Indonesia on the investment “offensive”

Updated On: Aug 08, 2006

Under President Susilo Bambang Yudhoyono, Indonesia has been agitating for a higher international profile, including getting itself involved in the very tricky business of Weapons of Mass Destruction (WMD) non-proliferation in North Korea and Iran.

But before it can play a higher international profile, many within Indonesia, including those in the liberal media, argue for the country to put its economy in order first.

Indonesia needs a strong economy to back its political ambitions and desire to play a bigger international role. Indonesia is sorely lacking in funds for economic development, especially when it has a weak infrastructure base. Indonesia needs an infrastructure upgrade which is estimated to cost about US$150 billion (S$235 billion) in the next five years. And that is perhaps the foremost purpose behind the Indonesian President’s tour of its immediate neighbors, particularly Singapore andMalaysia, to get more investments into its territory.

In his visit to Singapore, the Indonesian President invited Singapore's leaders and businessmen to attend an infrastructure summit in Jakarta in November 2006 to exchange ideas and seek investment opportunities. The President also hoped that Singapore could play a part in Indonesia's efforts to increase biofuel production. According to the Straits Times, the Indonesian government recently announced plans to build eight biodiesel factories, to produce energy alternatives to fossil fuels, such as biodiesel from oil palm.

Capitalizing on the success story of Singapore and Indonesia’s partnership in the Riau islands, Indonesia has plans to come up with more of such zones in Riau besides the one in Batam and its nearby islands to attract foreign investment using the Batam model of investor-friendly regulations as well as tax incentives. Jakarta reportedly has plans to develop 14 such special economic zones (SEZs). Singapore’s role is sought for expansion in two existing SEZs (Batam and Bintan) and a new one in Karimun.

But Singapore is not the only one courted by Indonesia. President Susilo Bambang Yudhoyono has also invited Malaysian businesses to invest in his country's Special Economic Zones which offer opportunities in energy, housing and power. The President also expressly wants Malaysia to catch up with Singapore, US or Japan in Indonesian investments. 'I do hope that you (Malaysia) could move up to become the top three or top two foreign direct investors,' President Yudhoyono said in a dialogue session with more than 150 members of the Kuala Lumpur Business Club on 4 August 2006.

Indonesia faces many challenges in getting foreign investments, including competition from China and India. And Indonesia knows that its greatest problem is corruption. 'There is corruption in many parts of the world, but it is a very serious problem in Indonesia,' the Indonesian president said in Malaysia. But perhaps the most immediate problem, one that may be politically explosive, is energy. Indonesia is struggling to cut a hefty oil subsidy bill and was a net importer of crude oil in May and June despite the presence of its indigenous Minas crude. Output from Indonesia's ageing oilfields is declining at an annual rate of 5 per cent or more, and new fields are not being tapped fast enough to offset this.

In connection with this, it is not known if there was a deliberate strategy on the part of the Indonesian President to introduce greater competition for Indonesia’s resources by singling out the energy sector for bidding and competition between Malaysian and Singaporean companies and investors. However, it seems to be working. Three Malaysian firms (Golden Hope Plantations, Genting and Sime Darby) may invest in Indonesia's biofuel sector to help drive its ambitious US$20 billion (S$31.7 billion) push into alternative sources of energy.

This was the same sector which the Indonesian President singled out as one of the three main investment opportunities for Singapore’s business and government investors. Indonesia would open up six million ha of biofuel plantations, such as jatropha and palm oil for biodiesel and sugarcane to produce bioethanol. Genting, with interests in casino, power and plantations, is keen to take up one million ha and Singapore investors, it seems, must also move fast to compete with the Malaysians.


Indonesia offers S'pore 3 sectors for investment (Straits Times, 7 August 2006)

Malaysian firms eye Indonesia's biofuel sector (Straits Times, 7 August 2006)

Yudhoyono in KL to woo investors to SEZs (Bernama/AP/ST, 5 August 2006)

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