MARKET DEVELOPMENT
Discourse: Plenty to Do to Attract High-potential Korean Investments
Discourse: Plenty to Do to Attract High-potential Korean Investments
07/10/2014 (Jakarta Post) - As foreign investment from South Korea to Indonesia has risen in the past few years, bilateral economic relations between the two countries have reached new heights. However, a comprehensive economic partnership agreement (CEPA), which is expected to strengthen ties, will not be signed anytime soon due to a recent deadlock in negotiations. The Jakarta Post’s Linda Yulisman recently spoke with Indonesian Ambassador to South Korea John A. Prasetio in Seoul about the outlook for trade and investment in the near future. Below is an excerpt from the interview.
Question: A few years ago, Indonesia set a target to achieve US$50 billion in bilateral trade with South Korea by 2015. However, as of last year, total trade was still only half the target. How do you see the outlook?
Answer: I think we cannot meet that target by next year, particularly as we haven’t sealed the comprehensive economic partnership agreement (CEPA) with Korea, which was expected to generate trade through investment.
As an illustration, with Korean companies running textile factories in Jakarta, Korea buys US$70 million to $90 million worth of textiles from Indonesia each year. The more factories Korea sets up in Indonesia, the more it will buy from Indonesia.
In the absence of the CEPA, is there any plan to revise the target?
I don’t think we will revise the target. Rather, let’s view that target as an aspirational one.
Indonesia has also changed its policy regarding mineral resources and that affects what we can sell overseas. Let’s say we now sell $15 billion worth of goods and commodities to Korea per year and to create balanced trade, we need to deliver around $10 billion more.
Selling tea or coffee will not significantly help achieve the figure, but rubber or palm oil may. However, we certainly need manufactured goods, such as petrochemicals, and this can happen if Korean firms like Honam invest in Indonesia.
Actually, Korea still offers us enormous opportunities in trade. Korea’s overall international trade exceeds $1.1 trillion each year, while its surplus is less than $50 billion, meaning their exports amount to around $580 billion, while imports are approximately $530 billion.
How big is Indonesia’s portion of its imports?
Unfortunately, it’s still very small. Indonesia’s coal shipments to Korea only represent 20 percent of its overall coal purchases, half of which are sourced from Australia. Our palm oil shipments to the country are also relatively insignificant compared to Malaysia, which supplies around 87 percent of Korea’s demand. The point is whether we want to boost shipments of these commodities to Korea.
In terms of manufactured goods, I think opportunities are also robust; for instance, textiles and food products, but the Korean market is very competitive. The key to winning the market may be through becoming a production base for Korean producers and this means we have to attract investment from Korea.
How do you assess the appetite of Korean investors to pour investment into Indonesia? And what are the main obstacles to realizing that?
The interests of Korean firms to invest in Indonesia are still high. Many companies, not limited to the big players but also mid-sized ones, across all sectors in which Korea has expertise such as petrochemicals
and textiles, want to invest in Indonesia.
However, most often the obstacles exist on the Indonesian side, not the Korean side. As the saying goes, “it takes two to tango,” and in this case, it is Indonesia that needs to address the issues.
One of the biggest hurdles for Korean investment, which may apply to other foreign investments as well, has been land acquisition. Major petrochemical producer Honam Petrochemicals, for instance, has seen their project delayed for several years due to land issues.
Three years ago, some Korean investors also planned to start an agricultural project, working from the upstream to downstream side of food production, which required 1,000 hectares of land to execute the plan. However, up to now the plan has not been realized, as the firms have been unable to obtain the land they need.
While investors struggle to access land in Indonesia, other countries in the region may come up with better facilitation, and this is something we have to take into account.
We can see what has happened with China. In the past, foreign investors did not want to channel their investment into China, but then conditions totally changed. A lot of investors have since targeted China as the prime destination for their investments.
[China] revised regulations and created a more conducive investment climate. So, sometimes we need higher sensitivity to calculate our strengths and weaknesses. It depends again on whether we want to become a winner in attracting investment, especially given the tight competition nowadays.
Is there any other issue that still hampers the bilateral economic partnership between Indonesia and Korea?
I think Indonesian and Korean businesspeople are still not familiar with one another. That compares to our solid business relations with Japan, for example. In my view, Indonesia should look at its economic partnership with Korea as being similar in importance with Japan. Korea is not our rival, it has in fact more complementarities with us. The problem now lies in how to synergize our bilateral economic cooperation.
Question: A few years ago, Indonesia set a target to achieve US$50 billion in bilateral trade with South Korea by 2015. However, as of last year, total trade was still only half the target. How do you see the outlook?
Answer: I think we cannot meet that target by next year, particularly as we haven’t sealed the comprehensive economic partnership agreement (CEPA) with Korea, which was expected to generate trade through investment.
As an illustration, with Korean companies running textile factories in Jakarta, Korea buys US$70 million to $90 million worth of textiles from Indonesia each year. The more factories Korea sets up in Indonesia, the more it will buy from Indonesia.
In the absence of the CEPA, is there any plan to revise the target?
I don’t think we will revise the target. Rather, let’s view that target as an aspirational one.
Indonesia has also changed its policy regarding mineral resources and that affects what we can sell overseas. Let’s say we now sell $15 billion worth of goods and commodities to Korea per year and to create balanced trade, we need to deliver around $10 billion more.
Selling tea or coffee will not significantly help achieve the figure, but rubber or palm oil may. However, we certainly need manufactured goods, such as petrochemicals, and this can happen if Korean firms like Honam invest in Indonesia.
Actually, Korea still offers us enormous opportunities in trade. Korea’s overall international trade exceeds $1.1 trillion each year, while its surplus is less than $50 billion, meaning their exports amount to around $580 billion, while imports are approximately $530 billion.
How big is Indonesia’s portion of its imports?
Unfortunately, it’s still very small. Indonesia’s coal shipments to Korea only represent 20 percent of its overall coal purchases, half of which are sourced from Australia. Our palm oil shipments to the country are also relatively insignificant compared to Malaysia, which supplies around 87 percent of Korea’s demand. The point is whether we want to boost shipments of these commodities to Korea.
In terms of manufactured goods, I think opportunities are also robust; for instance, textiles and food products, but the Korean market is very competitive. The key to winning the market may be through becoming a production base for Korean producers and this means we have to attract investment from Korea.
How do you assess the appetite of Korean investors to pour investment into Indonesia? And what are the main obstacles to realizing that?
The interests of Korean firms to invest in Indonesia are still high. Many companies, not limited to the big players but also mid-sized ones, across all sectors in which Korea has expertise such as petrochemicals
and textiles, want to invest in Indonesia.
However, most often the obstacles exist on the Indonesian side, not the Korean side. As the saying goes, “it takes two to tango,” and in this case, it is Indonesia that needs to address the issues.
One of the biggest hurdles for Korean investment, which may apply to other foreign investments as well, has been land acquisition. Major petrochemical producer Honam Petrochemicals, for instance, has seen their project delayed for several years due to land issues.
Three years ago, some Korean investors also planned to start an agricultural project, working from the upstream to downstream side of food production, which required 1,000 hectares of land to execute the plan. However, up to now the plan has not been realized, as the firms have been unable to obtain the land they need.
While investors struggle to access land in Indonesia, other countries in the region may come up with better facilitation, and this is something we have to take into account.
We can see what has happened with China. In the past, foreign investors did not want to channel their investment into China, but then conditions totally changed. A lot of investors have since targeted China as the prime destination for their investments.
[China] revised regulations and created a more conducive investment climate. So, sometimes we need higher sensitivity to calculate our strengths and weaknesses. It depends again on whether we want to become a winner in attracting investment, especially given the tight competition nowadays.
Is there any other issue that still hampers the bilateral economic partnership between Indonesia and Korea?
I think Indonesian and Korean businesspeople are still not familiar with one another. That compares to our solid business relations with Japan, for example. In my view, Indonesia should look at its economic partnership with Korea as being similar in importance with Japan. Korea is not our rival, it has in fact more complementarities with us. The problem now lies in how to synergize our bilateral economic cooperation.