- BRICs: And Then There Were Five
- Martin Roll: Strategies for the Boardroom in The Year of Emerging Economies
- Brickbats, the BRIC Bloc and Our President’s Performance So Far
- Creativity, Innovation Better Ways to Succeed: Economist
- Indonesia and Turkey Beat Investors’ Expectations by Outperforming BRICs
Jakarta Globe, James Van Zorge, March 24, 2010
In comparison to other emerging economies, Indonesia should qualify as a prime investment destination for multinational corporations. Inflation rates are low and the currency is stable. Tax and wage policies are reasonable and competitive. Public debt is not excessive. The domestic market for most consumer products is huge and growing. There is political stability.
Yet, there is also a gnawing feeling that something is not right. Indonesia should be attracting more foreign direct investment. Gita Wirjawan, the head of the Investment Coordinating Board, has been trying to promote Indonesia as a place to do business. He is attempting to open up more sectors to foreign investors with the hope that additional opportunities will translate into more dollars flowing into the economy.
To a certain extent, Gita’s thinking is right. Business thrives on opportunity. And when the right opportunity presents itself, you can be sure that business will follow.
The problem is, not everybody in the Indonesian government shares Gita’s attitude. Many politicians say they want more investment but they fail to act accordingly. They don’t always admit it, but in their heart-of-hearts they view foreign investment as a necessary evil to be accepted grudgingly if at all. They think if a foreign company invests in the country it means one less opportunity for a local businessman. In their minds, if a multinational corporation has a profitable business in Indonesia, then something is wrong and it should be punished somehow.
Unfortunately, a double standard is being applied here. Indonesian politicians complain that the wages being paid by multinational corporations to local employees are too low yet they say nothing when domestic companies pay the same or even lower salaries to their own workers. They become rabid environmentalists when talking about foreign natural resource companies but fall silent when locals pollute or cut down huge swathes of precious rain forest.
Multinationals are constantly being lectured by Indonesian politicians that they must exercise corporate social responsibility — which means putting some of their profits back into a local community for much-needed public services such as education and health care. A noble undertaking, indeed, and many foreign executives are keen to have their companies make meaningful social contributions. One could only wish that more local conglomerates would be expected to do the same.
Treating local companies with kid gloves and bludgeoning multinationals with a hammer is, of course, nothing new in developing countries. As a matter of fact, it used to be a lot worse. In the 20th century, during the post-colonial era, it was not unusual to have leaders of newly-independent countries berating and punishing foreign investors for their capitalist ways. State-run economies and protectionist policies were fashionable. With memories of colonial masters still strong, expropriation as an act of delayed revenge was a convenient — and popular — policy weapon.
Today’s leaders of developing countries are not completely convinced about the professed benefits of globalization but they are more likely to seek market-friendly policies than before, if for no other reason than the fear that their economies will be punished for doing otherwise. They might offer some polite applause for Venezuela’s Hugo Chavez or even the generals of Burma for their chuztpah and machismo in facing down the West. But they also know that testosterone-charged behavior doesn’t help to pay the bills.
Still, old habits die hard. Some of the world’s largest emerging economies — Russia, China and India — often make the news for their shoddy treatment of investors. Indonesia is no exception. President Yudhoyono claims that his country is open for business but he should not forget that foreign investors have an elephant’s memory. Every time a multinational gets a raw deal and is treated badly by the government, boardrooms take notice.
If Indonesia’s leaders are serious about beating the competition, attracting more foreign direct investment and reaping the rewards of higher growth rates, then they have to realize that just whispering sweet nothings into the ears of executives will not win the day. When asking a company to risk its hard-earned capital, government officials should remember that actions speak louder than words.
What actions, then, might win over investors? There are many, but perhaps the best way to proceed is to follow the golden rule and “do unto others as you would have them do unto you.”
How would the Indonesian government react, for example, if one of its state-owned enterprises had invested a billion dollars in the US only to wake up one day and find out that a powerful senator had forced himself upon the company to become a shareholder?
As another example, how would an Indonesian executive feel if his company set up shop in a foreign country and suddenly faced demands by government officials to pay millions of dollars in return for an operating license that was normally given out for free to others?
Indonesians know how they would feel and react to such rude and unethical behavior. They should therefore find it easy to apply this golden rule when dealing with foreign investors in their own country.
Fortunately, there are people like Gita inside the government who can pass the word around that multinational corporations are not much different from their Indonesian counterparts: they just want to be treated fairly.
James Van Zorge is a manager of Van Zorge, Heffernan & Associates, a business consultancy based in Jakarta. He can be reached at email@example.com.
A professor of geology and physiology at the University of California, Los Angeles (UCLA), Jared Diamond is best known for his Pulitzer Prize-winning book Guns, Germs and Steel, a scientific analysis of the history of civilization. His other, perhaps more important message is to never forget the lessons of history. Hana Miller interviews him.
“I have often asked myself,” Jared Diamond writes in his book Collapse: How Societies Choose to Fail or Succeed, “What did the Easter Islander who cut down the last palm tree say while he was doing it?”
At a time when the future of the planet and the life it supports has come to the forefront of popular media, Diamond’s message about learning from the mistakes and the choices of past civilizations in his recent Collapse becomes especially pertinent. Referring to the analytical model he uses to examine various different societies and how they adapted to – or ignored – the actualities of their circumstances, Diamond shares with us his thoughts on the factors that put Indonesia’s future most at risk, raising critical points about the direction in which we are knowingly leading ourselves.
In my book Collapse, I discuss the successes and failures of past societies at solving their environmental problems – such as the successes of the Japanese, New Guinea highlanders and Tikopia islanders, and the failures of the Polynesians on Easter Island in the Southeast Pacific, the Mayans of Mexico, Guatemala and Honduras, and the Anasazi Indians of the Southwest United States.
In the past, when societies on different continents around the world were largely isolated from each other, the success or failure of one society didn’t affect distant societies. For example, it had no effect whatsoever on Indonesia when the Easter Island society collapsed, or when the Mayan cities collapsed. It also had no effect on Indonesia when Japan in the 1700s solved its forestry problems sustainably.
Today, however, in our globalized world, anything that any country does has the potential to affect any other country. For example, with global warming, greenhouse gases emitted in the United States or China or Russia contribute to global warming that affects Indonesian reefs. Globalization also means that Japan, a populous rich country that’s very good at protecting its own forests, succeeds in doing so by destroying the forests of other countries, such as Indonesia.
International business and the environment
Among the most important relationships for Indonesia are those involving Southeast Asian and worldwide businesses that import raw materials from Indonesia, especially tree products (timber and paper materials), fish and other sea products, oil and minerals.
My impression is that some of these international businesses operate in Indonesia according to standards that are not up to the highest international ones. For instance, much is known about how to manage forests sustainably to extract wood and wood products at a rate no higher than the rate at which new trees grow. Thus the forest can be exploited for the indefinite future. Japan and Germany are examples of densely inhabited countries that have been managing their forests sustainably for around 400 years. Even after centuries of exploitation, visitors to Japan and Germany are stunned to see how large a fraction of the area of those countries is still covered by forests: about 76 percent in the case of Japan!
As a result, there is no ongoing deforestation in Japan and Germany: new forests are planted or grown at a rate at least equal to the rate at which mature forests are cut down, and the extent of forests in Japan is actually increasing. In Indonesia, however, these international standards for sustainable forestry are in many or most cases not followed by international wood and pulp and paper companies. That’s a tragedy and a big economic loss for Indonesia: as things are going now, Indonesia will not continue to enjoy forest income for the indefinite future.
An added tragedy for Indonesia is that much or most forest products are exported in the raw form of unfinished logs. But most of the value of forest products is added after the trees are cut, when the logs are worked into finished timber and paper. This added value is much greater than the value of the unfinished logs. In effect, most of the profits from Indonesia’s timber are not received by Indonesia, but by the countries to which it exports its timber.
Similar problems arise with fisheries. There are well-established international standards for managing fisheries sustainably, so that fish are caught at rates no higher than the rates at which they can spawn and grow to maturity. Sustainably managed fisheries provide an income for the indefinite future. Examples of these include the Australian rock lobster fishery and the American wild salmon fishery. But most fisheries in Indonesia are not managed sustainably. That, again, is a tragedy for Indonesia, which loses a source of income that could continue for the indefinite future – if only it were managed properly.
It is entirely within the power of the Indonesian government to obtain a good economic deal with regard to foreign exploitation of its raw products. Other countries already insist on getting a good deal for their raw products. All that the Indonesian government would have to do is license only foreign companies that meet accepted international standards for managing fisheries and forests, and insist that most of the added value of Indonesian forest products be added in Indonesia rather than in Japan or China or Taiwan or Malaysia. Sadly for Indonesia, this is not happening at present.
The Five-Point Framework
In assessing whether a country is succeeding or failing at solving its major problems, I go through a checklist of five sets of factors: human impacts on environmental resources; climate change; effects of friendly trade partners; effects of hostile neighbors, and a country’s social, political and economic conditions that either help or hurt the country in recognizing and solving its problems.
Of these five factors, it seems four are critical for Indonesia. The one that is not critical – at least at present – is hostile neighbors. Although Indonesia has had problems with other countries in the past, that’s not the case today.
But the other factors all apply to Indonesia. With regard to the first factor, I mentioned above the overexploitation and decline of Indonesia’s rich forests and fisheries. Climate change affects Indonesia, especially through the harmful effects of global warming on the country’s rich reefs and through the increased frequency of extreme climate events such as cyclones, droughts and floods.
Friendly trade partners are another problem: Indonesia has friendly relations with Japan, China, Taiwan and Malaysia, but those countries are now partly the cause of the problems in Indonesia’s fisheries and forests.
Finally, as regards the fifth factor, political considerations in Indonesia are important for understanding why the economy and the people enjoy only a small fraction of the benefits they would otherwise receive from the country’s fisheries and forests.
My experience is of conflicts of interest, of two types. One set of conflicts involves those I mentioned above, between international interests – which make money by exploiting Indonesian resources unsustainably and add most of the value outside the country – and Indonesia’s own interest.
The other set of conflicts is between short-term and long-term interests within Indonesia itself: many Indonesians, just like many other people around the world, pursue short-term interests to the detriment of long-term ones. An extreme example is the use of dynamite fishing in coral reefs. This yields more fish for sale in the short run, but destroys the reef and hence reduces potential fishery income in the long run.
Factors for hope
At least four sets of factors make me hopeful. One was the serious discussion of climate change that took place in Copenhagen and is expected to continue elsewhere. The second is the role of big businesses, not all of which are destructive: some international corporations have been major forces for hope for the world’s future, by managing resources sustainably.
A third factor for hope is the recent change in attitudes about environmental issues in my country, the United States, which under the Bush administration pursued shamefully ignorant and destructive environmental policies. It’s also a promising sign that the Chinese government is taking some, but not all, environmental problems seriously.
Finally, a factor for hope is exemplified by The Jakarta Post – by which I mean not just the Post itself, but world media in general. Thanks to the Post and other media, including newspapers, TV, radio and the Internet, people in one part of the world can quickly learn about what is happening in other parts.
I shall never forget being at a small, remote airport in the Indonesian province of Maluku, where passengers could watch TV while waiting for their plane. And playing on the screen while I was there was a Michael Jackson video! While the late Michael Jackson is enjoyable, there are other things one can see on TV may be more important for understanding what is going on in the rest of the world.
As a result of the Post and other media, Indonesians now have the means to understand what’s going on in other countries. Some of those things are good and admirable, and some are terrible and destructive. Through the Post and other media, you have the opportunity to watch and learn from and imitate the policies of other countries that you believe promote long-term economic success, and you also have the opportunity to see destructive things that other countries are doing and you can avoid repeating those same mistakes in Indonesia.
BusinessWeek, by Berni Moestafa, January 28, 2010, 04:10 AM EST
Jan. 28 (Bloomberg) -- Indonesia, Asia’s second-best performing stock market last year, may be ready to join the so- called BRIC group of major emerging nations, according to Templeton Asset Management Ltd.
“Indonesia’s political and economic outlook has improved tremendously in recent years,” Templeton portfolio manager Dennis Lim wrote in a note yesterday on Chairman Mark Mobius’s blog. “So clearly, it would not look out of place beside the BRIC countries.”
Inclusion in the category -- Brazil, Russia, India and China -- coined in 2001 by Goldman Sachs Group Inc. Chief Economist Jim O’Neill may increase demand for Indonesian stocks. Investors should “stick with the BRICs,” a group that “tends to outperform in non-recession years,” Morgan Stanley strategists led by Jonathan Garner said last week.
The Jakarta Composite index jumped 87 percent last year as Indonesia skirted the global recession after nine interest rate cuts by the central bank. President Susilo Bambang Yudhoyono’s re-election in July boosted confidence he will maintain policies that helped Southeast Asia’s biggest economy expand more than 6 percent annually in the two years until 2008.
Economic growth may average 6.6 percent over the next five years as poverty and unemployment decline, Yudhoyono said on Jan. 4. Fitch Ratings on Jan. 25 raised Indonesia’s credit ratings to one level below investment grade.
Fitch’s rating upgrade reflects Indonesia’s economic resilience and an improving balance of payments, said Bank Indonesia Deputy Governor Hartadi Sarwono. Foreign-exchange reserves rose to $69 billion as of Jan. 22, he said.
“Being in the same group as BRIC may get Indonesia more attention from investors,” said Finny Fauzana, a fund manager at PT PNM Investment Management, which oversees about $139 million in assets in Jakarta. “But foreign investors putting money into the real economy need more than that because they consider a lot of other factors such as regulation and taxes.”
Indonesia ranks 122 out of 183 economies in a World Bank 2009 survey on business-friendly practices. President Yudhoyono said on Oct. 20 he would reduce bureaucratic “bottlenecks” that hinder investment. He campaigned for re-election in July on a pledge to double spending on roads, rails and ports to $140 billion over the next five years to boost economic expansion.
Growth may accelerate to 7 percent from 2011, providing the case for Indonesia’s inclusion into BRIC, according to a Morgan Stanley report in June. Emil Salim, a former cabinet minister, said in July that Indonesia’s targeting to “put another ‘I’ into BRIC,” adding the goal may be achieved in five years.
“The BRICs theme, which played well in 2009, continues to resonate in early 2010,” Cambridge, Massachusetts-based funds tracker EPFR Global said Jan. 21. Dedicated BRIC equity funds recorded inflows of $182 million in the third week of January, compared with the $103 million average last year, EPFR said.
Overseas investors have bought a net 666 billion rupiah ($71 million) of the shares this year, according to exchange data. Overseas investors purchased 13.3 trillion rupiah of the shares last year, down from 18.7 trillion rupiah in 2008.
--Editor: Reinie Booysen, Linus Chua
To contact the reporter on this story: Berni Moestafa in Jakarta at +62-21-2355-3029 or firstname.lastname@example.org
To contact the editor responsible for this story: Linus Chua in Singapore at +65-6212-1530 or email@example.com
Hongkong Beats Indonesia in Business Freedom
Kompas.com, Kamis, 21 Januari 2010 | 13:12 WIB
JAKARTA, KOMPAS.com — Hongkong is the most free for investing. While Indonesia is at the 114th rank out of 183 countries in the 2010 Index of Economic Freedom.
The data comes from the annual report released by the Heritage Foundation, a conservative institution based in Washington DC, together with the Wall Street Journal, Wednesday evening.
Hongkong, scoring 89.7, beat its rival Singapore (scoring 86.1), and claims the status as the most reliable for investments for 16 consecutive years in the 2010 Index of Economic Freedom.
Indonesia scored 55.5, which puts it into the 'mostly unfree' category. Other countries in this category are, among which, Kenya, Bhutan, Serbia, Morocco, Lebanon, Tanzania, the Philippines, Brazil, Sri Lanka, and Senegal.
Indonesia scored 55.5, which puts it into the 'mostly unfree' category. Other countries in this category are, among which, Kenya, Bhutan, Serbia, Morocco, Lebanon, Tanzania, the Philippines, Brazil, Sri Lanka, and Senegal.
From the aspect of business freedom, Indonesia scored 53.1. To start a business in Indonesia the process takes more than 35 days, and to obtain a business permit it takes more than 18 days; both periods are longer compared to most other countries'. And to close a business in Indonesia also takes time and money.
As for the freedom of trade, Indonesia's score is 77.9. The averate tariff in Indonesia is 3.6 percent since 2007. There are restrictions and bans on import and export, market access is hampered, regulations are not transparent, and even the customs tends to be corrupt - those negative considerations ad to the cost of trading in Indonesia.
For fiscal freedom, Indonesia's score is 81.9. Indonesia has reduced taxation to a moderate level as part of the fiscal reform. Income tax at the highest is 30 percent, which has gone down from the previous 35 percent. Corporate tax at the highest is 28 percent, which has been reduced from 30 percent. For the previous year, taxation income in total compared with the Gross domestic product is 11.3 percent.
Top 10 countries in the index are: Hongkong, Singapore, Australia, New Zealand, Ireland, Switzerland, Canada, the US, Denmark, and Chile.
And here is a recap of Indonesia's scores:
- Business Freedom 53.1
- Investment Freedom 35.0
- Trade Freedom 77.9
- Financial Freedom 40.0
- Fiscal Freedom 81.9
- Government Spending 89.1
- Monetary Freedom 70.8
- Property Rights 30.0
- Freedom from Corruption 26.0
- Labor Freedom 50.8
(Femi Adi Soempeno /Kontan/C17-09)
Reuters, Fri Jan 15, 2010 6:47am EST
BERLIN (Reuters) - The world will likely continue to live with ripple effects from the financial crisis for years, World Bank President Robert Zoellick said on Friday.
Speaking at a news conference in Berlin, Zoellick said the World Bank estimated that a further 64 million people would fall into extreme poverty between 2009 and 2010 as a result of the crisis.
"We continue to see negative fallout from the economic crisis," Zoellick told a news conference in Berlin.
"For developed countries, it is a matter of jobs and economic growth. For too many poor countries, it is the searing pain of millions going hungry, getting sick, with the impact being felt on a generation of children for many years."
Zoellick said the private sector would need to play a bigger role as government stimulus measures fade.
"As stimulus measures fade, we will need a hand off to private economy," he said.
He added that it was in the interests of developed nations to help the emerging economies out of the crisis, as they could be a source of growth.
"Interconnectedness is a key factor of today's economic world. Helping the developing world through these rough times is in all of our interests," he said.
"We hope developing countries can also become an important source of growth in the global economy, which will be very important for Germany as an export nation."
(Reporting by Sarah Marsh)