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Jakarta Post

RI hopes for investment from firms moving factories out of China

  • Dzulfiqar Fathur Rahman

    The Jakarta Post

Jakarta   /   Tue, June 16, 2020   /   06:05 pm
RI hopes for investment from firms moving factories out of China Head office of the Investment Coordinating Board (BKPM) in Jakarta (kontan.co.id/Achmad Fauzi)

Indonesia is expecting investment from American, Japanese and South Korean firms seeking to relocate their factories out of China and set up manufacturing, furniture and electronics businesses in the country as it begins reopening.

The firms are looking to invest in either of two industrial estate under development in Central Java - one in Batang, the other in Brebes - according to Investment Coordinating Board (BKPM) spokeswoman Tina Talisa.

The agency’s head, Bahlil Lahadalia, said Friday that a South Korean manufacturer would join the country’s battery industry with estimated investment of US$1.6 billion. He declined to name the company.

American firms would invest in the manufacturing sector, the furniture business and electronics industries. Japanese manufacturers would also invest in the electronics industry.

Indonesia booked an annual decline of 9.2 percent in foreign direct investment (FDI) in the first quarter of 2020, propelled by the coronavirus pandemic that brought the global economy to a temporary halt.

“We keep promoting [our country] to attract new investment,” Bahlil told reporters in a virtual press conference on Friday.

With the pandemic hindering efforts to attract new capital, the government is seeking to raise money from investment commitments made years ago for plans that have stalled for various reasons.

The total value of the stalled investment is estimated at Rp 708 trillion ($49.8 billion), and the board has so far finished processing 58 percent of them. The biggest investment was to come from Russian oil firm Rosneft with a project valued at Rp 211.9 trillion.

Bahlil said the investment plan had never been realized because the relevant ministry and the regional administration had yet to issue the permit, and the firms had not completed the land acquisition process. Some projects stalled five to six years ago.

“The problem is there are still some difficulties related to permits in the regions,” said Bahlil. “But we are keeping up the effort so that we can finish processing it by August. If so, this can boost this year’s investment realization.”

Red tape and unfavorable labor laws for businesses weigh down Indonesia’s appeal to foreign investors. The country’s ranking in the World Bank’s ease of doing business index has stagnated at 73rd of 190 for the past two years.

Indonesia’s ranking in the World Economic Forum’s (WEF) global competitiveness index even fell five places to 50th of 141 in 2019.

Bahlil was especially concerned about Indonesia’s uncompetitive land prices, wages and its annual growth rate.

The average price of land in Indonesia is Rp 3.1 million per square meter (sqm), higher than land prices in Thailand, the Philippines, Malaysia and Vietnam, according to data compiled by the agency.

Indonesia has the highest minimum wage at nearly Rp 4 million per month among the select countries. Its annual increase, determined by the economic growth rate plus the inflation rate, is also the highest at 8.7 percent per year.

By comparison, Vietnam has a minimum wage of Rp 2.6 million per month, the lowest among the select countries, and raises it by only 3.64 percent every year.

The problem with Indonesia’s regulatory climate is aggravated by a lack of policy consistency and of coordination between agencies and between the government and regional administrations, said Piter Abdullah, an economist at local think tank Center of Reform on Economics (CORE) Indonesia.

“The obstacle lies in how the government realizes investment,” Piter told The Jakarta Post in a phone interview. “With regard to land, the problem stems not only from prices but also from the complexity of acquisition.”

President Joko “Jokowi” Widodo is seeking to improve Indonesia’s regulatory climate by proposing the omnibus bill, which the government expects will be passed by the House in July.

To attract more investment, the government is also developing industrial districts offering special regulations, with the latest being the Batang and Brebes industrial districts.

The Brebes industrial district, to be operated by state-owned PT Kawasan Industri Wijayakusuma, covers 4,000 hectares of land.

The Batang industrial district sits on land owned by state-owned plantation holding company PT Perkebunan Nusantara (PTPN) in Batang, an hour’s drive from the one in Brebes.

Despite the ongoing efforts to attract more foreign capital, Bahlil said he would “definitely revise down” this year’s investment target, as the pandemic had yet to abate.

In late April, the agency revised down its target by 7.8 percent from the initial target to Rp 817 trillion, assuming the pandemic would end by July. But with confirmed cases reaching 36,406, the pandemic is not even showing any signs of slowing down.