Indonesian Minister of Finance .Bambang Brodjonegoro

23/03/2015 (The Star) - Indonesia’s Finance Minister Bambang Brodjonegoro (pic) is banking on bold policy reforms to attract fresh capital investment from overseas, as President Joko Widodo seeks to wean the country off reliance on primary commodity exports.

The country is seeking to build the under-developed manufacturing sector and creaking infrastructures.

But for Malaysian companies eager to sell goods to Indonesia’ rapidly growing middle-class, the “love-hate” relationship between the two neighbouring countries seems to add to the complexity of doing business there.

A political uproar in Indonesia over a preliminary agreement between Proton Holdings Bhd and a local partner highlighted one of the challenges faced by Malaysian investors in trying to break into South-East Asia’s biggest domestic market.

“The automotive sector is one area where we think there is an opportunity not just for the domestic market, but also because of its exports potential,” Bambang told a group of Malaysian journalists last Friday during the inaugural Asean Finance Ministers and Central Bank Governors Meeting in Kuala Lumpur.

“President Jokowi (as he is popularly known) is looking for an Asean product and he is willing to try all possibilities,” he said.

The signing of the memorandum of understanding between Proton and PT Adiperkasa Citra Lestari, which was witnessed by Jokowi, laid out the groundwork to explore a possible collaboration on a car project. It still has a long way to go and a definitive agreement will only be signed after a study by the two parties on the project is concluded.

Proton is a small player in the Indonesian car market that is dominated by Japanese brands which accounted for more than 90% of the total 1.2 million cars sold last year.

The country is now the biggest car market in South-East Asia ahead of Thailand, but years of under-investment in building its roads and other critical infrastructure had led to a massive gridlock in major cities including Jakarta.

Bambang estimated that Indonesia would need 5,000 trillion rupiah (US$400bil) over the next five years to build new highways, rail network, seaports and power plants.

The recent moves by the Goverment to cut fuel subsidies had free up more cash for infrastructure development, although the World Bank said Indonesia’s revenue targets were over-ambitious and spending plans might need to be adjusted.

Bambang said state-owned enterprises would also foot some of the infrastructure-spending bill, but more than half of the infrastructure development expenditure would need to come from the private sector and foreign sources.

“We welcome Malaysian investments in our infrastructure development programmes,’’ Bambang said, adding that Indonesia needed to build up power plant capacities to fuel its growing economy.

Japan and Asean countries are major sources of foreign direct investment into Indonesia.

Malaysian companies including Sime Darby Bhd, Kuala Lumpur Kepong Bhd and Felda Global Ventures Bhd, own large tracts of plantation land in Indonesia but have relatively small downstream operations there beyond palm oil refining facilities. Malaysia’s biggest banks, Malayan Banking Bhd and CIMB Group Holdings Bhd derives substantial portion of their income from businesses in Indonesia.

“We want to encourage Malaysian companies to invest in our manufacturing sector…to expand their investments into downstream activities and produce value-added products,’’ Bambang said.

He also said there were many opportunities for downstream investment in the country’s oil and gas sector.

A recent policy reform like the streamlining of business licensing under a one-stop centre will help speed up investment into the country, but Indonesia has many improvements to make, particularly in its business infrastructure, to successfully build its industrial sector.