International Investors: Harm or Help

Apr 16th, 2008, in Business & Economy, IM Posts, by

HizbullahWhether foreign investment in Indonesia benefits the people.

Health minister Siti Fadilah Supari warned on 11th April in South Kalimantan (Borneo) that regional governments in Indonesia should be on their guard whenever dealing with international investment proposals.

Siti Fadilah Supari
Siti Fadilah Supari

According to Siti these things should be considered by provincial governors and regents in respect of foreign investment plans:

  • Would the international investors take control of Indonesian resources?
  • Would the foreigners be prepared to be on an equal footing with Indonesian partners, or would they adopt a lordly, colonialist stance?
  • Would a particular foreign investment benefit Indonesians or harm them?
  • To exactly what extent would Indonesians gain from the investment? Because foreign investors often lied about this matter.

For example, South Kalimantan's coal needs were less than 1 million tons per year and there was an electricity shortage crisis, yet at the same time 70 million tons of coal was taken out of the province and sold internationally. A lesson should be learned from this: [1]

Don't let our natural resources fall into the hands of foreigners while the people don't get anything.


54 Comments on “International Investors: Harm or Help”

Pages: [1] 2 »

  1. avatar dewaratugedeanom says:
    April 17th, 2008 at 12:55 pm

    Has this woman plans to run for president in the next elections? I think that lately she utters a lot of crap to appeal to the longstanding fears and mistrust of anything foreign and gain this way the votes of the wong cilik which is still the largest part of the Indonesian constituency.

  2. avatar Chris says:
    April 17th, 2008 at 1:46 pm

    I am confused.

    She is the Health Minister, right?

    Her country has the worst rate of bird flu infections in the world, right?

    Why does she feel qualified to comment on international investment and foreign relations, when she clearly isn’t performing well in her own area of expertise?

    (And then there is her claim that bird flu is a WHO/US conspiracy).

  3. avatar Rob says:
    April 17th, 2008 at 1:51 pm

    wong cilik indeed!

  4. avatar Janma says:
    April 17th, 2008 at 1:58 pm

    Well duh…. the ones selling out to the investors are not the wong cilik…. it’s the government innit? And wouldn’t they have some sort of contract with these foreign investors…. I can’t believe they set up these shared projects with a hand shake and a promise….. oh, you wanted some coal? sorry, we lied…. oops.

  5. avatar GJ says:
    April 17th, 2008 at 3:50 pm

    Rest assured the “people” get something. Especially the people reaching under the table for that inconspicuous brown paper bag.

  6. avatar Oigal says:
    April 17th, 2008 at 4:09 pm

    For example, South Kalimantan’s coal needs were less than 1 million tons per year and there was an electricity shortage crisis, yet at the same time 70 million tons of coal was taken out of the province and sold internationally. A lesson should be learned from this: [1]

    Absolutely correct, trouble is our nationalist Siti neglects to mention that the vast majority of international miners are contractors for concession holders who dictate where the coal is sold to..and those concession holders are…WAIT FOR IT…Indonesians

    KPC-BUMI (Now granted TATA but who sold it off none other than our….you know who)

    Did I hear the term transfer pricing…I wonder what that means…I wonder who is involved…

    I agree the Dayk should refuse to let another ton of coal be removed until Jakarta starts to provide the very basics infrastructure…but don’t look overseas for the source of the trouble…is an empire much closer than that…

  7. avatar sputjam says:
    April 17th, 2008 at 6:28 pm

    Only way to maximise returns on resorces is to utilise it ourselves. Unfortunately, there is very little industry to speak of. No giant steel mills, car plants, shibuilding etc.
    Having sadi that, there is a very active tug and barge manufacturing facilities in Kalimantan, which could move up market and produce offshore vessels to service the oil companies.

    Or another way is by introducing forced industrialisation, make the concession holders and exporters use locally built ships, therefore expanding the local economy and magnifying the trickling down effect, creating jobs and industries, and creating more avenues for education to upgrade alongside.

    kalimantan can harness hydro eletricity, which it have in abundance. Hydro electricity does not mean drowning huge tracts of jungle. By reducing the scale of the dam, there should be ample power generated to light up a decent size town. Small scale dams can be built by locals without the need of foreign expetise.

    When it comes to offshore development, force oil companies to build their platfroms and rigs in indonesia. make sure that these rigs are not built in batam or bintan as it will only benefit singapore, but build near where the oil is found. Make it mandatory.

  8. avatar PrimaryDrive says:
    April 19th, 2008 at 5:49 pm

    She has a valid point. Having said that, it is mostly our own stupidity and greed that lead to the current depletion of our natural resources. With full democracy, people now actually have full control of their own fate. Yet people keep voting on leaders based on their popularity rather than their actual merit. I wonder if there is still any point now to commit myself to this Indonesia.

  9. avatar Lairedion says:
    April 19th, 2008 at 8:53 pm

    Hey, Tante Siti is back. Election time has started and xenophobia is one of the key issues to score votes with…

  10. avatar Rob says:
    April 20th, 2008 at 12:30 am

    Xenophobia is a vote getter as it preaches to those that need something to blame and it is always easier to blame those that are different to us, foreigners, than it is to have a good hard look at ourselves and critically evaluate our own shortcomings.

    There certainly have been some excesses perpetrated by foreign mining companies but most of these excesses have been facilitated by the Indonesian government. The reality is that most foreign mining companies are in compliance with the regulations. There are always going to be compliance issues and these will be rectified through the implementation of the prevailing laws and regulations in the areas involved.

    The idea of forcing investors to use locally made goods when they can be imported more cheaply from overseas is ultimately a hinderance to investment and investors will look for other locations to invest or seek to garner concessions from Indonesia. Indonesia is being very concessionary as part of a policy to develop and grow investment both domestic and foreign.

    The only way that foreigners control Indonesia’s natural resources is if Indonesia allows them to! Thus, perhaps what is needed is some introspection on the Government’s part to decide whether the right policy approach is to concede everything to attract investment or something which is more “balanced” and protect of Indonesia’s national interests. To be sure it is a fine balancing act!

    The wong cilik do not make the policy but they are the voters who must be swayed. Playing to stereotypes and fears is one way of swaying those votes.

    GJ…whatever happened to envelopes? I guess inflation will get you everytime! I have heard that the poor Zimbabweans are now wheeling barrows full of cash about to buy basic necessities…at least we are not at that level yet!

  11. avatar Cukurungan says:
    April 20th, 2008 at 9:40 am

    dewaratugedeanom said:
    ‘Has this woman plans to run for president in the next elections? I think that lately she utters a lot of crap to appeal to the longstanding fears and mistrust of anything foreign and gain this way the votes of the wong cilik which is still the largest part of the Indonesian constituency.’

    Me :
    She was no different with other a normal people who want to get better life and work and the only different with you she was a qualified doctor’s and she succeeded to become a health minister whereas you are a qualified cowboy Kuta and I hope once day that you also will get better position at least to become a pimp pimp in your area.

  12. avatar sputjam says:
    April 20th, 2008 at 9:41 pm

    I think most indonesians are worried about their future when their resources dry up. Reason, they do not have very much else to offer. No core industrial focus. Hence when the resourses dry up, most indonesian may end up in middle east, or worse, in malaysia/singapore for work.
    Up to the government to inject some fund to create industries. But if government is unwilling, then maybe force those with mining concession to do so. I doubt very much there will be many who protest in this era of high commodity prices. Foreign investor can of course get better deals, but in places such as sudan or congo, which I think many will just ignore.
    Major developed nations became what they are because of fear of being annihilated by their enemies, hence govenrment spent enormous amount of money on defence, which indirectly assisted in industrialisation e.g europe.
    Same with japan.
    There should be no fear if government funds are used to create jobs which will benefit the country, or forcing investors to use locally made products as a condition for their ventures. The cost may be slightly more to the mining consessionaires, but the benefit to the indonesian people far outweighs the small difference in cost and quality. Did not britain and germany became industralised nations by mining coal, then created industries based on coal mining, and expanded from there?

  13. avatar tomaculum says:
    April 20th, 2008 at 11:14 pm

    She was no different with other a normal people who want to get better life and work and the only different with you she was a qualified doctor’s

    Are you sure? Or maybe she has a membership of the right party and the right connection?

    Let us be realistic: someone know any investor who doesn’t think of his benefit primarily?
    Or an investor who likes to confer the control of his money on his partner or share it with him if he knows that this partner is unqualified and sit on his chair because he/she is just a son/daughter, niece/nephew, brother/sister or even a friend of someone sitting in the government or in DPR?

    Because foreign investors often lied about this matter.

    They don’t lie but “only” color their aims. And the negotiation partners (who are they?? :) ) know it. But their eyes are covered by dollars (or maybe nowadays better by “Euro”?) so they don’t need to see it.

  14. avatar Rob says:
    April 21st, 2008 at 6:33 am

    Sputjam…

    Better still nationalize all industries, close all sectors to foreign investment under the guise of protecting the national interest, and the government take over the running of and providing for Indonesians.

    The reason this isn’t happening is because the Indonesia government does not want to throw the financial resources it has available to do this. Perhaps Indonesia could spend down its financial reserves to re-acquire consessions from foreigners and then mine those concessions for themselves.

    Do not be so sure that investors will spurn the likes of the Sudan and Congo; quite simply a dollar is a dollar in business terms! Don’t quite see the connection between the industrial revolution in Europe and the current plight of Indonesia. The industrial revolution was akin to inventing the wheel. If you are suggesting Indonesia needs to go through an industrial revolution of its own, then quite simply why invent the wheel when someone else has already done it! Why not exploit their expertise and resources in this area. This is not going to be a freeby and investors will want specific types of terms and facilities in place.

    The Indonesian government is committed to attracting foreign investment (and domestic investment too) and this involves providing facilities that are likely to peak the interest of investors. However, Indonesia has already indicated that it is going to seek fairness in any contractual dealings and concessions that saw 100% or profits going to investors are a thing of the past.

    Indonesia needs to protect her interests but the idea of blaming foreigners for all of Indonesia’s current woes is naive at best and somewhat xenophobic at worst! Blaming foreigners is not a uniquely Indonesian thing it happens all over the world…hey, it’s not that different from Pauline Hanson in Australia or a whole range of people in the US or perhaps even people like the now (in)famous Dutch politician Geert Wilders — xenophobes one and all!

  15. avatar sputjam says:
    April 21st, 2008 at 5:21 pm

    Investors, business opportunities and maximising trade links are essential for a country to progress. Investors interest should not be given at the expense of indonesians well being.
    mining coal requires very little local input, apart from the coal that is being extracted, and manual labour.
    All machineries and shipping equipment are manufactured outside of indonesia except for the tug and barges, which indonesia can produce locally.
    For the enormous amount of coal being exported, and funds generated by exporting the coal, very little is retained locally apart from govenrment taxation. Prices of coal almost doubled within the last one year alone. But have you seen much wealth that is being generated in the coal mining areas? The wealth from mining coal eventually ends up in jakarta (local concession holder) or singapore (financial centres). Cost of extracting coal is peanuts compared to the price these miners are getting now.
    Will we see huge bonus being paid to miners, especially the lower rank workers? After the resources dried, only ugly landscape left. Most of the locals who used to reside on the land before being forced to evict will inherit a wasteland.

  16. avatar Rob says:
    April 21st, 2008 at 8:36 pm

    Once again Sputjam you are conveniently missing the point; Investors and Foreigners are not solely to blame for the plight of farmers forced off their lands and the distribution of wealth or the profits derived from the exploitation of resources.

    Yes, environmental degredation and poor returns to locals from the profits derived from their resources is an issue! But, the issue is one of why can the Indonesian government not get this right? The Indonesian government is complicit in this situation and this is what is generally forgotten or neglected in any debate. The debate degenerates into an “us” and “them” mentality which may in some cases reflect the reality of the situation, in this case it does not!

  17. avatar sputjam says:
    April 22nd, 2008 at 1:21 pm

    I am merely highlight the happenings in the jungles of kalimnatan, that have been exploited over the decades with nothing in return for the locals. This include timber, plantantion and mining.
    If the government were to ban timber from being exported, then maybe these guys may be forced to manufacture furniture before being exported, thus creating jobs and expertise for the locals.
    Same with mining. Force mining companies to use locally made ships for export. If they cannot do this, then tough luck. concession goes to the chap who can deliver this. Maybe give three to five years for concession holders to comply.
    I understand investors sentiments. Their idea is to minimise capital usage and generate cash flow asap. Mining and timber are ideal for these chaps as the resources are just lying there waiting to be plucked. Of course, another option is for concession areas for mining and timber to be sold via auction, like the 3G phone licenses in europe. But the money will end up in federal government’s hand and nothing ends up locally.
    It came in the news recently about Congo granting china mining company to extract copper from a remote mountainous area. In return, china have to build highways and railroads, in tandem with mineral extraction. Of course, the congolese got nothing as they did not build these machines. The Congolese will probably provide the manual labour, while all the machinery comes from china. However, the congo gets to vital infrastructure, which includes road/rail and hundreds of rural hospitals/medial centres and two universities.
    If all the mines are nationalised and granted to china, with a condition that the coal will be exported using Locally made ships, with expertise given by China, long term wise, it is a better bet for indonesia.

  18. avatar Syonan says:
    April 26th, 2008 at 3:14 am

    As a Minister of Health, she should not comment on issues that is not within her jurisdiction. If the Central Government and DPR thinks that international investments does hurt the people and the country rather than develop and pull the people out of poverty,then might as well close the borders and live in isolation.

  19. avatar Rob says:
    April 26th, 2008 at 7:12 am

    Personally, I think that she can comment on anything that she wants! Indonesia is a developing democracy and it is important for citizens to be engaged in public debate even where those citizens are members of Cabinet and commenting outside their portfolio!

    However, when they make comments which appear to be lacking on substance and playing to xenophobic fears, then the person making those comments should have and expect those comments to be subject to scrutiny!

    The flip side is that the problems facing the Indonesian economy and in particular the natural resources sector is a case of reaping what you sow! Simply, the government is responsible for allowing a governance and corporate culture to develop where there is inadequate legislation, rampant corruption, and a complete lack of vision for the future!

    Rather than always looking to external factors and looking to blame foreigners for the ills of the nation, perhaps it is time some internal reflection or introspection is required in order to identify any failings or deficiencies and rectify them! Admittedly, foreigners play a role but are they the ones that are primarily responsible for the problems that the Health Minister sees with investment? (I have an idea on what Achmad might say here…)

    Indonesia, despite the ramblings of the Health Minister, are unlikely to become isolationist as the foreign reserves that Indonesia has stashed away will not last long if they pull themselves out of the global economy!

  20. avatar sputjam says:
    April 26th, 2008 at 4:47 pm

    Since 1997, indonesia have more or less sold their country to foreigners, thanks to IMF impositions. now banks, plantations, sattelites, telecommunications have fallen into foreign hands. Many funds who had bought these assets for peanuts, have sold then for handsome profit to other foreign entities.
    Even Singapore, the supposedly most open economy in south east asia, does not allow these things to happen.
    In matters where indoensian have the expertise, priority should be given to indonesian companies to prosper, such as plantation, timber, coal mining,consumer banking, telecomunication, shipping etc.
    Indonesia should be open to foreigners only where high technical skills are required and/or where huge amount of capital is required such as steel foundry, aluminium smelter(using hydro power).

  21. avatar Darwin says:
    May 3rd, 2008 at 10:26 am

    Rooms has to change in Indonesia, let young man handles of course with young who being treat examination by Allah and Rasull SAW since 1998!
    I am sure the Gua kafi young man will perform in Indonesia.
    but the establishment an old man the way of thing will be rejected.
    The problem in Indonesian is not the sources but the people.
    Infrastructure not the systems but Human Infrastructure more further discussion will be waiting.
    Darwin
    62-08158932851

  22. avatar Marisa says:
    May 3rd, 2008 at 12:46 pm

    A truly intelligent government (officials) should’ve stood far outside the border between harm and help, because they’d find themselves trapped inside walls and not being able to move forward and level with the international world. The government should’ve taken steady grip of each possibility heading their way, even if it means that they should forcefully process the seemingly harmful ones into profitable help. It’s the risk they must learn to deal with. Problem is, we’re not sure how exactly the government defines “harm” and “help” in this scenario.

    International investors, they’re simply doing their job: to gain as much profit as possible, and they sure have their own ways. Let’s just assume that those investors are all corporate leeches, but it’s the government’s job to protect, control, and regulate it in a way that an investment could significantly be an opportunity, not a threat. Ironically, we’ve learned that leeches find the government as a much more comfortable habitat, rather than in private sectors/companies. One particular private sector trades 70 million tons of coal, the government trades moral values.

    Anyhow, is it Euro? US Dollars? Yen? Or Rial? ..that she is referring to.

  23. avatar Rob says:
    May 4th, 2008 at 1:00 pm

    Marissa,

    I think that is the point in a nutshell!

    Simply, this is not soley the responsibilty of foreign investors but some of the blame for the lack of benefits trickling down to the various local communities is partly the government of Indonesia’s fault as well!

    Foreign investors are here to make a Euro, a Dollar, a Yen, or a Rial or millions of them but they are here to make money and return the original investment to their respective shareholders.

    The government’s responsibility is to put into place a regulatory framework that is not only conducive to business (investment) but one that protects the interests of the relevant local communities. The failure of the government to do this, or where it has to enforce it, is not an error on the part of business or investors!

    My original opinion of the Health Minister’s statement has not changed it is a xeonphobic vote grabber in the lead up to the next general election and is representative of the mentality of don’t blame me syndrome but blame those big bad foreigners who are only here to subvert our way of life and steal our resources!

    Very sad!

  24. avatar Dylan says:
    May 4th, 2008 at 10:25 pm

    Indonesia needs to open their policies to free trade and investment. We have seen how China does it, “bring the money to us”. We cannot only rely on our domestic economy as to speed our economic growth, we need to inject money into the economy through foreign trade and investment. Part of which is to make the policies simpler, provide infrastructure, and clean the “dirty bureaucracy”.

    What she mentioned however is true, but instead of complicating the policy, teach our Entrepreneurs how to make a DEAL instead. This is a difference between hiding and standing up. Well its very simple, the deal is that “I get more than 50% at least”.

    Foreign investment would help us, with capital flows and technology flowing into the economy, it will benefit our production efficiency. The only thing that can harm us is ourselves, so instead of preventing foreign investment, improve yourself further so that you can actually play the game right. Run and hide, or face it.

  25. avatar sputjam says:
    May 5th, 2008 at 11:15 pm

    Indonesia is completely different from china. During the time before deng xiao Peng, china had heavy industrial complexes, producing steel, making ships and locomotives, diesel engines, bridges, electricals, hydrogen bombs, tanks, bombs etc.

    In other words, despite the upheavals in china, it was an industrial nation. Thus when china opened up, the had overseas chinses who were able to provide modern management skills and techniques to the communist, backed by investments. Initially it was the hongky tonks with shenzhen, followed by others to the rest of china later on.

    In china presently, arts and culture is promoted on a big scale. You can see some of the dances/musicals/art on CCTV 9. Plus they value their heritage and if a building site was found to be on some heritage, work stops immediately and the local museum alerted.

    Indonesia does not have much in terms of industrial know how. If it opens up, almost all the machinery will come from overseas. therefore foreign investment will benefit only the landlord and local manpower only, plus the few service industries, unlike in china where the local maufacturers can contribute to the investor and hence the trickling effect is much greater locally.

    Presently, there is already capital flowing into indonesia, the bulk of it into palm oil plantation and coal mining. Unlike in china, whereby local machinery and talent are used to mine coal, in indoensia, all the machinery and some talent are imported. In china, oil is a local heavy industry, while in indonesia, without foreign expertise, crude oil will never be extracted.

    Indonesia lack human resource assets/talents and experience, especially in metal working, whereby the iron age seems to have bypassed the malay archipelago.

  26. avatar Purba Negoro says:
    May 6th, 2008 at 1:18 am

    I side with Rob on this one. I’m surprised too.

    As for the Dayak and Kalimantan inhabitants getting their peice of the pie- this brings into question the whole issue of the post de-centralisation dilemma of Raja Cilik and regionalism.

    You would be surprised to find the Central Governemnt gets very little- gut instead the Regions- especially the Bupati, Kabupaten etc- the Little Kings- are unbelievably wealthy.
    We now have business leaders lobbying us to revert to Centralisasi.

    Returning to the issue of minorities- we must provide always for the greater good and thus via poroprtional representation- such minorities unfortunately must by necessity recieve only their populations’ fair shore.

    The sad reality for the developing world is so many outstretched and equally needy hands- not enough alms to go around. It is a delusion to think poverty can ever be reduced to the level of a Western nation. There is simply not enough money on the planet.

    If we halved our population- our country would be in far stronger economic position.
    But that’s another tale.

    Perhaps I am dumbstruck I agree with Rob…

  27. avatar Dylan says:
    May 9th, 2008 at 12:54 am

    Indonesia is completely different from china. During the time before deng xiao Peng, china had heavy industrial complexes, producing steel, making ships and locomotives, diesel engines, bridges, electricals, hydrogen bombs, tanks, bombs etc…

    My normative statement does not require the contrast and comparison of Indonesia and China, as it leans towards rhetorical, which is obvious of what you say and leads towards no thesis.

    Indonesia does not have much in terms of industrial know how. If it opens up, almost all the machinery will come from overseas. therefore foreign investment will benefit only the landlord and local manpower only, plus the few service industries, unlike in china where the local maufacturers can contribute to the investor and hence the trickling effect is much greater locally.

    I come from an entrepreneur family and for your information, all those products you see in Dubai hotels, Prada, Guess jeans, Wall Mart are mostly made in Indonesia. Indonesia do have expirience in industrial “know how”. In China the trickle down effect is not greater as you say. Read the news please. Moreover, my American friend prefer buying shower towels made in Indonesia from Wallmart more than the ones made in China.

    Presently, there is already capital flowing into indonesia, the bulk of it into palm oil plantation and coal mining. Unlike in china, whereby local machinery and talent are used to mine coal, in indoensia, all the machinery and some talent are imported. In china, oil is a local heavy industry, while in indonesia, without foreign expertise, crude oil will never be extracted.

    My parents and their friends invested in various sectors of the economy and I see no evidence of talent being imported, I do see them equipping foreign machinery and hiring foreign professionals to teach labors how to operate those machines.

    Indonesia lack human resource assets/talents and experience, especially in metal working, whereby the iron age seems to have bypassed the malay archipelago.

    I do not understand why your concern focus on metal working. Indonesia should specialize on production that gain comparative advantage, which means producing with the least opportunity cost. Indonesia does not have a comparative advantage over producing steel and therefore we do not need to focus on metal working. I encourage you to judge your statements with theory before promoting them to this blog. Producing steel in Indonesia would make no sense, as we have to import furnaces mainly from Australia which cost a lot. I can earn profit triple right now by investing on agricultural instead.

    For your concern, Indonesia does not need complains anymore, it needs encouragement, motivation, creative ideas, and optimism. I come to this forum to embrace this message. And speaking of which, you are talking to a 17 year old right now.

  28. avatar sputjam says:
    May 9th, 2008 at 2:19 pm

    benefits to locals from foreign investment is minimal, due to low labour cost. Foreign investors get to use subsidised fuel and power, tax breaks etc.

    Of course without foreign investors, there will be insufficient jobs. But there should be a formula whereby, if extracting natural resources, priority should be given to firms that uses locally made machinery, especially in transport (which indonesia can manufacture, but have no incentive from the authorities), cranes and tractors, oil rigs and supply vessels, tugs and barges.

    those guys that manufactured jeans and towels in indonesia got their cottons and machinery from outside. Only benefit is that locals get employed and some may eventually buy cars and houses, broadening the economic cake. What I am suggesting is to broaden further that cake to benefit more locals.

  29. avatar sputjam says:
    May 9th, 2008 at 2:21 pm

    especially in mining and industries that involves natural resources.

  30. avatar Sylvester says:
    May 9th, 2008 at 7:02 pm

    Foreign investment is important even for the developed West. Recently, UK welcomes Chinese investment worth USD 200 billion
    http://edition.cnn.com/2008/BUSINESS/04/15/britain.china.ap/index.html?eref=edition_business

    The point is how the local government is able to protect its own people from greedy capitalists. Indonesians should not easily submit to any bules such like during colonization era.

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