'We hope to see more investments in agricultural sector'

'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.