Indonesia to focus on internal restructure for improvement of investment climate

BKPM chief Thomas Lembong believes the most effective promotion can be carried out by existing investors, which have first-hand experience in the country.
“If we address our ‘internal work’, they can add their investment and also invite their suppliers to come here,” he said on Monday. 
“That’s why we need to improve ourselves.”
Among the major issues the board expects to address are constantly changing regulations, burdensome taxes, lack of skilled labour, land zoning, permits and poor infrastructure.
On the tax issue, for instance, the board, in coordination with institutions, has tried to shift various taxes from manufacturing to the service sector, as they threatened to stifle its growth.
Around 70 per cent of the country’s tax income comes from manufacturing, followed by 20 per cent from the financial industry and the rest from other industries.
Even with that tax burden, the government has set a target to boost manufacturing 8.4 per cent by 2019 after five years of 4-per-cent annual growth, well below overall economic growth.
Once the country’s backbone, manufacturing has struggled to perform because of issues faced by businesses, including high energy prices, poor infrastructure and high logistics costs.
The industry expanded only 4.29 per cent last year, lower than economic growth of 5.02 per cent, while its contribution to gross domestic product (GDP) was only 20.5 per cent. 
Both indicators are lower than those seen during the heyday prior to the 1997-98 economic crisis when manufacturing outpaced economic growth and gave nearly 30 per cent to GDP.
This dwindling share of manufacturing to GDP has led to what some economists describe as deindustrialisation.
Lembong suggested that effort was needed to improve the quality of human resources, as the local labour force mostly comprised unskilled workers.
“There is a dire need for ‘quicker solutions’, and we can achieve that by developing the workforce’s technical skills by improving vocational education,” he said.

Inclusion of more expats 
The workforce could also benefit from the inclusion of more expats, which Lembong said had sparked a “nonsensical” fear of having foreign workers taking local jobs. 
Only 0.1 per cent of expat workers make up the workforce.
“It must be clear that foreign workers are not a threat to local jobs. 
“A mental revolution needs to take place, especially among the public and in the political environment,” he said.
Centre of Reform on Economics Indonesia executive director Mohammad Faisal said the most urgent of the five problems listed by the BKPM were ever-changing regulations and zoning permits,| as foreign investors often struggled with even trying to figure out |who was in charge of certain aspects.
This was especially true at the regional level, where regional governments tended to lack assistance or even to pass the project to the central government.
“It’s often seen that regional governments are not on the same page as the central government or even the investors themselves. 
“There is a lack of coordination, especially in areas where the governing system is not well developed, let’s say, those outside Java,” he said.
Other problems, such as infrastructure quality, are deemed fixable as long as there is steady funding and commitment.