As I spoke to over 150 participants at Telkom Institute of Management in Bandung about skills transfer and work recently, the audience was eager to know what country I would recommend as a development model for Indonesia to create value added jobs.
It was not the US or South Korea (where I teach) but China, which has added considerable value added skilled jobs the past 20 years and has effectively passed by Indonesia in the process.
The model China uses fosters aggressive technology and skills transfer via their preferred mechanism of JV (joint venture) with foreign investors.
This model has worked so well that Foxconn is now looking for the exits in China due to higher labor costs and rising living standards. Again, I state my case that Indonesia and its leadership in the investment board (BKPM) should avoid this type of mal-investment and focus instead on using Indonesia’s vast natural resources to promulgate value-added activity for enhancing people’s capability and skills.
Recently, considerable attention has been given to a bridge project over the Sunda Strait linking Java and Sumatra.
The investment required for this is estimated at between US$20 billion to 30 billion (compared to Foxconn investment of $1 billion). Such a huge investment has the potential to create thousand of jobs.
Indonesia currently does not have the skills capability to build this bridge and will no doubt need considerable foreign technology and investment to complete it.
Chinese investment and skills have been considered for this project, as the Chinese are also pushing forward with building a similar long-distance bridge across the Pearl River Delta, linking Hong Kong to Macau and Zhuhai.
There is no doubt that China will be using its recently acquired skills from previous foreign investment policy to highlight this project. Having also completed the monstrous 3 Gorges dam project across the Yangtze river, they no doubt have the ability and are eager to show off their newly acquired technical prowess.
Whether the Sunda Strait Bridge project is tendered to China, or to another foreign entity, Indonesia can and should use its new economic clout to any foreign investor who wishes to partake in this potential project by insisting on measured skills transfer.
This could be done through a joint venture arrangement with Indonesian companies which have the economic scale to contribute, such as Krakatau Steel for tensile cables or Hutama Karya for construction design, not just small vendor relationships, that are found in Banten for example and have withered politically over time with the ebbs and flows of differing Indonesian presidents.
This is important as the bigger economic players in Indonesia can create a plethora of long-term jobs that smaller vendors cannot deliver.
If skills transfer is not insisted upon in investor contracts and tenders, the bridge could become a giant turnkey project, where Indonesia is held hostage to maintenance and uprades that are tightly controlled by foreign technology and know-how.
Indonesia does not need another quasi-turnkey project, as exemplified in Freeport or Chevron. Training initiatives and skills need to be transferred in process diagrams, engineering schematics (PID diagrams) and project management plans.
For example, if GE, Bechtel, Siemens, or Hyundai seek to tender a bid on any part of this potential bridge project, they must clearly demonstrate a discernible localization plan that will transfer identifiable skills to Indonesian employees via an independent assessment authority, such as the Education and Culture Ministry.
These skills must be scalable (adding to existing ability) and promotable (management creation). They must be fungible enough to be readily transferred into an existing Indonesian university or poly technical school.
This process represents the kernel of a real localization initiative. Without this happening, technical and process skills will be tightly maintained and held by foreign vendors and providers into perpetuity, ensuring bridge building will be on their terms, not Indonesia’s.
It must be noted that these vendors will fight very hard in the bidding process to maintain the status quo and it will take firm Indonesian leadership insistence to facilitate any skills transfer policy.
A special note here should mention Chinese investment, which will tender lowball bids in order to ensure complete and closed project control. Chinese investment falls under state-owned companies, which have political stability and jobs creations programs for Chinese at their heart, not profits.
This type of investment is a Faustian bargain for Indonesia. There are no free gifts from China, the lack of any skills transfer to Indonesia will carry a very high cost in the future, and should not be squandered to a low cost bid.
Also critical to success is that skills transfer be rooted in any new education initiatives through the Education and Culture Ministry, to ensure the relevancy of the learning for manpower sourcing.
Oddly, in the ongoing deliberations in the Indonesian government about the feasibility of the Sunda Strait Bridge, the ministry is not even at the table, yet they should be seated high in the process. Considering that most infrastructure projects go far and beyond any initially projected budget, and thus run the risk of becoming societal “White Elephants”.
The citizens have a large future stake in its successful completion.
Consider for example, the US State of Massachusetts “big dig” Ted Williams tunnel project under Boston harbor, originally budgeted for $8 billion tapped out at over $42 billion in nine years of construction!
This represented tremendous cost to both the state and Federal governments, and thereby the citizens who funded it. Another giant infrastructure project that went far overbudget is the “Chunnel”, linking France and the UK under the English channel.
These type of boondoggles for example on a project the size of the Sunda Strait Bridge could put Indonesia’s future generations at risk as sureties on payments towards the bridge’s completion.
It is not a stretch based on past infrastructure precedent that the Sunda Strait projected costs then could easily pass $200 billion over time, far dwarfing and usurping any Foxconn jobs investment at a mere $10 billion.
The bottom line is that the Sunda Strait Bridge project, unlike Foxconn (which is no risk and little rewards) represents a unique opportunity and risk for Indonesia. In the former, it has the potential to vastly upgrade skills and technology jobs for Indonesian infrastructure
projects if rooted in sound and transparent policy.
In the latter, it is a potential millstone around the neck of future Indonesian generations if no scalable skills are generated and foreign investors are allowed to set the terms and control the real know-how.
Indonesia needs to be fully educationally engaged in a project this size.
The writer is twice Fulbright professor of energy and human resources and an associate professor of management at Solbridge Int. School of Business in Daejeon, South Korea