M Chatib Basri, Chairman, Indonesia Investment Coordinating Board (BKPM): Interview

Interview: M Chatib Basri

What are your preferences regarding the type of investment you would like to attract, and to what extent can the country afford to become more selective in this process?

M CHATIB BASRI: We will focus on value-adding investments that will bring Indonesia to the next stage of development. Such investments are not only sizeable, but also lead to technology transfer and human capital development. While Indonesia has an advantage due to its natural resources, we should try to leverage investments that add more value beyond extraction.

As the price of commodities goes down, investors will naturally look to different sectors, and this is one of the reasons why investment in manufacturing is peaking these days. A country such as Indonesia cannot rely on natural resources or cheap labour costs. We have to move up the value chain and begin to gear our strategies toward productivity-driven growth. Precisely because BKPM has limited resources, we will focus on cultivating a few value-adding investment success stories, which we can later showcase to attract even more investment.

How do you assess investors’ concerns regarding increasing regulatory uncertainty in strategic sectors such as mining or oil and gas? To what extent do they affect Indonesia’s image?

BASRI: The rationale behind some of these new regulations is clear: Indonesia wants to move beyond a dependence on natural resources to being able to actually process some of these materials at home. By doing so we can add value across our economy.

We can understand investors’ worries regarding legal uncertainties and changing regulations in some section of the economy. Their concerns are certainly valid, and we are cooperating with various ministries in order to consolidate the government’s stance on these issues. Indonesia’s strong economic performance and its growing middle class make it a solid investment destination, despite some of these fears.

What is BKPM’s role in attracting portfolio investments, and how do global external factors benefit Indonesia as a preferred investment destination?

BASRI: When BKPM promotes Indonesia to international audiences, we present the whole picture and elaborate on all the macroeconomic and political advantages to investing in the country. These arguments remain valid for both foreign direct investment and portfolio investments. In addition to all the positive economic indicators we can’t avoid the fact that the global economic slowdown is making Indonesia the least unattractive country in terms of investment and that slower growth in other Asian markets is a positive factor for the country.

How can Indonesia ensure that technological transfer and intellectual capital are also being acquired from foreign investors?

BASRI: This is precisely the motivation behind some of the investment regulations, such as the divestment obligation for the mining industry. We understand that for most investors the issue has been the timeframe, thus we are working on making it more feasible. We are also encouraging companies to develop their research and development facilities in the country. For this, appropriate incentives are needed.

In your opinion, what role will the ASEAN Economic Community (AEC) eventually play in attracting foreign investment to Indonesia?

BASRI: I always argue that investors should see ASEAN as a single market, but at the same time we shouldn’t forget that Indonesia represents around 48% of the total ASEAN market. By 2015 it will become clearer to investors that basing their production in Indonesia for AEC markets is the right choice, as it will be easier to sell products throughout the region. This situation has made Indonesia a country that should not be overlooked by those investors that want to be present in South-east Asia.