Easing the Path to Investing in Indonesia

Pitan Daslani

Indonesia plans to reduce the amount of time it takes to set up businesses in a move to attract more foreign investment and make the country more internationally competitive.

The Investment Coordinating Board (BKPM) wants to simplify licensing procedures, give investors better information systems and prioritize iconic investments with long supply chains, BKPM chairman Chatib Basri told the Jakarta Globe in an interview on Friday.

To facilitate investment, Chatib has set up a help desk to provide speedy answers to investors’ queries, similar to the customer service function of a bank. This service has cut the waiting time at the investment licensing office in the past five months, he said.

Chatib guarantees that any queries by email to the BKPM will be answered within 48 hours, part of a new standard operating procedure he has implemented since taking office in June.

BKPM has also launched an online tracking system so that investors can find out the real-time status of their proposed licenses — similar to Amazon.com’s purchasing tracking system.

Its website (www.bkpm.go.id) also enables investors to obtain comprehensive information on investment, “so that foreign investors don’t need to travel all the way to the BKPM office in Jakarta just to ask simple questions when those answers can be readily found online,” Chatib said.

All these efforts comprise what he calls “service excellence” that BKPM will continue to promote. The intention is for Indonesia to attract investors other than those coming here for the traditional reasons of abundant raw materials and cheap labor.

Indonesia can no longer rely on cheap labor because workers everywhere are calling for higher salaries while other developing countries, such as Bangladesh, are offering even cheaper labor, Chatib said.

So, Indonesia’s investment strategy must involve excellent service from the bureaucracy across all goods and services, he said. Indonesia expects to take in around $25 billion in foreign direct investment this year, Chatib said. Realization of foreign direct investment reached $19 billion last year, but in the first half of this year more than $12 billion in projects had been realized, out of a total commitment of $37 billion.

Most of the FDI projects were realized in the natural resource, chemical and manufacturing sectors, and BKPM is confident about “drawing in more iconic investments, which usually come with huge supply chains,” Chatib said.

Those landmark investments even involve “some of the world’s top 20 investors,” Chatib said when asked about his strategy to attract Fortune 500 companies to use Indonesia as their primary investment base for Asia.

Chatib referred to the streamlined bureaucracy as a “smart investment strategy.” He said BKPM would not go to foreign investors with empty slogans boasting of smooth processes when the reality was tat problems were inevitable.

“I have never told them that everything goes so well here that there is nothing to complain about. Investors are professional complainers. So, what I did was to tell them the truth. Despite their complaints, I also said, ‘Why is it that Unilever and Astra International are doing so well?’ ”

Chatib said that when he promoted Indonesia’s investment opportunities in Tokyo recently, “they gave me a list of problems with five or six major issues. Right there, I told them I would solve two or three items, the rest I should discuss with relevant authorities back home.

“I always tell foreign investors the truth, that when they come to Indonesia they will surely encounter problems. We can’t fool them by saying everything is fine. But that is why BKPM stands by ready to help them,” he said.

Chatib maintained many of the systems put in place by his predecessor Gita Wirjawan, the current trade minister, especially in terms of investment branding.

BKPM has for some time placed advertisements promoting Indonesia as an investment destination on television news networks CNN, CNBC and BBC. At Indonesia Investment Day at the New York Stock Exchange on Sept. 24, the government placed full page ads in The New York Times and International Herald Tribune.

Another way to attract foreign investors is to include regents, district chiefs, mayors, and governors on Chatib’s investment promotion trips. “Usually I only deliver a keynote address and they do the rest of the work, meeting directly with their would-be investors,” Chatib explained.

He added that his office has helped such regional leaders prepare their presentation material for such forums. If those leaders have a sense of ownership of what BKPM is doing, they will lend their full support.

Otherwise, they could become part of the problem, Chatib said.

He is optimistic that Indonesia’s investment charm will increase further, for several reasons. Indonesia is sending out better signals to international investors than those emitted by other nations in the 10-member Association of Southeast Asian Nations.

Indonesia’s debt-to-gross domestic product ratio is below 24 percent, its economy represents 48 percent of the entire Asean economy, while its population is the largest in Asia after China and India.

When combined with political stability, a growing middle class that has reached 60 million and in the next decade will reach 80 million and a per capita income of well above $9,000, Indonesia is likely to become an attractive market and lucrative investment destination, economists say.

A Japanese company is planning to launch a $300 million expansion project while other large projects will also be realized before the end of the year, the BKPM chief said.

In 2014, Chatib expects foreign direct investment to hit Rp 500 trillion ($52 billion), or 33 percent of the state budget.

Meanwhile, portfolio investments will continue to soar, due to a series of external factors in recent months including quantitative easing by the US Federal Reserve and the European Central Bank that has flooded the financial market with increased liquidity, analysts said.

“This trend will create a situation in which capital flow will go to developing countries with steady growth. And Indonesia is one of very few countries well positioned to receive it,” Chatib said.

Some investors in Indonesia have encountered problems, however. British miner Churchill Mining is having an international legal dispute with the government over resource rights, and Hong Kong-listed G-Resources has recently had to suspend operations at a North Sumatra gold mine due to local protests.