h1

Investor Briefing on Southeast Asia’s New Expanded Special Economic Zone (Riau Islands & Indonesia)

Tuesday 11 November, 2008

I attended this breakfast briefing @ Baker & McKenzie’s offices the morning of Halloween.

The Indonesian ambassador to the US said:
-900 foreign companies are have located in these Special Economic Zones (SEZ’s)
-the US is their 2nd largest export destination
-the local stock market & currency have suffered commensurately with the recent financial crisis along with cutbacks in infrastructure investment.  In response, the government is increasing bank deposit insurance & lowering foreign currency reserves.

The President of the American Indonesian Chamber of Commerce commented:
-Indonesia is the largest least known democracy with 6% growth
-prominent exports are rubber, coffee, & spices
-these SEZ’s are inextricably linked with Singapore, (rather than Jakarta), with which they have a Free Trade Agreement
-it now takes only 4 days to establish a business
-McDermott is touted as a great example of an American company which has had great success on Batam Island

An attorney from Baker McKenzie informed us:
-although the license fee time has been reduced from 151 to 23 days, it still takes 90 days to set up a company, which is a 2-step process  1.  get license 1st 2.  then set up  There is a “negative” list which determines whether you can set up as a restricted or unrestricted business, & whether you can be 100% foreign-owned or need to take on a foreign partner
-the new investment law is still a work-in-progress
-the corporate tax has been reduced from 30% to 28% for 2009, & will go down to 25% in 2010
-big companies wanted 100% ownership to ensure intellectual property protection
-labor law is a big issue with the highest severance costs in SE Asia & a controversy with contract workers
-remaining issues are bureaucracy, corruption, & sanctity of contracts.

A representative of Karta International talked about the opportunities for his aviation services & logistics company, which acts as a nearshore outsourcing destination for the Singapore airport.

Richard Begosi, an investor in Indonesia for 35 years, spoke about his experience in finance in Indonesia with these suggestions:
-it’s an art & science doing business in Asia-be patient
-think long term, i.e. 10-15 years & ride waves up & down
-the right local partner with due diligence is mandatory-100% foreign-owned is naive, failures are due to bad planning & partner choices
-achieve trust
-speak softly
-bring in the lawyers last simply to document
-recognize nationalism can be a force for good & not is not necessarily an enemy
-patience & fear are ingredients for success

The governor of Batam Island’s province provided the most details:
-the island is #2 in tourism behind Bali
-there are 10 big American companies there, such as Perkin Elmer, Seagate, Bechtel, …
-the province received $10B in investment last year & has 350,000 workers with 4,000 ex-pats

Q&A:

-relations with India are good
-religion is no problem
-Batam changed 5 years ago with 22 industrial parks
-relations are closer with Singapore than Jakarta because the province was part of Singapore’s earlier sultanate, schools are run by Singaporeans, etc.
-multiethnic workers come from all over Indonesia to work in the province
-Indonesian banks are behind those of the Middle East
-20% of electronics exports go to the US
-personal income is $6000/year
-Karta develops skills locally & saves 30-40%  by working on Batam Island
-literacy level is 87-90%
-there are no restrictions on capital & foreign exchange

To access foreign investment laws & regulations go to the embassy of Indonesia

Click here for more information on these provinces (I couldn’t find a link to English)

I actually visited Batam Island a few years ago when I was in Singapore for a LISA localization conference. At that time, the ferry terminal was quite spartan, the roads were pretty rough, there didn’t seem to be a lot of businesses in the areas I saw.  I rented a scooter & motored around the island a little bit, but can’t say that I saw the whole island.  It appears as if it’s been quite built up since I was there.  It’s great that this area has done well the past 10-15 years, but that’s not exactly a long track record just yet.  Things look good there, but there still is a fair amount of risk associated with setting up in a place like this.  If you’re looking to expand in this part of the world, & this is where a lot of the growth is, there are a lot of advantages to being a short ride away from Singapore.

batam island, indonesia

batam island, indonesia

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: