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To incoming ministers: Competitiveness requires change
Given its huge economy and labor force, Indonesia should be getting the lion’s share of investment moving out of China. But it isn’t. The new administration should acknowledge that Indonesia can learn from its regional neighbors, starting with its mindset toward foreign investment. Too many officials treat foreign investors with a “they need us more than we need them” attitude or assume that companies cannot afford to overlook Indonesia because of its market size. This mentality must change.
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The responsibility for addressing these issues and other investment disincentives, such as poor confidence in the judiciary and concerns about corruption, will fall on the shoulders of the members of the next cabinet. (JP/File)
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ndonesia’s incoming team of economic ministers faces a clear, if daunting, task: increase Indonesia’s economic competitiveness in terms of enhanced domestic productivity and as a destination for foreign investment.
The incoming administration must accept that while Indonesia is Southeast Asia’s largest country, the government cannot rest on the laurels of our macroeconomic fundamentals. Policymakers will need to take concrete actions and be prepared to invest significant political capital to attract and pour more and better-quality capital into the manufacturing, natural resources and agriculture sectors, if Indonesia is to move onto a higher, more sustainable growth path and provide employment to a rapidly growing workforce.
Japanese investment bank Nomura surveyed over 50 companies that had relocated their production facilities from the onset of the United States-China trade war in April 2018 to August 2019, and found that 26 companies moved their factories to Vietnam, eight to Thailand and only two to Indonesia. The World Bank recently reported that 23 out of 33 surveyed companies relocating from China planned to establish new production sites in Vietnam.
Given its huge economy and labor force, Indonesia should be getting the lion’s share of investment moving out of China. But it isn’t. The new administration should acknowledge that Indonesia can learn from its regional neighbors, starting with its mindset toward foreign investment. Too many officials treat foreign investors with a “they need us more than we need them” attitude or assume that companies cannot afford to overlook Indonesia because of its market size. This mentality must change.
A comparison of economic policies across Southeast Asia will enable regulations that better position Indonesia vis-à-vis other markets. Indonesia can learn from best practices and take advantage of areas that other countries may have overlooked.
Just last month, the Thai Board of Investment approved the “Thailand Plus” incentive package, designed to attract companies relocating their operations from China. This includes a sizeable 50 percent reduction in corporate income tax for 5 years for large-scale investments that are submitted for approval by the fourth quarter of 2021.
Interestingly, the Thai government noted candidly that the package was an attempt to best Vietnam, confirming that other ASEAN countries do not see Indonesia as their biggest competition.
