Investment & Growth News

May 20th, 2006, in Business & Economy, by

Mixed news on the economic front.

It’s sometimes hard to see what kind of future Indonesia has in terms of being able to compete with countries such as China and India and their ability to attract investment, engage in innovation themselves, and generally provide conducive conditions for business. Vietnam could also be added to the list, according to M. Luthfi of the Badan Koordinasi Penanaman Modal (BKPM), Investment Coordination Board.

As examples he mentions that last year the communist state managed to attract major investments from Canon printers, to the value of US$ 600 million, and from Intel, at US$ 300 million value. He then blamed Indonesia’s lack of success in wooing such big investors on the lack of incentives offered to costs-conscious corporations. As a specific solution he suggested the creation of incentive laden special economic zones, or SEZ.

The weakness in attracting investment is being blamed for the slow rate of growth in the country for the first quarter of 2006. The 4.6% rate was regarded with disappointment by Finance Minister Sri Mulyani Indrawati.

From the consumer side things are fairly good, but what we have to look at closely is the investment level, it’s very low.
(Dari sisi konsumsi relatif baik, namun yang harus kami simak hati-hati adalah variabel investasi, yang terlihat masih sangat rendah.)

Manufacturing, she added, was the worst performer and had been hit hard by increases in fuel and utilities prices.

Meanwhile the IMF predicted yearly growth for 2006 would hit 5.2%, in contrast to the government’s guess of 5.9%. Stephen Schwartz, the IMF’s man in Jakarta said:

Indonesian economic recovery is very dependent on improvement in the global economy.

Milan Zavadjil, the IMF’s Asia Pacific assistant director, said that a six to seven percent growth rate could be possible in future if the investment climate were improved. Specifically he mentioned infrastructure, tax procedures, ease of entrance, simplification of adminstration matters, and labour market flexibility as the key influencing factors.

There are some companies however that seem prepared to wade into the minefield of complexity and red-tape that Milan Zavadjil alluded to and be upfront with the Indonesian government on the incentive dearth in the country and other issues. An unnamed motor car manufacturer in the United States has reportedly expressed interest in investing about US$1.3 billion in a factory on Java to produce about 200,000 units a year. They are, it appears, also considering Thailand and have made clear those incentives offered by the Thais must also be made available here if Indonesia is to leap to the top of their short-list.

The proposed factory would employ about 5000 labourers, 400 management types, and about 50 foreign staff. In the vicinity of Jakarta is suggested as the likely spot.

Of the 200,000 vehicles to be produced 70,000 are expected to stay for the local market. The saving grace for Indonesia may lie in this, its massively sized domestic market, a market that can be extremely profitable in the right sectors, with Indonesians being one of the keenest of peoples to keep up with the latest products and fads. Shiny new cars are especially good drool material.

Religiosity, whether of the hand clapping, let’s-all-get-rich-together Chinese evangelical kind, or the power-obsessed and what-do-my-neighbours-think-of-me Arabian desert cult variety, is no substitute for real faith and its consolations and Indonesians will spend much of their time and money in desperate aversion of the eyes from their own mortality and the relentless, boring vacuousness of their lives – got the right product for this, package and market it in the right way, and your’e in some serious business. Plenty of investment and growth in that.

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