Some foreign investors pulling out of Riau islands

The Straits Times, March 7, 2007
By Salim Osman, INDONESIA CORRESPONDENT


Some foreign investors pulling out of Riau islands
They blame poor regulations and business climate in Batam and Bintan

JAKARTA - FOREIGN investors are pulling out of the Riau islands after complaining about the lack of clear regulations and the poor business climate in Batam and Bintan.

The two islands will be part of a Special Economic Zone (SEZ) that Indonesia is promoting.

Six investors, all Singaporeans, had told their Indonesian counterparts that they planned to leave Batam in the next six months, while another Singaporean company and an Italy-based company had closed shop in Bintan.

All of them reportedly cited labour problems and legal uncertainties about the future of their business as reasons for leaving.

The six Singaporean investors in Batam had told the chairman of the Indonesian Chamber of Commerce and Industry (Kadin), Mr Mohamed Sulaiman Hidayat, that they planned to move to Malaysia and Vietnam.

'Malaysia came to know about Indonesia's plans to join forces with Singapore to promote our Special Economic Zone, and it offered better incentives that won over the confidence of these (Singaporean) investors,' Mr Hidayat said in a statement published on the chamber's website.

The Singaporean investors in Batam, who are mainly in the electronics sector, had told the chamber that the rules and regulations in Batam were becoming more complex, and that the cost of doing business was shooting up.

They had also complained about having to deal with two authorities, namely the Batam Authority and the Batam Municipality.

Investors were also confused over the package of incentives the government said it would offer under the SEZ scheme.

Mr Hidayat declined to provide details on the investors and how much investment each had in Batam.

But he noted that over the past two years, at least 12 foreign companies had pulled out of Batam after their foreign investment permits were cancelled by the Batam Authority.

One of them was Livatech Elecktronic Indonesia, which left after complaining of the poor business climate in Batam. It relocated to Shenzhen, China.

Kadin wrote to President Susilo Bambang Yudhohyono last month and urged him to step in to resolve the problem.

It also told Dr Yudhoyono that businessmen in Batam had to contend with problems of thugs and illegal levies imposed by officials.

Meanwhile, the managing director of Bintan's Lobam Industrial Area, Mr Jamin Hidayat, said that two companies, Pacific Garment from Singapore and Italian-based Nordec, an electrical lighting factory, had left the island, leaving a total of 1,000 workers jobless.

Both companies had complained about problems such as difficulties in hiring and firing workers, and legal uncertainties.

'We have tried our best to prevent them from leaving, but government policies, such as those on labour issues, have caused them problems in running their businesses,' he told the Jakarta Post.

Of the 30 foreign investors registered as tenants in Bintan's Lobam Industrial Area, at least six are set to end operations this year.

'The government has issued regulations that have often caused difficulties for investors to estimate production costs, which will then have a strong impact on their competitiveness in the international market,' said Mr Jamin.

Indonesia is working with Singapore to promote Batam, Bintan and Karimun in the Riau islands as a Special Economic Zone.

Despite the difficulties, Mr Jamin was optimistic that the islands' business environment could be improved if the government could be consistent in implementing its regulations.