Investment potential is high but so are barriers to entry. For smaller
Thai companies, a bigger Thai partner would help.
Thai businesses hoping to grow in
Asean’s largest economy are being advised to team up with large Thai
corporations because investors in Indonesia are encountering a number of hurdles,
particularly non-tariff barriers (NTBs).
The resource-rich country has
been taking a harder line on foreign investment in recent years because it
wants to ensure that local businesses can grow and thrive as the economy
improves. Authorities are wary of throwing some strategic sectors wide-open to
foreign investment in case local businesses will be unable to compete.
The passage of a mining law that
caps foreign investment at 49% has been highly contentious. The Jakarta
government is also looking to curb some mineral exports in order to encourage
the creation of domestic mineral processing industries that can export
higher-value products.
Vilasinee Nonsrichai, minister
counsellor (commercial), with the Royal Thai Embassy, said her office had
received complaints from Thai companies doing businesses or trading in
Indonesia about trade barriers. It attempts to solve the problems case by case.
She said that some of the trade
barriers appeared to place Indonesia at odds with the principle of free flow of
trade of the Asean Economic Community (AEC) agreement.
Nipit Isarankura, chairman of the
Thai-Indonesia Business Council, said the number of Thai companies entering
Indonesia was low compared with other countries. Only large-scale companies
such as Siam Cement Group (SCG), Banpu, and PTT Group are active as they have
the strength to deal with obstacles or setbacks.
However, many opportunities in
Indonesia still await foreign investors. As one of the world’s best-performing
economies in the past few years, Indonesia is quickly creating a large middle
class among its 240 million population. Huge demand for housing, food and
consumer products will follow and industries in these sectors are poised to
grow rapidly.
Mr Nipit said that despite the
bright prospects of Indonesia, the country was likely to implement more
policies to protect local production. Some businesses have complained about
requirements for more environment-friendly products and processes, which some
see as non-tariff barriers. However, the Jakarta government says it is simply
trying to promote similar standards as developed countries.
In order for small and
medium-sized enterprises (SMEs) enter Indonesia, Mr Nipit said large-scale
companies may have to help them. SMEs entering the market as partners or
suppliers to bigger ventures have the potential to fine-tune their businesses
and set up other operations of their own once they are in the country.
“When a property company, for
instance, enters Indonesia, other related businesses such as furniture, wooden
products, construction and building materials can accompany it. This should be
a good way to help SMEs grow in Indonesia,” he said.
As part of the Master Plan on
Asean Connectivity, one of the concepts is not to have trade barriers among
members. Under the plan, Asean countries have to invest in physical
infrastructure such as roads and rail lines to create strong networks, further
enhancing the free flow of goods, services and transport. Accordingly, trade
barriers should also be removed.
Kan Trakulhoon, president and
chief executive officer of SCG, said SMEs could either accompany big companies
or group together to penetrate the Indonesian market. Cooperation among them
may make it easier to grow in the country and help reduce production costs as
well.
“Protectionism will make a
country less developed. This solution does not create fair competition,” he
said.
However, in Mr Kan’s view,
Indonesia has developed more than in the past and the country is now open more
for foreign investors.
Bayu Krisnamurthi, vice-minister
of Indonesia’s Ministry of Trade, said recently that the way the government was
controlling trade and production activities was not protectionism. It simply
wants to manage expected influx of trade into the Indonesian market in order
not to hurt domestic businesses, he
said.
Nalin Viboonchart
Business & Investment Opportunities
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