double last year's first nine months of $2.94 billion.

More importantly, in terms of how it has helped employment in the country, the actual investments have provided jobs for a total of 197,643 workers. This is not taking into account the multiplier effect -- its impact on related catering services and other supply services.

So with actual investments already exceeding their Rp 50 trillion target for this year and investment approvals 78 percent of the Rp 179 trillion target, it can be said that the confidence level of investors toward Indonesia has continued to improve, and that our country is at least back on the radar screen of foreign investors.

What sectors are investors mostly interested in? Has there been a major shift from previous years, or perhaps an interest in new sectors of investment? In terms of foreign investors, they are still mostly attracted to investing in telecommunications, transportation, chemicals, pharmaceuticals, construction and electronics. Most of these foreign investments have come from Singapore, Japan, Malaysia and Korea.

Local investors, meanwhile, are mainly interested in the food processing industry and agriculture sector.

But surely the government intends to attract investments in other sectors as well. What is the government's strategy to accomplish this? One thing to note is that while investors have acknowledged the attractiveness of Indonesia's large market, many are still only interested in short-term investments with a high return, which is reasonable due to the fact that our investment climate still needs a lot of improvement.

BKPM plans to improve this, so that we can promote high-return investments while also creating more value for our economy as well, for example, by encouraging more investment in raw material industries to semi-processed industries.

Our hope is that in the future, we will see more investments in agricultural industries such as palm oil, pulp mills and fisheries, apart from new investments in the energy sector such as natural gas derivatives of olefin and coal liquidizing. From BKPM's assessment, what are investors still referring to as their main concern in investing more in Indonesia? There are still four main concerns, namely, tax regulations, customs procedures, poor infrastructure and labor issues.

Problems in tax regulations range from complaints about the difficulty of obtaining investment incentives of tax refunds, to existing cases of extortion by unscrupulous tax officials. Red- tape and overrestriction to prevent smuggling in our country's customs procedures, meanwhile, sometimes create problems in the flow of goods and equipment needed for investment.

The poor condition of our infrastructure is no secret and is a problem for all of us, which has hampered both investment and economic growth. Last, but not least, is the labor issue. Our labor regulations and skilled labor are among the world's worst from an investment point of view.

How will the new investment law that the government is currently drafting help to address these problems? The new investment law is expected to at least create a more comfortable climate for foreign investors, which includes equal treatment, and the government's guarantee of legal certainty for investment permits.

The government will also assure that there will be no nationalization attempts on any investments, and that it will always seek fair and neutral settlements for any investment disputes. The main point here is that the law is expected to provide an opportunity for us to eliminate the bad habits of corruption and collusion which have discouraged investors in our country in the past.

BKPM recently held a road show promoting investment opportunities in Indonesia to foreign investors, in London and South Africa. Were there any new investment commitments? We have sealed commitments worth $8.5 billion from Chinese investors, who since July have started investments in two railway tracks and a power plant in South Sumatra, and an oil refinery in Tuban, East Java.

BKPM will also follow-up investment opportunities in coal liquidizing from South Africa, inviting related businesses from both countries to see what can be done.