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Taiwan to invest big in RI, but needs protection
Huge inflows of investments from Taiwan to Indonesia are on the horizon, but their realization will very much depend on how Indonesia competes with its peers in Southeast Asia to provide better protection for investors
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Huge inflows of investments from Taiwan to Indonesia are on the horizon, but their realization will very much depend on how Indonesia competes with its peers in Southeast Asia to provide better protection for investors.
Despite its abundant workforce and natural resources, Indonesia ranks second after Vietnam in the region when it comes at attracting investment from Taiwan, whose investors mostly set up labor-intensive manufacturing facilities overseas.
Taiwanese authorities have acknowledged Indonesia's potential, particularly when relations with the Indonesian government are currently at an all-time high following a string of visits by Indonesian trade and investment delegations to Taiwan.
'The Indonesian government is very active in luring investors from Taiwan. The relations with the new administration [of President Joko 'Jokowi' Widodo] is different compared to the previous one,' said David Hsu, the deputy director general for the bureau of foreign trade at Taiwan's Ministry of Economic Affairs.
'Big projects are on the horizons [for Indonesia], but, still, investors will go to countries that provide better protections for businesses and Indonesia will still need to compete for that,' he said.
Following an anti-Chinese riot in Vietnam in May last year that spiraled into a rampage of destruction of Chinese-owned factories and other facilities mistaken as being Chinese, concerns are growing in Taiwan over the protection of their investment overseas, according to Hsu.
This is particularly important as Taiwanese manufacturers are usually labor intensive and an up-rise in labor will severely impact its operations.
'The Vietnam incident has repositioned our focus,' said Hsu.
If Indonesia is able to ensure safety and provide better protection for investors, Hsu believed that Taiwanese investment in Indonesia would expand by between 30 and 50 percent in the next three to five years.
Included in the protection, Hsu added, is legal certainty for labor and wages, as well as business-friendly labor regulations.
Indonesia is known to have overly rigid labor regulations, similar to those applied by developed nations in Europe, at a time when the country is still gripped with a huge unemployment problem.
An employer, for example, is not only required to provide a hefty severance payment to a dismissed worker, but also a sufficient reason for the dismissal. Poor performance cannot be entirely accepted as a main reason to fire a worker.
Members of Indonesia's labor unions are also notorious for their violent protests that have often
spiraled into the ransacking of factories.
'Indonesia will really need to catch up in terms of competitiveness. Taiwan is now still focused on labor intensive industry, but in the next five years we will shift gears to high-tech. Indonesia will have to adjust by then,' said Hsu.
To help climb up the value chain, Indonesia is currently banking on the planned investment of Taiwanese electronics giant, Foxconn Technology Group. The company is still keeping an eye on the Indonesian market and might go ahead with its delayed investment.
Foxconn, the world's biggest electronics component producer, said late last year that it was optimistic about starting construction of a US$1 billion manufacturing facility to produce cellular phones and tablets.
The company is keen to invest in Indonesia in a bid to help to cut its reliance on China, which has become a more expensive place to operate.
As China has lost its appeal among Taiwanese investors, who went to the mainland in droves to take advantage of low labor costs, Southeast Asia is turning into a new darling for global manufacturers.
'In Southeast Asia, Indonesia and Vietnam are now on Taiwan's priority list,' said Darson Chiu, an associate research fellow at the Taiwan Institute of Economic Research.
With its demographic advantage, Indonesia is particularly attractive not only for manufacturing, but also to help Taiwan's brands go global, according to Chiu.
'A footing in a big market will help a brand to easily expand globally,' he said.
According to Taiwan's bureau of foreign trade, Taiwan has been Indonesia's ninth-biggest foreign investor with a total of $16.9 billion invested in more than 1,700 projects from 1967 to 2014.
Taiwanese firms are employing at least 1 million local workers, according to data from the bureau.
Separate statistics from Indonesia's Investment Coordinating Board (BKPM) showed that within the five-year period ending last year, Taiwan had been the 12th-largest foreign investor in Indonesia with investments totaling $1.45 billion.
