Indonesia attracting Billions of Dollars in Investment!

Indonesia is forgoing billions of dollars on offer from American companies eager to invest in South-east Asia’s biggest economy, United States Ambassador to Indonesia Joseph Donovan said.

As the US tries to arrest a deteriorating trade balance with Indonesia, which last year found itself in President Donald Trump’s cross-hairs, Donovan has also rejected complaints of increasing American protectionism.

Indonesia had made significant progress on macroeconomic stability, improving the business environment, education and infrastructure, yet more must be done to encourage trade as well as foreign investment, he said.

“Those that caution the United States about being trade protectionist, I would respectfully suggest that they look at their own markets and they might find a good deal of ingrained protectionism there,” he said in an interview last Wednesday (Feb 14) in Jakarta.

Indonesian officials such as Finance Minister Sri Mulyani Indrawati have consistently criticised the protectionist tone sounded by Trump, who last year accused a host of nations, including Indonesia, of potentially abusing their trade relationship with the world’s biggest economy. Since then, the US trade deficit with Indonesia has worsened to US$13.3 billion (S$17.5 billion) from US$13.2 billion in 2016, according to the United States Census Bureau.

“The current protectionist language is definitely going to create concern about whether globally there will be a setback in the progress that has been made over the past three decades,” Indrawati said in an interview last month.

Donovan said the US’s average tariff rate was less than 3 per cent and half Indonesia’s average applied tariff rate. Despite the imbalance, he said trade in goods between the two nations had increased last year by about 7 per cent to approximately US$27 billion in bilateral terms, with US exports to Indonesia increasing about 14 per cent.

Indonesia must do more to encourage foreign businesses to invest and trade, he said, adding that the US wants to see more access granted to American companies, particularly in the agriculture sector, including dairy, cotton, soybean, fruit and vegetables.

“Indonesia is leaving billions of dollars on the table right now in the field of power generation by not following through on offers by American companies,” he said, declining to reveal any specifics.

IT’S NOT ABOUT CHINA

Ekoputro Adijayanto, the chief of the Indonesian Planning Ministry’s Centre for Private Investment, said a number of US private equity firms had shown interest in Indonesia, including one that’s “seriously looking” to invest in greenfield power generation. But there also appeared to be a “Trump effect,” he said. “He’s trying to lure investors in the US to invest back in America, make America great again.”

“China is a bit different from other countries,” Adijayanto said. “Instead of us going there, they are coming here. Many Chinese companies are coming to our office.”

Figures show that in the space of three years, the US has lost significant ground to China in terms of foreign direct investment in Indonesia. Last year, direct investment from the US was worth US$2 billion, according to the Indonesia Investment Coordinating Board, while Chinese foreign direct investment was US$3.4 billion.

“It’s not a competition between America and China,” Donovan said. “What I look for are opportunities for American businesses to compete on a level and fair trade ground here. Rather than look at China, what I’m interested in doing is helping American businesses to do more here.”

Donovan said Indonesia must maintain the pace of economic reform established under President Joko Widodo and “stand up to protectionist voices who advocate for special interest under the guise of nationalism”.

He cited Indonesia’s local content regulations – which saw Apple’s market access curbed before the company built a domestic research facility – as “a real deterrent” to foreign participation in the Indonesian economy. “It’s important to recognise that these companies have options. They can choose to be here, they can choose to be elsewhere in Asean, they can choose to be elsewhere in the world,” he said