Non-Governmental institution of Northern California, United Stated, Overseas Think Tank for Indonesia (OTTI), considers that Indonesia’s economy is low in innovation. Foreign investment in manufacturing industry could no longer rely on cheap labor. Innovation, including the application of standardization system on social accountability and audit is very important. Because foreign investors could easily leave Indonesia. And, it could also be caused by worker demonstration. The reason is because we did not have competitive advantage in addition to cheap labor, Beny Belvy, founder of OTTI, told Business News (11/6).
So far, Indonesia’s economy has been supported by natural resources, including mining and plantation sectors. But, the government has also applied various regulations which is basically to restrict export. Mining products, CPO, and other commodities are sensitive to international trade transactions.
As a comparison, transactional processes between foreign investors and the government of Michigan State, United state frequently occur. A couple of times ago, foreign manufactures were ready to leave Michigan. The Michigan governor openly field a tax break proposal to investors. Tax break is expected to prevent investors from leaving Michigan. The tax in Michigan was up to 38 percent at the time. But, the proposal offered a tax holiday for a certain period of time. The governor assured that there are no other states who dare to file a tax break proposal. But, investors rejected it. The reason is that based on smart calculation, tax break cover cost of operation which continually for manufacturing operation in Michigan. Worker’s wage in Michigan is at least USD 25 per hour. Tax break cannot cover the high wage of factory worker in Michigan. This is an example how the government must have a competitive advantage in additional to taxes and laborer.
An innovation that could be applied is registration for SA800 certification. Companies could benefit by applying standardization system on social accountability and audit. The first system in the world is increasingly liked by many overseas companies. Up to last year, there were only around 10 Indonesian companies awarded with SA800 certification. SAI is an institution issuing the certification, and this institution consists of some certification institutions from various countries, including Germany, Italy, and other. Indonesia has a capacity to participate. Fortunately, I am one of the auditors of SA800. SAI assessed me from the frequency of activeness in various business forums which are related to social accountability.
OTTI continually opens opportunity for Indonesian companies to obtain the certification. But, the problem is that OTTI and SAI have not found a channel to help certification arrangement. While, in other countries, for example, Spain, has received approval from its government. Even, the Spanish government gives subsidies to stimulate their national private companies to take part in the certification program. If this happens to Indonesia, performance of some ministries could be accelerated. Our export could increase which will finally absorb more workers.
The Investment Coordinating Board (BKPM) sees that there is a big problem in the application of Regulation of Trade Minister No. 29/M-DAG/PER/5/2012 on Provisions on Export of Mining Products. One of the most critical points is investment for smelter construction at around USD 2 billion. This amount of investment could not guarantee on investment (Rol) in two years. Smelter construction must be accompanied with factory construction. Investment return is at least in two year production period. Calculation of Rol varies, depending on company’s management. With a USD 2 billion investment, sales value in seven years reaches USD 2 billion. Sales value could reach investment return in seven years. But, investor could do divestment when sales value reaches around USD 300 million. Because investor is unsure about company’s operational sustainability, so they take divestment option.
Investor will not bear more risk, and they divested all company’s assets. We held a discussion with the Ministry of Energy and Mineral Resources. Regulation on restriction of mining product export must be implemented within a long timeframe because it is difficult to find investors who want to build smelter. The solution is time extension for investors to build smelter and factory. Gradually, factory’s operation will continue. But, the time frame is not too tight, Chatib Basri, Head of BKPM, to Business News (11/6).
Business News - November 9, 2012