Britain means business
Sashia Samira | May 07, 2011

With British investment in Indonesia growing by a mammoth 220% last year, ties between the countries are deepening fast. Globe Asia takes a closer look at what Britain has in store.  No one knows Indonesia better than the British,” Deputy Trade Minister Mahendra Siregar told a British Chamber of Commerce (BritCham) event in Jakarta in April. 

The strong presence of British companies in the Indonesian market for the past three years points to an increasing interest in the country. In 2010 Britain was Indonesia’s second-largest investor with total investment of $1.89 billion, a 222% rise on the figure for the previous year. 

There are a plethora of business opportunities in Indonesia, but BritCham does acknowledge that it can be a frustrating country to get things done. While the Indonesian government has committed to reforms to make Indonesia a  competitive destination for foreign business, the country’s regulatory environment is considered highly changeable by the Brits.

Flexibility is one of the key issues, says the deputy trade minister. “What matters most is how and when this flexibility applies in terms of action and decision-making in accordance with what’s best for Indonesia,” he states.  “This is one of BritCham’s roles,” says executive director Chris P Wren.

“What we do is explain to prospective investors how to do business in Indonesia. We offer advice on the market situation and managing difficulties such as regulations, corruption and infrastructure. We provide examples of companies that have done very well. We offer solutions and if it works out well then it’s a win-win situation.” 

According to Siregar, it’s time to flip the coin. Indonesia must wake up to what the country needs and look at how foreign investment can fill in the gaps. “The real business deals are starting to take places. Those who were planning investments are now investing,” he claims.  The question is; what does Indonesia need the most? “What matters most is the ability of both parties to adapt.

For example, Indonesia can benefit from the UK’s expertise in engineering and transportation, while we can offer help in terms of manufacturing and infrastructure,” notes Siregar.  BritCham is more than just a bridge, says Wren: it also facilitates partnerships. The recent visit of the Duke of York, Prince Andrew, indicates that the UK sees Indonesia as an attractive investment destination for such partnerships. 

Oil and gas, infrastructure, energy, transportation and manufacturing sectors have captured British interest, but Maxi Gunawan, who heads Kadin’s committee for the UK and Europe, says that Indonesia really needs investment in education and healthcare, especially in remote areas. 

“We need to develop our education sector. Compared to the British education system, even people in minor professions have formal educations. We lack that. We have to think further about this and learn by utilizing their abilities. Informal education has successfully engaged people in remote areas, however, formal education can improve the quality of our manpower,” says Maxi, adding that the British-RI relationship should open up further opportunities and interest from Europe. 

Against the background of the government’s long-term healthcare development plan “Healthy Indonesia 2025” there is growing demand for high-quality treatment and advanced medical and dental products and services.  The Health Ministry plans to change investment policies to open up the pharmaceutical sector 100% to foreign investors, including in the production of prescription drugs for cancer, heart disease and diabetes which are not produced in Indonesia. 

UK-based GlaxonSmithKline, for example, has been in the Indonesian pharmaceutical sector since the 1970s when it first introduced Panadol to the market. Healthcare is still one of the key sectors of opportunity for UK investors.  British companies currently operating in Indonesia are mostly engaged in financial services, oil and gas exploration and production activities.

London-based HSBC was one of the first foreign banks to operate in the country and provides shariah banking services, while energy giant BP, also one of Indonesia’s largest foreign investors, is now operating the Tangguh natural gas plant in Papua worth $5 billion.

Trade winds

With a population of 240 million, which includes a range of different cultures, market structures and ways of doing business, Indonesia is a huge learning curve for Britain.  “We need to be clear about what we need, of our capabilities and the amount we can accept. It’s hard to connect if we impose our own standards. We need to customize to make it work for our market,” explains Siregar. 

The total volume of bilateral non-oil and -gas trade between Britain and Indonesia reached $2.63 billion in 2010, a 13% increase from 2009. Indonesia’s exports increased 16% to $1.69 billion from $1.43 billion in 2009. Imported products and services from the UK increased 11% from $844 million to $937 million in 2010. Nevertheless, the Duke of York believes trade is still below its potential.

Indonesia stopped buying half of its military equipment from the UK in the late 1990s. These days Indonesia imports industrial machinery and equipment, pulp and paper waste, metal scrap, perfume materials and transport equipment from the UK. For its part, Indonesia has diversified its non-oil export commodities to footwear, plywood, electronics, textiles and garments, toys, furniture, shrimp, coffee, cocoa and spices. Although there is good market opportunity in both footwear and furniture, Maxi and Mahendra stress that standards and quality must be boosted to fulfill UK standards.

“The fact that we have a strong presence in furniture or footwear exports doesn’t mean we can conquer the market. We have to be more innovative in terms of design and abide by UK standards. We have to follow their trends to trigger our exports,” says Maxi. Despite the penchant of the British for tea, coffee consumption continues to grow, making it one potential export commodity for Indonesia. Footwear exports are forecast to increase 10% from $183 million last year to $201 million.      

Post a comment
Please login to post comment

Comments

Be the first to write your opinion!