RI among favorite investment destinations for British companies

08 March, 2011 | Source: The Jakarta Post

The Jakarta Post’s Hendarsyah Tarmizi and four other Indonesian journalists were invited by the British Embassy in Jakarta recently in February to London to get firsthand information on the UK government’s investment and trade policy. Below is the first of two reports from the trip.

The British government recently issued a White Paper on Trade and Investment, an ambitious strategy to nurture international trade and investment through a number of actions, which, among others, include providing financial support for local firms to export and invest overseas.

Included in the strategy is a range of actions to promote market access and investment in emerging markets, particularly in Asia, which is now leading the global recovery. Its rapidly growing economies make the region a particularly rewarding destination for exports, as well as for investment.

With a large population and high economic growth, Asia is expected to become the main engine of
the world’s economy in the next decade.

The International Monetary Fund estimates Asia’s economy would grow 50 percent in the next five years. A New NatWest and Royal Bank of Scotland study showed 65 percent of UK businesses believed Asia represented a new market opportunity.

The enthusiasm of local businesspeople about the growth potential in Asia was apparent a business seminar in London. The “Doing Business in Asia — Meet the Experts” gathering attracted more than 200 business executives from a wide range of business activities in the country.

Similar events in Edinburgh, Newmarket and Northern Island to support the White Paper programs were also well-attended by local businesspeople.

Asia’s growth potential is not only centered in China and India as many people believe. Several other countries in the region such as Indonesia and Vietnam also offer the same opportunities for global investors.

British Minister of State for Trade and Investment Lord Green acknowledged China and India were among the most promising countries to do business in thanks to their large populations, growing middle class and big
domestic markets.

But in addition to these two giants, Indonesia and Vietnam also offered the same business opportunities, he said. “In fact, the two countries are among popular export and investment destinations for UK companies,” the former chairman of the HSBC Group told Indonesian journalists at his office recently.

Indonesia, in particular, is one of the favorite investment destinations not only for UK companies but also for other global investors. Indonesia has been identified as one of the top markets for global investors, according to a recent survey published by UK Trade and Investment.

In the survey conducted on more than 520 global executives, Indonesia was selected as the number two investment destination behind Vietnam beyond the BRICs for 2010 thanks partly to the country’s relatively stable political condition, rich natural resources and large domestic market.

The Indonesian Investment Coordinating Board (BKPM) said the UK was the second-largest foreign investor in the country last year after Singapore.

As one of the larger emerging markets, Indonesia has become an important investment destination. The country offers investment opportunities not only for the development of the country’s rich national resources, but also for its infrastructure.

The Indonesian government, for example, plans to develop at least 100 large infrastructure projects worth more than US$47.3 billion between 2010 and 2014. The projects, including the development of roads, ports, seaports, railways, power plants, water supply and sanitation facilities, will be offered under a public–private partnership (PPP) program. Sixteen of the PPP projects worth $32.37 billion will be offered to the private sector this year.

Green said British companies now operating in Indonesia were mostly engaged in financial services, oil and gas exploration and production activities. The London-based HSBC, one of the first foreign banks to operate in the country provides sharia banking services to enable it to optimally tap into the business potential in the largest Muslim-majority country.

Energy giant BP, which is headquartered in London, is also one of Indonesia’s largest foreign investors. The company, which is now developing a liquefied natural gas plant in Papua, has invested $5 billion to date.

Green said that in addition to financial services and energy, the UK had much more expertise to offer ranging from advanced engineering, creative industries and transportation to environment and satellite technology to help Indonesia achieve its economic growth targets.

British expertise in engineering and transportation could, for example, help Indonesia improve its infrastructure problems, while sharia banking services could also help promote the use of Islamic bonds in raising funds needed for infrastructure development, he said.

Like Green, Lord Powell, the cochair of the British government’s Asia Task Force, also sees the prospect of investing in Indonesia.

“It doesn’t take a genius to understand the business opportunity in Indonesia,” he said. “Its growing middle class and high economic growth tell us all about its bright prospects.”

Powell, who led a British trade delegation to Indonesia last year, said that with its large domestic market and relatively stable political conditions combined with its rich natural resources, Indonesia certainly offered wide opportunities to foreign investors to do business. However, he warned that no investors would come if the Indonesian government could not provide legal certainty to maintaining their long-term presence in the country.

Although the Indonesian government has amended a number of laws related to investment activities, legal uncertainty remains the main concern of foreign investors planning to invest in Indonesia. In fact, there remains a lot of legal uncertainties in many business activities in Indonesia, especially in the mining sector, such as those related to business licenses, foreign ownership and the mandatory divestment requirement imposed on foreign investors.

President Susilo Bambang Yudhoyono is aware of the problem. In his address in early January to mark the start of stock trading at the Indonesian Stock Exchange after the year-end break, Yudhoyono promised to solve the legal problems.

Indonesia certainly should make a legal breakthrough in order to be able to further promote foreign investment, if it wants to maintain its growth momentum.



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