The growing labor costs in China and Vietnam have made Indonesia the primary choice for many Asian industrial giants. Many Korean and Taiwanese shoe and electronics companies, for example, have considered relocating their factories from China to Indonesia.

“Many Taiwanese companies have decided to relocate factories to Indonesia. In China and Vietnam they have difficulty recruiting enough workers,” Bennet Chen, Taipei Economic and Trade Office (TETO) Indonesia deputy representative told The Jakarta Post on Wednesday.

Chen said many Taiwanese companies had chosen to build factories here  not only because labor costs were more competitive, but also because of Indonesia’s political stability and huge domestic market.

According to the Indonesian Footwear Association (Aprisindo), six footwear companies from Taiwan and South Korea had relocated factories from China and Vietnam to Indonesia, with a total investment of US$550 million.

In its quarterly report, the Investment Coordinating Board (BKPM) said the realized foreign investments during the second quarter of this year reached Rp 35.6 trillion, a 52.7 percent increase from Rp 23.3 trillion in the April-June period of last year.

Data from the Central Statistics Agency (BPS) shows that in February this year Indonesia’s workforce totaled 171.02 million people, up from 168.26 million in the same period last year. However, only 92 percent (116 million) of these workers were employed.

Earlier, Trade Minister Mari Elka Pangestu said the workforce boom would last for the foreseeable future, “for 10 to 15 years ahead”, creating ideal momentum for businesses to establish a base in Indonesia to access the population and its growing purchasing power.

“We believe we will have no difficulty recruiting workers in Indonesia,” Chen said confidently.

Taiwan is among the 10 largest investors in Indonesia. As of 2009, Taiwan had invested $13.96 billion.

According to TETO, in 2009 the trade value between Indonesia and Taiwan reached $8.5 billion, down from $10.85 billion in 2008 because of the global financial crisis.

China and Vietnam were previously known as investment havens for many foreign investors, especially those involved in labor-intensive industries. However, rising salaries and an increasing number of labor strikes in recent years have made the two countries less appealing, leading many investors to turn to other countries to build their new factories.

The Beijing municipal government has, for example, increased minimum wages to $141, from $117 per month, starting from June this year. Up to 11 industrial areas in China also increased wages by up to one-third of previous levels. In May, the government of Vietnam increased minimum wages to $38 from $34 per month.

The minimum wage in Indonesia is around $90 per month, and TETO says this amount is still acceptable and competitive.

Chatib Basri, an economist at the University of Indonesia, said many foreign investors chose to set up industries in Indonesia not only because labor was cheaper here, but more because of the country’s stellar economic performance and political stability. “Indonesia’s economy has performed very well over the past few years. During the global financial downturn our economic growth still hit 4.5 percent in 2009,” he told the Post on Tuesday.

Indonesia’s large workforce and growing purchasing power were among factors making it attractive to investors, BKPM chairman Gita Wirjawan said.

In 2009, Indonesia’s per capita GDP reached $2,590, up from $2,269 a year earlier. (rdf)

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