Eastern spoils
Yanto Soegiarto | May 07, 2011

There’s a wealth of opportunity in eastern Indonesia, but it will take commitment from the government, the private sector and ultimately the regions to make it a reality.  Analysts say Indonesia will grow by 6.4% or even higher this year. Many in eastern Indonesia will miss out on the benefits of this growth if the historical trend continues in which businesses fail to capitalize on the huge potential the region offers. Many Indonesians who hail from the east of the country believe the government is – either consciously or unconsciously – ignoring their potential.

“The designated economic zones, which the government calls corridors, must be implemented in eastern Indonesia to create a multiplier effect on the national economy as a whole,” economist Aviliani told a seminar in Jakarta last month. “For this, bureaucratic reforms and infrastructure development must be conducted at full speed.” Yet of all six of the government’s corridors, only one is in the east, at Merauke in Papua, where a food plantation project is already underway. Elsewhere in the east, there appears to be only interest in natural resource exploitation.

While there is considerable hype over Indonesia’s current growth and investment opportunities, only a small portion of investment was directed toward infrastructure last year and even a smaller portion went to the eastern part of the country. According to the Investment Coordinating Board (BKPM), Rp231.4 trillion went to fund new infrastructure in 2010, while total foreign and domestic investment amounted to Rp811.4 trillion.

The Rp231.4 trillion was spent on the development of toll roads, industrial estates, gas transmission systems and the telecommunications and energy sectors, but stimulating economic development and growth in the regions will require significantly more. BKPM says the majority of domestic investments made in 2010 were in the food industry followed by transportation, warehousing, telecommunications, plantations, power, gas and water, while foreign investments were focused in the telecommunications sector followed by transportation, warehousing, mining, power, housing, industrial estates, office buildings and the food industry.

For the most part, domestic investments were centered on West Java while foreign investment was focused in Jakarta.

Growing eastern focus

There may be signs the tide is starting to turn, with the private sector now beginning to look beyond traditional capital centers. China for example, is interested in building a cement, power and coal mining complex in Manokwari, West Papua. Himawan Hariyoga, BKPM’s deputy for investment planning, says a Chinese state-owned company conducted a survey in the region last February and is looking at heavy infrastructure investment

“They need to build the three projects simultaneously to support each other. They need the cement, the power plant and the raw materials at the same time. The power plant will go ahead,” Himawan says. “The bureaucratic obstacles have been removed due to good coordination between the central government and the regional government. The regional government will be involved in accelerating infrastructure development in Papua,” he adds.

To help achieve the development goals, the government is planning to revise policies and regulations to make the country more investment friendly, Vice President Boediono told a recent economic gathering. “This can’t be done overnight, but the president has instructed his ministers to go all-out in accelerating infrastructure to boost economic development,” he said. Crumbling infrastructure has been blamed for holding back the country’s economic growth and discouraging major foreign investment.

Chairman of BKPM Gita Wirjawan says development in Indonesia has not been easy due to a poor regulatory framework. “Key pending issues are the long-awaited land acquisition law and the revision of a presidential decree on tender processes,” he says. Suryo Bambang Sulisto, the chairman of the Indonesian Chamber of Commerce and Industry (Kadin), says that as representatives of the business world, the chamber is ready to support infrastructure development in Indonesia.

“We urge the government to improve its coordination and the regulations needed for investment in infrastructure projects,” said Suryo. Despite the shortcomings, regional businessmen are upbeat about investment in eastern Indonesia. One province that is seeing strong interest is South Sulawesi, where Governor Syahrul Yasin Limpo says that as many as 24 large investors have committed to investing trillions of rupiah this year.

“Investors will come to South Sulawesi and they will find a good business climate and guaranteed security,” Yasin told a gathering attended by Kadin officials, foreign ambassadors, the BKPM chief and Trade Minister Mari Elka Pangestu. The growth of foreign and domestic investment in South Sulawesi is around 2% a year, with total investment in the region amounting to $437.8 million last year. The province ranks sixth in terms of investment in Indonesia’s regions.

Last year, five foreign investment companies upped their investments due to the favorable investment climate the provincial government has promoted. Four huge investors have committed to investing in South Sulawesi early this year, Yasin confirmed. They are Japan’s Shrimp Guard Japan Co. Ltd, Kyusu Medical Co Ltd, Indonesian companies PT Bayu Buana Gemilang (BBG), which will build the Sengkang-Makassar gas installation, and Sintesa Group subsidiary PT Sinar Indonesia Merdeka, which will invest $40 million to build a bio-ethanol plant. South Korea’s PEM Corporation is in talks with the South Sulawesi regional government and local businessmen to build a pipe plant at Makassar’s KIMA Industrial Estate which will produce 30,600 metric tons of pipe a year worth $47 million.

Yasin also noted that domestic investment was picking up. PT Wirah Mega Wisata, owned by a Balinese businessman of Makassar origin, has invested Rp45 billion to build the Gowa Discovery Park at Sompa Opu, Makassar. In a joint venture with KF Fjellsikring AS of Norway, PT Sulawesi Mini Hydro Power Plant (SHMP) has invested $22.5 million to build the Tangka Manipi 10 MW power plant which was commissioned last March. The companies also plan to build a 100 MW power plant in Buttu Batu, Enrekang that will start in late 2011.

Long-term plans

Meanwhile state-owned electricity company PLN plans to build 124 solar-powered electricity generating plants this year at the cost of Rp9 billion each. “They will be built in 15 regencies of Papua and West Papua and on 100 islands which are scattered in remote parts of eastern Indonesia,” says PLN’s director of operations for eastern Indonesia, Vickner Sinaga. Twenty six state-owned companies plan to invest Rp836 trillion to accelerate development until 2014. A portion of that will be directed at infrastructure development in eastern Indonesia to build interconnectivity between the various regions, something President Susilo Bambang Yudhoyono has encouraged.

“We need to balance development. Java has dominated development and the economy. Now we must look east and develop the economy there in the coming 5-15 years to boost the current GDP (gross domestic product) of $700 billion to $4 trillion in 15 years. We need to develop Kalimantan, Bali, East Nusa Tenggara, Sulawesi, Maluku and Papua,” the president said recently, citing several regions stipulated in the government’s Acceleration of Economic Development Masterplan (MP3EI). Although the government says that Indonesia is ready to disburse $300 billion to accelerate development, the business community is less optimistic.  

Business people argue that the government has yet to deal with problems such as high interest rates, a weak bureaucracy, land clearing problems for infrastructure projects and legal uncertainties. “Whether it is hundreds of billions of US dollars, that’s for later. We don’t want to make empty promises. Central and regional coordination is most important,” says Sofjan Wanandi, chairman of the Indonesian Businessmen’s Association (Apindo) and a persistent critic of government.

“A number of investments in the CPO and rubber business are waiting for policy certainty. We have talked about these problems since five years ago and yet there is no significant progress in infrastructure development.” At Kadin, Suryo has proposed the establishment of a development bank which will function in the same way the now defunct Bank Pembangunan Indonesia (Bapindo) did in the past. Bapindo was merged with three other banks to form Bank Mandiri.

“Such a development bank could assist long-term financing with low interest rates which will help accelerate infrastructure development,” says the Kadin chairman. “We need to develop eastern Indonesia. We in Kadin support the idea of the development bank. The funds can be gathered for the establishment of such a bank,” Kadin officials Oesman Sapta and Anindya Bakrie concur.  GA    

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