Klaus Lesker, Member of the Executive Board, Ferrostaal: Interview

Interview: Klaus Lesker

What opportunities will Indonesia’s plan to become a centre for automobile production create for manufacturing and petrochemicals industries?

KLAUS LESKER: Being the largest economy in South-east Asia, with strong and still increasing domestic consumption, Indonesia offers highly captivating business and investment opportunities for those who wish to support these aspirations. One opportunity is the rising demand for plastics and the raw materials needed to process them. To be competitive in this segment, players must source low-cost raw materials – a prerequisite for the accelerating domestic industrialisation. While the development of petrochemicals plants is integral, so too is the establishment of accompanying services like supply chain management. These services are strongly related to the efficient assembly of industrial goods in the automotive sector, amongst others. The channelling of valuable knowledge and experience by foreign firms into these areas of business is critical for launching these new industries and ensuring long-term success.

In what way must legal and transportation infrastructure be addressed to ease the way for foreign investment in large-scale industrial projects?

LESKER: For the energy sector, developments in rural areas are often hindered because of infrastructure and logistical burdens that are too often carried solely by the investor. The government’s plans to improve the situation through Master Plan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) projects are commendable; however, they must bring positive results for investors. For many, even at a favourable location with assured access to raw materials and reliable power supply, legal certainty is never assured. However, most export-oriented industries, such as mining operations, have comparably short payback times. Manufacturing and supporting industries, such as petrochemicals production, need a solid and dependable legal environment for long-term investment, which in turn facilitates an adequate return.

In light of the incoming 2014 ban on metal-ore exports, where do you foresee opportunity in the value-added processing industries?

LESKER: A short- to medium-term strategy could be to satisfy the domestic needs first as there is no market necessity to convert all of the minerals production into refined products. There are sufficient quantities to make downstream industries more competitive and less dependent on imports. Considering the production of raw mineral materials on one hand, and the market requirements to expand the manufacturing industries on the other hand, the pre-conditions are favourable. Raw materials appear to be widely available.

The processing of minerals requires a solid business plan, starting from a long-term resource management of the mine through to the development of sufficient smelter infrastructure. However, significant inroads must first be made towards tackling the principal obstacle of availability and distribution of power.

How can Indonesia’s industrial sector look to benefit from the ASEAN Economic Community (AEC) integration planned for 2015?

LESKER: The AEC member states continue to increase their stake in worldwide economic performance, which is a promising base for the growth of Indonesia. The expectations of the country’s contribution to driving expansion within ASEAN are strongly related to the provision of raw materials and services to the industrial supply chains in neighbouring countries. However, Indonesia must also utilise its raw materials for its domestic manufacturing industries, as well as improving power supply and distribution, which are all important for competitiveness. Indonesia will need to expand its industrial supply chain and develop highly skilled human resources. While striving for a higher degree of industrialisation and knowledge-based industries, Indonesia’s strong foundation within the lower-income employment sector must also retain a competitive level so not be overtaken by other AEC members.