Indonesian Ministries Step Up for US Firms’ $61b Investments
Let’s Make a Deal: American businesses say they are interested in expanding beyond energy sector if right conditions are in place
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Vanesha Manuturi & Adelia Anjani Putri on 11:35 pm Nov 12, 2014
Jakarta. US companies in Indonesia are prepared to invest as much as $61 billion in the country over the next five years amid President Joko Widodo’s pledges to improve the local business environment, a survey shows.
The study, which questioned 35 firms from the United States on their investment plans in Indonesia, was conducted through a partnership among Jakarta-based Paramadina Public Policy Institute, American Chamber of Commerce in Indonesia (AmCham Indonesia), Yogyakarta’s Gadjah Mada University and Ernst & Young.
“There’s tremendous optimism right now with the new cabinet, which we think is terrific,” Andrew White, managing director of Amcham Indonesia, told the Jakarta Globe on the sidelines of the US-Indonesia Investment Summit in Jakarta on Wednesday.
He said the new administration’s cabinet has spoken a great deal about openness and said the ministers have been proactive in meeting prospective investors.
“The ministers are sending a strong message that they’re looking to engage the private sector early on,” White added.
Joko’s ministers have also been showing consistency as well as candidness in their approach, which have sparked positive responses among American businesses, according to Tami Overby, senior vice president at the US Chamber of Commerce’s International Affairs division.
“The message from the ministers have been compelling. All the ministers are saying the same thing. The message is there is one vision: It’s the president’s vision and our ministries are here to execute that. Frankly, that’s a bit different than what we’ve seen historically and in other places,” she said.
Businesses in Indonesia, both foreign and local, have often cried out against the tangled bureaucratic system and chronic corruption that have plagued the country.
At the same time, the new government — which has been in office for less than a month — is looking to attract more foreign direct investments to the country in order to support development and achieve a 7 percent growth within the next five years.
Indonesia’s economy, like others in the region, has been slowing over the past year, in part due to the country’s ballooning current-account deficit.
It saw a 5.01 percent growth in gross domestic product during the third quarter this year compared to the same period the year before — its weakest growth in five years.
Earlier this week, President Joko Widodo delivered a speech at the Asia Pacific Economic Cooperation CEO Summit in Beijing to encourage business leaders and governments to invest in Indonesia.
Some of the sectors Joko highlighted during the speech, namely agriculture, oil and gas, were among industries considered promising by American companies, in addition to consumer goods and finance, White said.
Myron Brilliant, AmCham’s executive vice president and head of international affairs added that while investment in oil and gas has been a driver, American companies are open to exploring other industries, assuming that the Indonesian government provides a solid regulatory framework for their business.
“Given Indonesia’s history, natural resources is the main sector, but I think as we go forward, depending on government policies, you’ll see more,” he said.
US companies such as General Electric and mining giant Freeport-McMoran, which have long-established businesses in Indonesia, shared similar sentiments, saying that the prospect of reform has produced high expectations as well as interest in Indonesia.
“The new government is giving a big hope [for companies], especially with all the planning the ministers unveiled today,” General Electric Indonesia chief executive Handru Satriago said during a panel.
Freeport-McMoran senior vice president Russel King also praised the new administration’s promise to facilitate foreign business investment in Indonesia.
“I was at APEC and I heard Jokowi give his speech. It was a speech of inviting investment, of wanting investment, wanting to get GDP [growth] back to 7 percent,” King said on the sidelines of the Jakarta summit.
Joko has touted a goal of 7 percent GDP growth by 2018, from an estimated 5 percent this year, which he hopes to achieve through greater investment and empowerment of small and medium businesses.
Despite optimism from businesses and business associations, AmCham’s Overby stressed that prospective investors will continue to scrutinize the Indonesian government’s actions and wait for its promises to yield fruit.
“Unfortunately, the reputation of Indonesia has been that it’s a challenging place to do business. Indonesia is known to be economically nationalistic,” she said.
“For new investors, there’s a good chance for them to look at Indonesia again — because you have a new leadership — to see if this is a new Indonesia. Is this an Indonesia that would be more welcoming to investment? Does this Indonesia respect the rule of law?”
Come on in
Echoing Joko’s open invitation offered in Beijing, Indonesian officials in Jakarta have extended a call to the US business community to invest in the country.
“Joko Widodo has his vision and his priorities include increasing productivity and competitiveness, [as well as] increasing foreign investment as the key programs,” Himawan Hariyoga, deputy chairman of the Investment Coordinating Board, or BKPM, told delegates.
“Attracting the right kind of investment is now a challenge,” Himawan said.
“We need quality investment, namely that which contributes value-added activities for natural resources, builds human resource quality, deepens infrastructure, develops green industries, small and medium enterprises, and regional economic development in the eastern Indonesian region.”
Deputy Foreign Minister Abdurrahman M. Fathir said the timing of the summit showed Indonesia-US relations were strong.
“It’s only three weeks since the inauguration [of President Joko] and two weeks after the cabinet was established,” he said. “There was no time wasted. The two leaders [Joko and US President Barack Obama] also met two days ago in Beijing. This also shows how strong the US-Indonesia relationship is.”
US businesses invested $65 billion in Indonesia between 2004 and 2012, according to the Paramadina Public Policy Institute. That figure makes the United States Indonesia’s largest investment partner during that period, the think tank added.
During the first three quarters of this year, however, the United States was not even among the top five foreign investors in Indonesia, according to the BKPM.
The investment board’s chief, Mahendra Siregar, said last month that Singapore was currently the top investment partner of Indonesia, investing a total of $4.89 billion for 1,063 Indonesia-based projects between January and September. Following behind Singapore were Japan, with $2.04 billion, the Netherlands ($1.51 billion), Britain ($1.44 billion) and Malaysia ($983 million).
“ More than one-fifth of foreign investments came from Singapore,” Mahendra said.
Citing Paramadina’s recent study however, Mahendra said American companies were planning to channel up to $61 billion in investment in Indonesia over the next five years — assuming the domestic situation remains stable and conducive for investment.
If realized that would make the United States Indonesia’s largest investor on an annual basis.
Abdurrahman added that the US government and business community also have been involved in Indonesia’s economy, health and investment sectors.
“The government will disburse its budget to end poverty and for education and health case, and we expect the US to invest in those sectors as well,” he said.
Obama, in his first meeting with Joko in Beijing on Monday, said his country was keen on increasing its partnerships with Indonesia, stressing his interest in Joko’s flagship programs and reforms.
“I know President Joko Widodo has a strong agenda and ambition toward reform and increasing the welfare of Indonesians. The United States is willing to become a partner in this reform process,” Obama said.
His statement comes at a time when other major powers also have been increasingly seen making approaches toward Indonesia. Chinese President Xi Jinping characterized his country’s vision for relations with Indonesia according to what a proverb purportedly of Indonesian origin: “out of sight, [but] close to the heart.”
Tokyo has hailed Joko’s ambition to strengthen Indonesia’s maritime infrastructure, with Prime Minister Shinzo Abe calling both Indonesia and Japan “maritime countries … [that] must contribute to peace and justice.
Russia’s Vladimir Putin, meanwhile, cited Indonesia and Russia’s “good partnership and histories,” saying Russia is not satisfied with both countries’ “slow growth” in economic partnerships.
Joko has met the four countries’ leaders in separate bilateral meetings on the sidelines of the APEC Summit in Beijing.
Simplify, simplify
Abdurrahman added that Joko’s administration planned to make doing business in the country easier for foreign entities.
“Indonesia has expressed its commitment to a simpler licensing process. President Joko Widodo is promoting a one-roof service. He has talked to all governors and heads of districts to help investors deal with licensing. However, he also wants to ensure good governance, transparency and accountability,” Abdurrahman said.
“We are open for the US market, and with your assistance, you and [the small and medium businesses] will benefit from the free market. We dream that Indonesia can contribute to regional growth, and we know that a developed Indonesia will contribute to regional economic growth,” he added.
Transportation Minister Ignasius Jonan said his office was taking steps to streamline the licensing process for various permits in Indonesia’s transportation sector.
“We’ve committed to shortening the process. By next week, we’ll finalize hundreds of regulations for the licensing process, from a period weeks to only seven days,” he said.
Jonan, who led state-owned railway operator Kereta Api Indonesia prior to his appointment to the cabinet, said one of his priorities was to expand the rail network in a bid to ensure greater access to markets and opportunities for all Indonesians.
“Indonesia is so diverse. Its Gini coefficient [a measure of income inequality] is getting wider,” he said.
“The challenge now is to narrow the ratio as soon as possible by improving infrastructure, especially in non-commercially viable areas. My first week in office was spent helping the president to achieve an understanding between KAI and Chinese railway investors to build railways in the Greater Jakarta area and across Sumatra,” the minister said.
The newly formed office of the coordinating minister for maritime affairs is also seeking investors for its wide range of programs meant to support President Joko’s restoring Indonesia’s status as a global maritime axis.
“This vast homeland of ours needs to be explored and utilized for the benefit for the people,” Coordinating Minister Indroyono Soesilo said at the summit.
“First of all, we’ll build 24 ports, both new ones and upgrades of existing ones. We’ll also implement a sea toll system from Belawan in Medan, through Jakarta, Surabaya, Makassar, to Sorong in Papua to strengthen the connectivity across the archipelago,” he said.
“We’ll build 55,000 kilometers of railways in Java, Sumatra, Kalimantan, Sulawesi and Papua. For the energy sector, we will have an additional 35,000 megawatts of electricity generation.
We’re looking toward clean coal and will move on with geothermal and hydroelectric power.
To support 7 percent economic growth, Java alone will need 1,800 megawatts of additional power per year, so if we don’t start now, there will be blackouts in Java,” Indroyono said.
Joko’s so-called sea toll, a system of improving the flow of goods and people between the islands of the world’s biggest archipelagic nation, will also require adding to the country’s fleet of ferries and freight ships, the minister said.
The Jakarta Globe could not immediately determine whether Indroyono invoked the word “toll” to refer to a system of collecting fees from users of a shared route, or the more generally to refer a non-fee road such as native English speakers would called a “freeway.”
“Indonesia has 198 shipyards in total, but 110 are located in Batam alone. Those are productive, competitive and have high quality, but what about the rest? We must move on. We’ll provide incentives — tax and non tax — we’ll make data banks, all to increase the number of shipyards in Indonesia,” Indroyono said.
He also cited the tourism industry as crucial in attracting investment.
“We’re targeting 10 million foreign tourists in 2015 and 20 million in 2019,” he said “We’ll provide free visas for visitors from China, Australia, Japan, South Korea and Russia.”
He added that the government was also mulling visa-free entry for visitors who already possess valid visas to Singapore, Malaysia and Thailand. The government also plans to provide same-day entry permits for cruise ships and yachts visiting the country.
“Indonesia is blessed with beautiful islands, hospitable people and beautiful cultures, and tourism can speed up development in the regions,” Indroyono said.
“We’d like to invite governors and mayors to tell them that now it’s their turn to attract tourists to their regions. They can attract investors by simplifying and speeding up the process for permits, provisions and land acquisition.”
Indroyono also promised assistance for foreign investors should they encounter any red tape.
“If you have problem with land acquisition, let us know. The same goes for permits and licenses. Let us know if you need guarantees from the government,” he said.
“You can come to the respective ministers, or if you need cross-sector [permits], call me. We also have the ministry of land and spatial planning to serve you as well.”
The Jakarta Globe was a media partner of AmCham Indonesia for the US-Indonesia Investment Summit.
Indonesian Ministries Step Up for US Firms’ $61b Investments - The Jakarta Globe
